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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, 1998
[DAVIS FUNDS LOGO]
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DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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Dear Shareholder:
MARKET OVERVIEW
Earnings are the lifeblood of the market and the reason why, over generations,
stocks tend to do better than bonds.1 This concept can be clearly illustrated
if you think in terms of your son's or daughter's earning power. Let's say you
have this choice: You could receive 1% of your child's first-year salary after
college, fixed at that level every year for the next 30 years. Or you could
receive 1% of whatever your child's salary turns out to be in each of the next
30 years.
In the first case, your dollar return would be the same for 30 years, which is
equivalent to the fixed-coupon return from a bond. In the second case, your
dollar return would vary with earning power, which is equivalent to the
variable return of a stock. So the level of salary or earnings going forward is
critical. If you believe your son's or daughter's income stream will expand
over 30 years, you would be better off with the second choice, just as you
would be better off investing in the stock of a company whose earnings grow
over the next three decades than in a fixed-return investment like a bond.
If you are going to invest successfully in stocks, you have to think in terms
of the future. You can't just research the past and expect that will help you
too much in understanding the future. Life is always changing, and companies
are always changing, which is why we are continually researching projected
long-term earnings trends.
Today, we are at a point where there are large crosscurrents in the earnings
picture, at least for the near term. Corporate earnings are being hurt by the
General Motors strike, the deepening Asian crisis, the fiercely competitive
business environment, a lack of pricing power, and currency translation
problems related to the strengthening U.S. dollar.
In addition to these negatives, earnings are being overstated by the use of
aggressive accounting practices. These include taking up-front write-offs for
restructuring charges that may mask ongoing business problems, as well as the
extensive use of stock options, which tends to understate the real compensation
costs of a business.
Given this uncertain earnings outlook, we anticipate a choppy market
environment, where individual stocks will understandably react to strength or
weakness in earnings reports. Furthermore, it seems that more earnings reports
are coming in below earlier estimates, indicating a loss of momentum in
earnings trends. As a result, we expect there will be a loss of momentum in the
stock market.
The best case scenario, in our view, would be a sort of stealth correction or a
rotational adjustment in which prices of individual stocks or industry groups
are corrected based on disappointing earnings results. But there is always the
possibility that we will have a broader correction because valuation levels are
historically high and priced for a good economic outlook in terms of inflation,
interest rates and earnings.
Such an environment, or course, creates not only risk but opportunity if the
market overreacts and punishes stocks too harshly for short-term earnings
disappointments. As long-term investors, we don't use the latest quarterly
earnings as the only benchmark for valuing a stock. Instead, we try to develop
a normalized growth trend for earnings power that disregards short-term peaks
and valleys. Our objective is to find companies with growing normalized
earnings that are selling at reasonable prices.
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DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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We've said before that investors should lower their expectations and that the
market is overdue for a correction. But we don't think we're at the end of the
game. The best approach is to take advantage of volatility through dollar cost
averaging2, rather than plunging in and out of the market, and to stay aboard
for the long voyage because the earning power of companies--like the earning
power of college graduates--tends to grow over decades.
Sincerely,
/s/ Shelby M.C. Davis
- ------------------------
Shelby M.C. Davis
Chief Investment Officer
August 17, 1998
2
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DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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MANAGEMENT'S DISCUSSION AND ANALYSIS
DAVIS FINANCIAL FUND
PERFORMANCE OVERVIEW
o The Davis Financial Fund was our best-performing fund for the latest
six-month, one-year, three-year and five-year periods.3
o The fund's Class A shares delivered a total return on net asset value of
13.08% for the six-month period, 33.93% for the one-year period and 26.80%
for the five-year period ended June 30, 1998. By way of comparison, the
funds included in Lipper Analytical Services' financial services funds
category delivered average returns of 12.05%, 35.16% and 25.79% for the
latest six-month, one-year and five-year periods, respectively.4
o Morningstar has awarded the fund's Class A shares its highest *****
(five-star) rating overall and for the latest three- and five-year periods.5
o According to Morningstar, "Davis Financial Fund's careful approach has made
it one of the standouts of its peer group. Co-managers Ken Feinberg and
Chris Davis have a long checklist of quantitative and qualitative factors
that they use to select investments....To mitigate risk...Feinberg and Davis
have kept this fund highly diversified by financials fund
standards....making its risk/reward profile one of the category's best.
Recently, though Feinberg and Davis have begun to rebuild their stake in
financials stocks....The main driver of their increased financials
exposure...has been an enlarged stake in bank stocks....So far, the timing
of this increased attention to bank stocks looks impeccable....The
co-managers' moves have made this fund an even more compelling option in
this category."6
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS
Q. To what do you attribute the fund's performance so far this year?
A. The environment for financial stocks continues to be very favorable. The
economy has cooperated by growing at a pace healthy enough to fuel rising
profits but not fast enough to re-ignite inflation and trigger monetary
tightening from the Federal Reserve. Loan losses at many of our bank and
consumer finance holdings remain stable, reflecting the unparalleled strength
of corporate America's balance sheet and increasing discretionary income at the
consumer level due to record low unemployment and lower mortgage rates. Some of
the fund's best performing large positions include Citicorp, BankAmerica,
American Express, Providian and McDonald's.7
Q. Could you discuss the recent wave of consolidation in financial services?
A. Consolidation in the financial services sector has been nothing short of
breathtaking this year. While this trend may slow as the year progresses and
companies look inward to address the Year 2000 problem, we still expect
considerable merger activity on a global basis. The deregulation of financial
services both in the United States and internationally is driving corporations
to seek marriage partners--resulting in the creation of huge companies with
global breadth, broad product coverage and tremendous financial strength that
can better absorb potential shocks such as those now occurring in Asia.
3
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DAVIS SERIES, INC.
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, PORTFOLIO
MANAGERS-CONTINUED
Mergers are also being fueled as companies race to acquire customers, expand
distribution capabilities and leverage relationships by selling additional new
products through improved utilization of technology and data-mining. Another
powerful force is the vast efficiencies and economies of scale that are created
when two large companies come together and, in particular, are able to spread
ever-rising technology costs over a significantly larger customer base.
Executing mergers and integrating two different corporate cultures are always
challenging tasks. But even so, the substantial advantages that financial
strength and scale provide, coupled with the still very fragmented nature of
the financial services industry and potential regulatory reform, should
stimulate significant further consolidation.
Q. How has this recent consolidation trend impacted the fund?
A. Dramatically. In fact, five of the fund's seven largest holdings were
involved in mergers during the first six months--Citicorp, BankAmerica, Wells
Fargo, General Re and Household International. We remain quite positive about
all these combinations and have even taken advantage of occasional share price
weakness to materially increase our holdings in almost all these companies.
Q. What are some of your favorite companies today?
A. We continue to favor companies with outstanding, shareholder-friendly
management, unimpeachable financial strength and powerful franchises. We would
place American Express and the soon-to-be-merging Citicorp/Travelers
(Citigroup), BankAmerica/NationsBank and Wells Fargo/Norwest at the top of the
list.7
American Express and Citigroup are both extremely well-positioned with valuable
upscale brands and the global infrastructure necessary to capitalize on the
faster growth of economies and financial services products expected outside the
United States over the next few decades. BankAmerica/NationsBank and Wells
Fargo/Norwest will have leading market shares in the fastest-growing regions of
the United States and that, along with significant anticipated cost savings,
should produce accelerating earnings growth going forward. All four of these
companies have outstanding management teams with vision and financial
discipline, excellent returns on equity, strong balance sheets and generate
significant excess cash that can be used to increase long-term shareholder
wealth.
Q. What is your outlook for financial stocks?
A. Financial services stocks have been outstanding investments over the past
seven years on both an absolute basis as well as relative to the S&P 500.8 The
obvious question is, just how long can this continue? Price/earnings multiples
for the group have indeed risen and investor expectations after so much success
are undoubtedly running particularly high. In the short term, these stocks
could become more volatile and vulnerable to any earnings disappointments or
swings in investor sentiment.
4
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DAVIS SERIES, INC.
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, PORTFOLIO
MANAGERS-CONTINUED
o Powerful demographic trends that should lead to higher savings rates and
improving demand for financial products around the world;
o The deregulation of huge markets in Europe and Asia that will open up and
provide great growth opportunities for U.S. companies;
o Tremendous consolidation within financial services industries that should
result in improving profit margins for surviving companies;
o The emergence of powerful brand-name companies that should increasingly gain
market share from weaker competitors and that could receive higher
price/earnings multiples going forward; and
o Strong free cash flow that can be used to increase value for shareholders
through share repurchases, acquisitions and higher dividends.
We continue to be extremely excited that many of our favorite, world-class
financial institutions with established franchises and outstanding management
can still be purchased at a 33% discount to the S&P multiple, despite having
faster long-term earnings growth opportunities. Our enthusiasm about being a
financial services sector fund is perhaps best captured with a quote from Mae
West who once said, "Too much of a good thing is wonderful."
DAVIS REAL ESTATE FUND
PERFORMANCE OVERVIEW
o The Davis Real Estate Fund (Class A shares at net asset value) produced a
return of -5.87% for the six-month period and +7.82% for the one-year period
ended June 30, 1998.3 Over the same time periods, the Morgan Stanley REIT
(Real Estate Investment Trust) Index provided returns of -5.08% and +7.03%,
respectively.8
o According to Morningstar, "Overall, this fund has been one of the
real-estate category's more reliable options. Its cash positions have made
it far less volatile than most, but Davis' stock-picking has also generated
superb returns. The fund continues to be one of the better offerings in the
group."9
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER
Q. What are the reasons for the fund's performance?
A. Real estate stocks have been one of the worst-performing market sectors this
year. While there are a few reasons for concern, the vast majority of evidence
leads us to believe that this weakness has been caused by short-term momentum
players getting out of the game as they have realized that the recovery in real
estate has been accomplished and that the industry is now in equilibrium. These
investors are fearful that we are entering another era of overbuilding and
over-development like the industry experienced in the mid-1980s and that this
will lead to another depression like the industry suffered in the late 1980s
and early 1990s.
5
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DAVIS SERIES, INC.
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-CONTINUED
But what we see couldn't be further from this extreme. We see a group of
companies that should grow earnings in 1998 and 1999 faster than the S&P 500,
that are valued at historically low multiples particularly relative to the S&P
500 and that offer yields some 400 basis points in excess of the S&P 500
yield.8
While the days of 30% returns on real estate are over, we expect returns in the
low double digits--and that's what we have been able to deliver in everything
except stock price performance so far this year. First quarter earnings results
for the companies we own were up 18%, on average, and second quarter earnings
should be up at least 13%, but the stocks have dropped. To us that says many
investors expect future earnings to plunge, but we don't. Granted, earnings
growth will have to slow from the exceptionally high levels of recent years.
But, looking ahead, we still anticipate earnings growth of 6% to 8% plus a
dividend yield of 6%, which gives you around a 12% total return assuming
multiples hold constant.
We don't see any major downside risk from where we are now. Meanwhile, we think
we have wonderful earnings to enjoy from our portfolio companies for the next
two years at least, if not longer. At some point, other investors will
recognize that value and the stocks' prices will reflect their earnings
performance.
Q. What have you done to take advantage of what you believe is a temporary drop
in valuations?
A. In this environment, quality companies have suffered along with mediocre
ones, and many excellent companies like Vornado, Centerpoint, Rouse, JDN and
Home Properties--to name just a few of our top picks--have traded off
dramatically.7 We have sold companies that we consider more marginaL because we
can trade up to much higher quality companies now for no increase in price. The
number of holdings in the portfolio has decreased as we concentrated
investments on such first-rate companies.
Stock selection is imperative now that real estate markets have recovered.
Rather than over-weighting particular sectors of the real estate arena, the
fund is focused on finding attractive stocks across various real estate
sectors. We look for companies with solid operating businesses and top-notch
management teams who frequently own significant stakes in their companies. As
always, we monitor valuations closely, seeking companies selling at a discount
to their expected cash flow over the next few years. Ultimately, we expect
these quality companies will be accorded premium valuations in the market.
Q. Why should investors own real estate?
A. Real estate is not only the largest asset class in this country, it has
historically been one of the least volatile asset classes and its performance
is not closely correlated with the S&P 500. Given today's high stock prices,
real estate can help to diversify and anchor a well-balanced portfolio.
Moreover, we think the fundamentals are solidly in favor of real estate making
a significant upward move. While we can't predict when that will happen, we are
extremely comfortable adding to our holdings of well-run companies whose true
worth we think will ultimately be recognized.
6
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DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
DAVIS CONVERTIBLE SECURITIES FUND
PERFORMANCE OVERVIEW
o The Davis Convertible Securities Fund's Class A shares delivered a total
return on net asset value of 0.26% for the six-month period and 15.08% for
the one-year period ended June 30, 1998.3 In comparison, the funds included
in Lipper Analytical Services' convertible securities funds category
provided average returns of 5.77% and 14.08% for the latest six-month and
one-year periods, respectively.4
o The fund provided an average annual 22.37% for the three-year period, 15.94%
for the five-year period, and 16.87% since its inception on May 1, 1992
through June 30, 1998. This ranked it #2 among the 37 funds in the Lipper
convertible funds category for the latest three years, #3 among 24 such
funds for the latest five years and #2 among 19 such funds in existence
since the fund's inception date.
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER
Q. What is 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 is to use
convertibles to provide investors with a way to participate in equity market
total returns with a degree of downside protection.
Convertibles 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. How would you characterize the fund's performance this year?
A. The fund's performance has lagged this year because two of our favorite
groups, energy and real estate, have been weak. We intend to maintain our focus
on these groups even though they are currently out of favor and have been
selectively acquiring more companies in these groups because we believe the
valuations are so extraordinary and the long-term fundamentals are quite
attractive.
Furthermore, many of our most successful investments--particularly, securities
issued by companies in the financial services sector--have been called away
from us. As a result, the percentage of the fund's holdings in the financial
area has dropped significantly.
What we have not chosen to do is hop on the bandwagon and pay up for securities
no matter what the price--as many investors seem willing to do today--because
we are very concerned about managing downside risk. While that has hurt our
performance in the short run, we are confident that our strategy of sticking
with the long-term Davis investment discipline is a proven method of building
wealth over time.
7
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DAVIS SERIES, INC.
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-CONTINUED
Q. What's your investment process?
A. We follow a three-step discipline. First, we regularly evaluate more than
500 convertibles according to such factors as their break-even time, call
protection, yield advantage and conversion premium to identify convertibles
that represent good value.
Second, we analyze the investment potential of the underlying companies using
the time-tested Davis investment approach. 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, that security is a candidate
for purchase.
Q. What are some issues you favor now given your current market outlook?
A. Devon Energy has a convertible we like as does Rouse, a real estate
development company. Other significant holdings include Merck, Loral Space &
Communications and General Growth, which is another real estate company.7
We would characterize the current environment as average. On the one hand,
interest rates are very low, based on recent history, which is attractive. But
on the other hand, the stock market is at very lofty levels. All in all, we
think it is a stock-picker's market, which fits perfectly with the Davis
research-oriented investment approach. Moreover, we believe the Davis
Convertible Securities Fund may be an appropriate diversification alternative
for investors seeking a defensive investment well-suited to a variety of market
climates.
DAVIS GROWTH OPPORTUNITY FUND
PERFORMANCE OVERVIEW
o The Davis Growth Opportunity Fund's Class A shares provided a total return
on net asset value of 6.80% for the six-month period and 16.19% for the
one-year period ended June 30, 1998.3
o The fund invests in a blend of small-cap, mid-cap and large-cap stocks. By
way of comparison, over the latest six-month and one-year periods, the
Russell Index of 2000 small company stocks returned 4.93% and 16.79%,
respectively; the S&P 400 MidCap Index returned 8.62% and 27.12%,
respectively; and the S&P 500 Index returned 17.70% and 30.15%,
respectively.8
AN INTERVIEW WITH GRAHAM Y. TANAKA, PORTFOLIO MANAGER
Q. Can you provide some perspective on the performance of the market and your
fund in the first half of 1998?
A. The fund's strategy worked well in the first quarter of 1998 as small- and
mid-cap stocks came back nicely after a difficult fourth quarter in 1997. Then,
in the second quarter, we had another setback due to declining oil
8
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DAVIS SERIES, INC.
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-CONTINUED
prices, renewed concerns about the Asian financial crisis and the preference of
institutional investors for large-cap, blue-chip stocks in the wake of these
uncertainties. The stock groups that were down in the second quarter of 1998
were the same as in the fourth quarter of 1997--namely, semiconductor and
semiconductor equipment stocks, as well as energy and oil services
stocks--although not as badly. We believe this may be the final pause that
refreshes and expect a recovery in these groups going forward as the oil
surplus and the personal computer inventory glut is worked off.
The fund is well-placed to benefit under that scenario, holding leading
companies trading at very cheap prices in very cheap industries that should do
considerably better in the second half of the year. Specifically, we have built
positions in a number of small- and mid-cap stocks, as well as some larger cap
companies, that we believe will grow significantly faster than the averages
over the next 12 to 24 months. While growth rates of large-cap companies may
actually be slowing overall, we think the companies we own can generate annual
growth rates of 15% to 30% over that time frame.
Q. What are some of your favorite holdings in the fund?
A. One of the fund's biggest investments is FIRSTPLUS Financial, a specialty
finance company that focuses on debt-consolidation loans and that we estimate
will enjoy earnings growth of 20% to 30% a year.7 The company is an innovator
in developing new products that benefit consumers and in opening up new markets
that broaden its reach through a strong advertising and distribution program.
The fund also holds a large position in Novellus, which has developed an
advanced copper-based, semiconductor-manufacturing technology that can produce
integrated circuits that are twice as efficient as current technology. We
expect this new technology to be widely embraced by the industry over the next
five to 10 years, resulting in earnings growth of 30% a year or more for the
company.
In the energy area, the fund owns a large position in Anadarko Petroleum. The
company has made several potentially mega-oil-field discoveries overseas, and
we think it can grow its oil and gas production at a rate of approximately 20%
a year over the next five years.
In the health-care sector, the fund owns a little-known, but rapidly expanding
generic drug and drug-delivery technology company, KV Pharmaceutical, which
should grow at over 20% a year. KV Pharmaceutical has developed
state-of-the-art techniques for masking the taste of drugs and accurately
metering their delivery through such forms as tablets and capsules. It is
currently working with several major pharmaceutical companies to deliver
existing approved drugs in better, more palatable forms and is also applying
its technology to generic compounds.
Another stock we've held for quite some time is IHOP, the pancake restaurant
chain. The stock has already tripled in the time that we have held it, and we
expect the company to return to its 15% to 20% compounded annual growth rate
due to an improvement in the competitive environment.
Q. How has your strategy positioned the fund to benefit in the current market
environment?
9
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DAVIS SERIES, INC.
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-CONTINUED
A. Many investors today are shying away from small- and mid-cap stocks,
particularly because of concerns that it may take some time for the Asian
markets to revive. We expect the companies we own to show strong growth in
their own right, even if the recovery in Asia is protracted.
Moreover, we intend to continue employing strategies we have used successfully
in the past few years to help manage risk and optimize returns. For example, to
"keep the portfolio fresh," we replace slow-moving stocks with new ideas that
have the potential for better long-term growth. In addition, we continue to
"work the mine harder" with existing holdings. That is, when stocks we own
spike up, we will sell some of the shares, as we did with Intel and Seitel.
This locks in our gains and protects against downside risk while still
maintaining a long-term position.
The important message for shareholders to keep in mind is that even though the
stock market in general is high, the stocks we own are priced very
attractively. We believe that at some point before this once-in-a-generation,
super-bull market is over, small- and mid-cap stocks will participate fully,
and that provides us with considerable upside potential. In the meantime, all
that the companies have to do is keep their current price/earnings multiples
and they will provide compounded growth rates of 15% to 25% for the fund.
DAVIS GOVERNMENT BOND FUND
PERFORMANCE OVERVIEW
o The Davis Government Bond Fund seeks to provide stable yet competitive
current income consistent with capital preservation by investing in debt
securities guaranteed or issued by the U.S. government or its agencies.10
o The fund's Class A shares generated a total return on net asset value of
2.85% for the six-month period and 8.02% for the one-year period ended June
30, 1998. By way of comparison, Lipper Analytical Services' general U.S.
government fund category provided returns of 3.62% and 10.17%, respectively,
for the latest six-month and one-year periods.4
AN INTERVIEW WITH CAROLYN H. SPOLIDORO, PORTFOLIO MANAGER
Q. What key factors influenced the fund's performance?
A. In the first half of 1998, long-term interest rates came down, but not in a
straight line. During the first two months of the year, interest rates on the
long bond--the 30-year Treasury bond--actually rose and then they stayed the
same, on average, over the next two months. The bond markeT rally only occurred
in the last two months. On the other hand, short-term interest rates, such as
one-year and two-year Treasury notes, have been much more stable. Many
investors seem to believe the Federal Reserve is still biased toward
tightening, and that is keeping short-term rates up.
10
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DAVIS SERIES, INC.
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, PORTFOLIO MANAGER-CONTINUED
Overall, domestic economic news has been very favorable for bonds. Inflation
remains low, and we've even seen some welcome signs of economic slowing
recently. In addition, the federal budget still looks good.
International developments--particularly the continuing financial crisis in
Asia and specifically what is happening in Japan--have also beeN auspicious for
bonds. These events have resulted in a flight to quality as investors bring
money to the U.S. government bond market, causing interest rates to go down and
bond prices to rise. Competitive pricing from overseas manufacturers and the
relative strengthening of the U.S.
dollar are other positives for the domestic government bond market.
Q. What is your interest rate outlook and how is it affecting your investment
strategy?
A. Interest rates have come down because of all those favorable developments,
and we think rates could continue to move lower. But, as we experienced in the
first half of this year, rates don't decline in a straight line. That's why it
is important for us to maintain a somewhat defensive investment posture that
provides some protection against rising interest rates.
Our strategy is to create a well-diversified portfolio in terms of types of
government securities, maturity lengths, call provisions and interest rate
coupons so that the fund is positioned to benefit in various market
environments. Currently, the fund's portfolio is divided roughly equally
between mortgage-backed securities, including pass-through securities and
collateralized mortgage obligations (CMOs), and U.S. government agency notes,
including some issues that can be called by the issuer before maturity and some
that cannot. The portfolio's duration is 3.2 years and its average life is 4.4
years.
The fund's cautious approach offers downside protection in declining bond
markets but may under-perform in rising bond markets. In other words, the
portfolio tends to hold up a little bit better when interest rates back up or
are variable, as happened in the first quarter this year. The price we pay for
this stability is that the fund does not rally as well when rates go down as
they did in the second quarter.
Q. Are there any changes you've made recently in the portfolio you would
particularly like to highlight?
A. The purchases we have made were intended to add some length to the
portfolio. This was necessary to maintain the fund's balanced approach since
mortgage prepayments and prepayment expectations tend to increase when interest
rates fall and that shortens the life of mortgage-backed securities. For
example, we bought a non-callable 10-year U.S. government agency note.7 We also
purchased a CMO with a 10-year average life and a low coupon of only 6%. The
low coupon means there is less risk that home owners might repay these loans
more quickly than expected and that should keep the average life relatively
long.
While there is good reason to think interest rates could trend downward, we
remain vigilant. As always, we recognize the importance of maintaining a
disciplined approach with an all-weather diversified portfolio designed to
smooth out fund performance and provide stability in a variety of market
climates.
11
<PAGE>
DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
This Semi-Annual Report is furnished to you by Davis Distributors, LLC, which
acts as the distributor for the Davis Series. This Semi-Annual Report is
authorized for distribution only when accompanied or preceded by a current
prospectus of the Davis Series which contains more information about fees and
expenses. Please read the prospectus carefully before investing or sending
money.
1 Historically, common stocks have provided investors higher long-term returns
than bonds. Past performance is no guarantee of future results.
2 Neither dollar cost averaging nor any other mechanical method of investing
can guarantee a profit.
3 Total return assumes reinvestment of dividends and capital gain
distributions. Past performance is not a guarantee of future results.
Investment return and principal value will vary so that, when redeemed, an
investor's shares may be worth more or less than when purchased. The
following table lists average annual total returns for Class A shares.
Returns for other classes of shares will vary from the following returns.
*(Without a 4.75% sales charge taken into consideration)
<TABLE>
<CAPTION>
- ------------------------------------------ ----------- ---------- --------- -------------------
FUND NAME 1 YEAR 3 YEAR 5 YEAR INCEPTION
- --------- ------ ------ ------ ---------
- ------------------------------------------ ----------- ---------- --------- -------------------
<S> <C> <C> <C> <C>
Davis Financial 33.93% 37.42% 26.80% 27.78% - 05/01/91
- ------------------------------------------ ----------- ---------- --------- -------------------
Davis Real Estate 7.82% 22.40% N/A 17.39% - 01/03/94
- ------------------------------------------ ----------- ---------- --------- -------------------
Davis Convertible Securities 15.08% 22.37% 15.94% 16.87% - 05/01/92
- ------------------------------------------ ----------- ---------- --------- -------------------
Davis Growth Opportunity 16.19% 19.92% N/A 26.32% - 12/01/94
- ------------------------------------------ ----------- ---------- --------- -------------------
Davis Government Bond 8.02% 6.14% N/A 7.27% - 12/01/94
- ------------------------------------------ ----------- ---------- --------- -------------------
</TABLE>
*(With a 4.75% sales charge taken into consideration)
<TABLE>
<CAPTION>
- ------------------------------------------ ----------- ---------- --------- -------------------
FUND NAME 1 YEAR 3 YEAR 5 YEAR INCEPTION
- --------- ------ ------ ------ ---------
- ------------------------------------------ ----------- ---------- --------- -------------------
<S> <C> <C> <C> <C>
Davis Financial 27.56% 35.23% 25.58% 26.91% - 05/01/91
- ------------------------------------------ ----------- ---------- --------- -------------------
Davis Real Estate 2.68% 20.43% N/A 16.13% - 01/03/94
- ------------------------------------------ ----------- ---------- --------- -------------------
Davis Convertible Securities 9.59% 20.40% 14.81% 15.95% - 05/01/92
- ------------------------------------------ ----------- ---------- --------- -------------------
Davis Growth Opportunity 10.66% 17.99% N/A 24.61% - 12/01/94
- ------------------------------------------ ----------- ---------- --------- -------------------
Davis Government Bond 2.84% 4.42% N/A 5.81% - 12/01/94
- ------------------------------------------ ----------- ---------- --------- -------------------
</TABLE>
4 Lipper Analytical Services' rankings and comparisons are based on total
returns unadjusted for commissions.
5 Morningstar proprietary ratings reflect historical risk-adjusted performance
as of June 30, 1998. The ratings are subject to change every month.
Morningstar ratings are calculated from a fund's 3, 5 and 10-year average
annual total returns (based on available track records) 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. Ten
percent of the funds in an investment category receive five stars, the next
22.5% receive four stars, the next 35% receive three stars, the next 22.5%
receive two stars, and the last 10% receive one star. The Class A shares of
Davis Financial Fund received 5 stars for the three-year period rated
against 2,545 Domestic Equity funds. For the five-year period it also
received 5 stars when rated against 1,462 Domestic Equity funds.
12
<PAGE>
DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
6 Source: Morningstar Mutual Funds, May 6, 1998.
7 Portfolio holdings and portfolio manager opinions cited in this material are
current at the time of printing but are subject to change.
8 Definition of Indices Quoted: Investments cannot be made directly in any of
these indices.
I. The S&P 500 Index is an unmanaged index of 500 selected common
stocks, most of which are listed on the New York Stock Exchange.
The index is adjusted for dividends, weighted towards stocks with
large market capitalizations and represents approximately
two-thirds of the total market value of all domestic common stocks.
II. The Morgan Stanley REIT (Real Estate Investment Trusts) Index is a
capitalization-weighted index with dividends reinvested of the most
actively traded real estate investment trusts and is designed to be
a measure of real estate equity performance. The index was
developed with a base value of 200 as of December 24, 1994.
III. The Russell 2000 Index measures the performance of the 2,000
smallest companies in the Russell 3000 Index. The Index is value
weighted and includes only common stocks belonging to corporations
domiciled in the US and its territories.
IV. The S&P 400 MidCap Index is an unmanaged market-weighted index
consisting of 400 domestic stocks chosen for market size, liquidity
and industry group representation.
9 Source: Morningstar Mutual Funds, May 21, 1998.
10 An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
13
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS GROWTH OPPORTUNITY FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ --------
<S> <C> <C>
COMMON STOCK - (96.21%)
BUSINESS SERVICES - (0.89%)
115,500 Thomas Group, Inc.*.................................................. $ 1,216,359
-----------
CAPITAL EQUIPMENT - (8.14%)
117,800 ASM Lithography Holding N.V.*....................................... 3,419,881
110,000 Integrated Process Equipment Corp.* ................................. 1,230,625
181,675 Novellus Systems, Inc.*.............................................. 6,489,204
-----------
11,139,710
-----------
COMMERCIAL - (4.10%)
199,250 Cendant Corp.*....................................................... 4,159,344
81,650 NFO Worldwide, Inc.* ................................................ 1,454,391
-----------
5,613,735
-----------
CONSUMER PRODUCTS & SERVICES - (3.83%)
133,200 Philip Morris Cos., Inc.............................................. 5,244,750
-----------
ELECTRONICS - (10.48%)
149,600 Adaptec, Inc.*....................................................... 2,136,475
40,300 Dell Computer Corporation*........................................... 3,739,084
69,828 Flir Systems, Inc.................................................... 1,204,533
83,600 Intel Corp........................................................... 6,194,238
61,500 Three-Five Systems, Inc.*............................................ 1,072,406
-----------
14,346,736
-----------
ENERGY - (10.73%)
55,800 Anadarko Petroleum Corp.............................................. 3,749,063
160,000 Brigham Exploration Company*......................................... 1,450,000
42,275 Forcenergy, Inc.* ................................................... 753,023
188,032 Ocean Energy, Inc.* ................................................. 3,678,376
282,600 Seitel, Inc.*........................................................ 4,574,588
84,000 Venture Seismic Ltd.* ............................................... 483,000
-----------
14,688,050
-----------
FINANCIAL SERVICES - (13.68%)
2,000 Associates First Capital Corp........................................ 153,750
42,700 Fannie Mae .......................................................... 2,594,025
57,924 First Union Corporation.............................................. 3,374,073
189,100 FIRSTPLUS Financial Group, Inc.*..................................... 6,807,600
281,550 IMC Mortgage Co.* ................................................... 2,965,073
275,775 MFC Bancorp Ltd. .................................................... 2,826,694
----------
18,721,215
----------
INSURANCE - (5.83%)
263,350 AFLAC Inc............................................................ 7,982,797
-----------
MANUFACTURING - (1.08%)
93,600 Deswell Industries, Inc.............................................. 1,480,050
-----------
PHARMACEUTICALS - (22.77%)
18,400 Eli Lilly and Company ............................................... 1,215,550
</TABLE>
14
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS GROWTH OPPORTUNITY
FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL (NOTE 1)
- ---------------- --------
<S> <C> <C>
COMMON STOCK - CONTINUED
PHARMACEUTICALS - CONTINUED
69,250 ICN Pharmaceuticals, Inc............................................. $ 3,163,859
254,450 KV Pharmaceutical Company*........................................... 5,756,931
115,000 Pfizer, Inc.......................................................... 12,499,063
40,200 Schering-Plough Corporation.......................................... 3,683,325
924,000 Viragen, Inc.*....................................................... 1,718,063
45,000 Warner Lambert Co.................................................... 3,121,875
------------
31,158,666
------------
RESTAURANTS - (3.83%)
94,500 IHOP Corp.*.......................................................... 3,921,750
204,000 Unique Casual Restaurants, Inc.*..................................... 1,326,000
------------
5,247,750
------------
RETAIL - (8.48%)
364,675 Garden Ridge Corp.*.................................................. 7,099,766
155,400 Staples, Inc.*....................................................... 4,501,744
------------
11,601,510
------------
SOFTWARE - (2.37%)
191,325 Business Objects S.A. - ADR*......................................... 3,240,566
------------
Total Common Stock - (identified cost $84,388,024).... 131,681,894
------------
SHORT TERM - (4.68%)
$6,410,00 State Street Corporation Repurchase Agreement,
5.70%, 07/01/98, dated 06/30/98, repurchase value of
$6,411,015 (collateralized by $6,360,000 par value
Federal Home Loan Bank, 7.18%, 08/14/07, market value
$6,539,193)
- (identified cost $6,410,000).................................... 6,410,000
------------
TOTAL INVESTMENTS - (100.89%) - (identified cost $90,798,024) - (a).. 138,091,894
LIABILITIES LESS OTHER ASSETS - (0.89%).............................. (1,227,585)
------------
NET ASSETS - (100%)................................... $136,864,309
============
</TABLE>
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $90,798,024. At June 30,
1998 unrealized appreciation (depreciation) of securities for Federal Income
Tax purposes is as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation........................................... $ 54,212,363
Unrealized depreciation........................................... (6,918,493)
------------
Net unrealized appreciation .......................... $ 47,293,870
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
- --------- --------
<S> <C> <C>
FANNIE MAE - MORTGAGE POOLS - (4.74%)
$ 1,803 12.00%, 12/01/00............................................ $ 1,823
42,024 9.75%, 02/01/04............................................ 43,757
150,364 10.25%, 10/01/09............................................ 163,615
64,934 10.75%, 07/01/13............................................ 72,970
236,226 9.25%, 10/01/16............................................ 254,127
87,523 7.926%, 09/01/19*.......................................... 90,914
36,161 7.721%, 03/01/24*.......................................... 37,647
832,911 7.50%, 01/01/27............................................ 853,992
------------
Total Fannie Mae - (identified cost $ 1,475,215).... 1,518,845
------------
FREDDIE MAC - MORTGAGE POOLS - (10.27%)
20,726 9.00%, 07/01/01............................................ 21,330
233,193 8.50%, 08/01/01............................................ 239,711
50,151 9.00%, 08/01/02............................................ 51,906
11,658 8.50%, 12/01/02............................................ 11,849
12,868 9.00%, 06/01/03............................................ 13,147
876,244 6.50%, 01/01/04............................................ 881,720
99,751 9.25%, 01/01/04............................................ 103,274
2,085 9.25%, 11/01/07............................................ 2,128
74,708 9.25%, 09/01/08............................................ 78,292
72,301 10.00%, 07/01/09............................................ 77,723
1,040,604 6.50%, 07/01/11............................................ 1,046,785
39,326 9.00%, 07/01/16............................................ 41,956
160,503 9.00%, 08/01/16............................................ 171,537
200,634 9.00%, 01/01/17............................................ 214,053
131,168 9.00%, 03/01/17............................................ 138,791
40,874 9.00%, 08/01/17............................................ 43,684
28,618 9.50%, 12/01/19............................................ 31,014
112,024 9.50%, 02/01/20............................................ 120,425
------------
Total Freddie Mac - (identified cost $3,257,382).... 3,289,325
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - MORTGAGE POOLS - (11.96%)
69,311 6.875% with various maturities to 2024*.................... 70,889
1,075,122 7.00% with various maturities to 2026...................... 1,085,540
1,033,061 8.50% with various maturities to 2022...................... 1,084,266
579,308 9.00% with various maturities to 2017...................... 624,928
129,266 10.00% with various maturities to 2020...................... 138,422
21,561 10.25% with various maturities to 2016...................... 23,637
111,875 10.50% with various maturities to 2016...................... 124,242
238,532 11.25% with various maturities to 2011...................... 260,148
274,994 11.50% with various maturities to 2015...................... 314,438
68,454 13.00% with various maturities to 2014...................... 80,654
</TABLE>
16
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS GOVERNMENT BOND FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
- --------- --------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - MORTGAGE POOLS - CONTINUED
<S> <C> <C>
$ 24,742 14.75% with various maturities to 2001............................ $ 24,974
----------
Total GNMA - (identified cost $3,812,854 )................ 3,832,138
----------
MEDIUM TERM NOTES - (47.09%)
1,000,000 Fannie Mae, 5.43%, 01/27/00....................................... 997,030
1,000,000 Fannie Mae, 5.91%, 08/07/00....................................... 1,004,300
1,000,000 Fannie Mae, 5.72%, 03/13/01....................................... 999,980
1,000,000 Fannie Mae, 6.23%, 07/18/02....................................... 1,018,640
1,000,000 Fannie Mae, 6.85%, 09/12/05....................................... 1,013,800
1,000,000 Fannie Mae, 6.39%, 09/24/07....................................... 1,038,380
1,000,000 Fannie Mae, 7.15%, 11/03/10....................................... 1,014,940
1,000,000 Federal Farm Credit Bank, 5.90%, 02/05/08......................... 1,003,240
1,000,000 Federal Home Loan Bank, 5.745%, 12/29/99.......................... 1,000,520
800,000 Federal Home Loan Bank, 7.24%, 11/09/10........................... 803,376
1,215,000 Freddie Mac, 6.615%, 03/03/04..................................... 1,215,899
1,000,000 Freddie Mac, 7.225%, 05/17/05..................................... 1,020,140
1,000,000 Freddie Mac, 6.66%, 12/05/05...................................... 1,009,640
1,000,000 Freddie Mac, 6.63%, 01/12/09...................................... 996,730
900,000 Freddie Mac, 8.00%, 06/20/11...................................... 950,382
---------
Total Medium Term Notes - (identified cost $14,851,459)... 15,086,997
----------
COLLATERALIZED MORTGAGE OBLIGATIONS & REAL ESTATE MORTGAGE
INVESTMENT CONDUITS - (18.00%)
1,000,000 Fannie Mae, 1993-30 PL, 7.00%, 07/25/20........................... 1,022,930
300,000 Fannie Mae, 1992-174H, 7.25%, 09/25/21............................ 309,348
1,000,000 Fannie Mae, 1993-155TC, 7.00%, 03/25/23........................... 1,032,970
1,250,000 Fannie Mae, 1993-120N, 7.00%, 07/25/23............................ 1,263,013
134,198 Freddie Mac, 1606 LC, 7.39%, 05/15/08*............................ 134,571
1,000,000 Freddie Mac, 1534 F, 6.00%, 04/15/20.............................. 998,440
1,000,000 Freddie Mac, 1552 HB, 6.50%, 11/15/22............................. 1,008,020
----------
Total CMOs & REMICs - (identified cost $5,601,019)........ 5,769,292
----------
</TABLE>
17
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS GOVERNMENT BOND FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
- --------- -------
SHORT TERM - (6.08%)
<S> <C> <C>
$ 1,950,000 Fannie Mae Discount Note, 5.75%, 07/01/98 - (identified cost $1,950,000)... $ 1,950,000
-----------
TOTAL INVESTMENTS - (98.14%) - (identified cost $30,947,929) (a)........... 31,446,597
OTHER ASSETS LESS LIABILITIES - (1.86%).................................... 594,832
-----------
NET ASSETS - (100%) .................................... $32,041,429
===========
</TABLE>
(a) Aggregate cost for Federal Income Tax purposes is $30,947,929. At June 30,
1998 unrealized appreciation (depreciation) of securities for Federal Income
Tax purposes is as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation.................................................... $ 670,942
Unrealized depreciation.................................................... (172,274)
-----------
Net unrealized appreciation.................................... $ 498,668
===========
</TABLE>
* The interest rates on floating rate securities, shown as of June 30, 1998,
may change monthly or less frequently and are based on indices of market
interest rates.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
- --------- -------
FANNIE MAE - (45.85%)
<S> <C> <C>
$ 15,655,000 5.43%, 07/08/98 Discount Note........................................... $ 15,638,471
30,170,000 5.40%, 07/10/98 Discount Note........................................... 30,129,270
23,300,000 5.43%, 07/13/98 Discount Note........................................... 23,257,827
16,200,000 5.40%, 07/16/98 Discount Note........................................... 16,163,550
20,480,000 5.40%, 07/17/98 Discount Note........................................... 20,430,848
8,205,000 5.44%, 07/21/98 Discount Note........................................... 8,180,203
2,640,000 5.46%, 07/22/98 Discount Note........................................... 2,631,592
10,410,000 5.40%, 07/24/98 Discount Note........................................... 10,374,085
27,925,000 5.40%, 07/27/98 Discount Note........................................... 27,816,092
11,700,000 5.42%, 07/27/98 Discount Note........................................... 11,654,201
12,900,000 5.463%, 08/13/98 Discount Note.......................................... 12,815,824
3,630,000 5.45%, 08/14/98 Discount Note........................................... 3,605,820
9,010,000 5.41%, 08/20/98 Discount Note........................................... 8,942,300
25,080,000 5.435%, 09/23/98 Discount Note.......................................... 24,761,944
------------
Total Fannie Mae - (identified cost $216,402,027)............... 216,402,027
------------
FEDERAL HOME LOAN BANK - (2.87%)
10,560,000 5.40%, 07/06/98 Discount Note........................................... 10,552,080
3,000,000 5.69%, 10/02/98 Medium Term Note........................................ 3,000,073
------------
Total Federal Home Loan Bank - (identified cost $13,552,153).... 13,552,153
------------
FREDDIE MAC - (51.44%)
6,910,000 5.41%, 07/01/98 Discount Note........................................... 6,910,000
6,110,000 5.42%, 07/02/98 Discount Note........................................... 6,109,080
17,240,000 5.40%, 07/07/98 Discount Note........................................... 17,224,484
3,855,000 5.41%, 07/09/98 Discount Note........................................... 3,850,365
3,055,000 5.47%, 07/14/98 Discount Note........................................... 3,048,966
4,710,000 5.48%, 07/14/98 Discount Note........................................... 4,700,679
20,035,000 5.42%, 07/15/98 Discount Note........................................... 19,992,771
7,750,000 5.44%, 07/20/98 Discount Note........................................... 7,727,749
9,125,000 5.40%, 07/23/98 Discount Note........................................... 9,094,887
14,845,000 5.40%, 07/28/98 Discount Note........................................... 14,784,878
11,260,000 5.42%, 07/29/98 Discount Note........................................... 11,212,533
13,720,000 5.40%, 07/30/98 Discount Note........................................... 13,660,318
13,285,000 5.40%, 07/31/98 Discount Note........................................... 13,225,217
4,120,000 5.45%, 08/05/98 Discount Note........................................... 4,098,170
11,470,000 5.40%, 08/06/98 Discount Note........................................... 11,408,062
4,850,000 5.42%, 08/11/98 Discount Note........................................... 4,820,062
4,920,000 5.42%, 08/21/98 Discount Note........................................... 4,882,223
22,515,000 5.44%, 08/24/98 Discount Note........................................... 22,331,278
320,000 5.43%, 08/27/98 Discount Note........................................... 317,249
5,455,000 5.42%, 08/28/98 Discount Note........................................... 5,407,366
8,395,000 5.44%, 08/31/98 Discount Note........................................... 8,317,617
11,005,000 5.43%, 09/04/98 Discount Note........................................... 10,897,105
</TABLE>
19
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS GOVERNMENT MONEY MARKET FUND-CONTINUED
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
- --------- -------
FREDDIE MAC - CONTINUED
<S> <C> <C>
$ 10,000,000 5.50%, 09/22/98 Structured Note.......................................... $ 9,995,288
14,385,000 5.42%, 09/30/98 Discount Note............................................ 14,187,917
14,815,000 5.40%, 10/09/98 Discount Note............................................ 14,592,775
-------------
Total Freddie Mac - (identified cost $242,797,039)............... 242,797,039
-------------
TOTAL INVESTMENTS - (100.16%) - (identified cost $472,751,219) - (a)..... 472,751,219
LIABILITIES LESS OTHER ASSETS - (0.16%).................................. (749,609)
-------------
NET ASSETS - (100%).............................................. $ 472,001,610
=============
</TABLE>
(a) Aggregate cost for Federal income tax purposes is $472,751,219.
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS FINANCIAL FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- --------
COMMON STOCK - (97.66%)
<S> <C> <C>
AEROSPACE/DEFENSE - (0.44%)
90,000 The Boeing Company.................................................... $ 4,010,625
------------
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (21.72%)
267,905 Bank of East Asia Ltd................................................. 290,449
405,000 Bank of New York Co., Inc............................................. 24,578,437
450,000 BankAmerica Corp...................................................... 38,896,875
287,000 Citicorp ............................................................. 42,834,750
60,000 Fifth Third Bancorp................................................... 3,774,375
24,000 Golden West Financial Corp............................................ 2,551,500
50,000 Greenpoint Financial Corp............................................. 1,881,250
318,009 Lloyds TSB Group PLC ................................................. 4,452,264
18,000 J.P. Morgan & Co., Inc................................................ 2,108,250
63,000 Norwest Corp. ........................................................ 2,354,625
90,000 State Street Corporation.............................................. 6,255,000
120,000 TCF Financial Corp. .................................................. 3,540,000
420,000 U.S. Bancorp ......................................................... 18,060,000
126,333 Wells Fargo & Co. .................................................... 46,616,877
-----------
198,194,652
-----------
BUILDING MATERIALS - (6.26%)
312,000 Dover Corp............................................................ 10,686,000
475,300 Martin Marietta Materials, Inc........................................ 21,388,500
375,400 Masco Corporation..................................................... 22,711,700
69,700 United Dominion Industries Limited.................................... 2,326,238
-----------
57,112,438
-----------
CONSUMER PRODUCTS - (6.70%)
300,000 Hasbro, Inc........................................................... 11,793,750
420,000 Mattel, Inc. ......................................................... 17,771,252
64,000 Nestle S.A. (Sponsored ADR for Reg. Shrs.)............................ 6,848,045
560,000 Philip Morris Cos., Inc............................................... 22,050,000
106,744 USA Networks, Inc.*................................................... 2,685,279
-----------
61,148,326
-----------
ENERGY - (1.07%)
47,000 Burlington Resources, Inc............................................. 2,023,937
30,000 Cooper Cameron Corporation*........................................... 1,530,000
96,000 Halliburton Co........................................................ 4,278,000
55,000 Smith International, Inc.*............................................ 1,914,688
-----------
9,746,625
-----------
FINANCIAL SERVICES - (49.77%)
INSURANCE - (32.80%)
195,000 Ace, Ltd.............................................................. 7,605,000
2,250 Alleghany Corp.*...................................................... 524,812
87,075 Allied Group, Inc..................................................... 4,076,198
</TABLE>
21
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS FINANCIAL FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ --------
COMMON STOCK - CONTINUED
FINANCIAL SERVICES - CONTINUED
INSURANCE - CONTINUED
<S> <C> <C>
40,000 The Allstate Corp..................................................... $ 3,662,500
23,062 American International Group, Inc..................................... 3,367,052
76,000 Annuity and Life Re (Holdings), Ltd.*................................. 1,695,750
28,500 Aon Corporation....................................................... 2,002,125
20,900 Argonaut Group, Inc................................................... 663,575
48,000 W.R. Berkley Corp..................................................... 1,924,500
141,900 Chartwell Re Corp..................................................... 4,177,181
6,750 Chicago Title Corp.*.................................................. 311,766
302,000 Chubb Corp. .......................................................... 24,273,250
517,500 Cincinnati Financial Corp............................................. 19,956,094
150,000 ESG Re Limited ....................................................... 3,309,375
20,000 Executive Risk Inc. .................................................. 1,475,000
118,900 EXEL Limited ......................................................... 9,251,906
103,500 FPIC Insurance Group, Inc.*........................................... 3,486,656
170,809 General Re Corp....................................................... 43,300,081
80,000 Harleysville Group, Inc............................................... 1,670,000
257,700 Horace Mann Educators Corp............................................ 8,890,650
133,800 HSB Group, Inc........................................................ 7,158,300
185,000 Leucadia National Corp................................................ 6,116,562
7,500 Markel Corporation*................................................... 1,335,000
60,000 Mercury General Corp.................................................. 3,866,250
1,509 Nuernberger Beteil AGAKT LITA......................................... 2,008,151
92,000 Orion Capital Corp.................................................... 5,140,500
116,000 Progressive Corp. (Ohio).............................................. 16,356,000
485,600 ReliaStar Financial Corp.............................................. 23,308,800
100,000 Risk Capital Holdings, Inc.*.......................................... 2,496,875
380,875 RLI Corp.............................................................. 15,496,852
31,500 State Auto Financial Corp............................................. 1,006,031
15,000 Stirling Cooke Brown Holdings Limited................................. 420,000
171,500 SunAmerica, Inc....................................................... 9,850,531
591,900 Transatlantic Holdings Inc............................................ 45,761,269
230,000 Travelers Property Casualty Corp...................................... 9,861,250
14,250 Trenwick Group, Inc................................................... 554,414
69,000 20th Century Industries............................................... 1,979,438
42,000 Vesta Insurance Group, Inc............................................ 895,125
-------------
299,234,819
-------------
OTHER FINANCIAL SERVICES - (16.97%)
388,000 American Express Co................................................... 44,232,000
75,000 Charles Schwab Corp................................................... 2,437,500
146,400 Donaldson, Lufkin & Jenrette Inc...................................... 7,438,950
959,500 Household International, Inc.......................................... 47,735,125
</TABLE>
22
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS FINANCIAL FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL (NOTE 1)
- ---------------- --------
COMMON STOCK - CONTINUED
OTHER FINANCIAL SERVICES - CONTINUED
<S> <C> <C>
68,800 Jefferies Group, Inc................................................. $ 2,820,800
143,950 Morgan Stanley, Dean Witter, Discover & Co........................... 13,153,431
300,000 Providian Financial Corporation...................................... 23,568,750
222,000 Travelers Group Inc.................................................. 13,458,750
------------
154,845,306
------------
FOOTWARE - (0.84%)
157,000 Nike, Inc............................................................ 7,643,937
------------
PHARMACEUTICALS - (1.61%)
38,000 Novartis - ADR....................................................... 3,161,630
190,000 SmithKline Beecham PLC - ADR......................................... 11,495,000
------------
14,656,630
------------
PUBLISHING - (0.55%)
85,000 Harcourt General, Inc................................................ 5,057,500
------------
RAILROAD - (0.46%)
20,000 Burlington Northern Santa Fe......................................... 1,963,750
50,000 Union Pacific Corp................................................... 2,206,250
------------
4,170,000
------------
RESTAURANT & FOOD - (4.40%)
582,000 McDonald's Corp...................................................... 40,158,000
------------
TECHNOLOGY - (3.46%)
100,000 Hewlett-Packard Company.............................................. 5,987,500
72,000 Intel Corp........................................................... 5,334,750
90,000 International Business Machines Corporation.......................... 10,333,125
130,000 Novellus Systems, Inc.*.............................................. 4,643,438
90,000 Texas Instruments Inc................................................ 5,248,125
------------
31,546,938
------------
TELECOMMUNICATIONS - (0.38%)
60,000 AirTouch Communications, Inc.*....................................... 3,506,250
------------
Total Common Stock - (identified cost $678,259,451)...... 891,032,046
------------
CONVERTIBLE BOND - (0.22%)
$ 750,000 Cincinnati Financial Corp., Sr. Deb., Conv., 5.50%, 05/01/02
- (identified cost $ 980,625)............................ 1,969,688
------------
</TABLE>
23
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS FINANCIAL FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
- --------- --------
SHORT TERM - (1.89%)
<S> <C> <C>
$17,220,000 State Street Corporation Repurchase Agreement, 5.70%, 07/01/98, dated
06/30/98, repurchase value $17,222,727 (collateralized by $17,085,000 par
value U.S. Treasury Notes, 5.50%, 03/31/03, market value $17,566,875)
- (identified cost $17,220,000).............................................. $ 17,220,000
------------
TOTAL INVESTMENTS - (99.77%) - (identified cost $696,460,076) - (a)............. 910,221,734
OTHER ASSETS LESS LIABILITIES - (0.23%)......................................... 2,112,901
------------
NET ASSETS - (100%) ................................................ $912,334,635
============
</TABLE>
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $696,460,076. At June 30,
1998 unrealized appreciation (depreciation) of securities for Federal Income
Tax purposes is as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation......................................................... $221,047,941
Unrealized depreciation......................................................... (7,286,283)
------------
Net unrealized appreciation......................................... $213,761,658
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS CONVERTIBLE SECURITIES FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------- --------
CONVERTIBLE PREFERRED STOCK - (37.18%)
<S> <C> <C>
COMMUNICATIONS - (3.17%)
45,500 AirTouch Communications, Inc., 4.25%, Ser. C Conv. Pfd............... $ 3,753,750
75,400 Loral Space & Communications, Inc., 6.00%, Pfd. Conv. Ser. C......... 5,702,125
------------
9,455,875
------------
DIVERSIFIED (REIT) - (7.23%)
400,000 General Growth Properties, 7.25%, Cum. Conv. Pfd..................... 10,100,000
224,000 Glenborough Realty Trust, 7.75%, Ser. A Conv. Pfd.................... 5,460,000
98,000 Rouse Company, $3.00, Ser. B Conv. Pfd............................... 4,875,500
20,000 Vornado Realty Trust, 6.50%, Ser. A Conv. Pfd........................ 1,147,500
------------
21,583,000
------------
ENERGY - (7.07%)
54,500 CalEnergy Capital Trust II, 6.25%, Conv. Pfd......................... 2,561,500
24,200 Devon Financing Trust, $3.25, Conv. Pfd.............................. 1,483,763
30,000 Devon Financing Trust, $3.25, Ser. 144A Conv. Pfd. (b)............... 1,839,375
116,000 EVI, Inc., 5.00%, Ser. 144A Conv. Pfd.(b)............................ 4,756,000
59,600 Tosco Financing Trust, 5.75%, Conv. Pfd.............................. 3,337,600
22,800 Tosco Financing Trust, 5.75%, Ser. 144A Conv. Pfd.(b)................ 1,276,800
108,520 Unocal Capital Trust., 6.25%, Conv. Pfd.............................. 5,846,515
------------
21,101,553
------------
FINANCIAL SERVICES - (3.59%)
43,500 Conseco Finance Trust IV, 7.00%, Ser. F Cum. Conv. Pfd............... 2,305,500
44,100 M.L.-SunAmerica Inc., 7.25%, Conv. Pfd............................... 3,197,250
32,000 SunAmerica Inc., Depository Shares, $2.78, Ser. D Conv. Pfd.......... 5,220,000
------------
10,722,750
------------
HOTELS - (1.06%)
69,000 Felcor Suite Hotels, Inc., $1.95, Ser. A Conv. Pfd................... 1,673,250
27,900 Host Marriott Financial Trust, 6.75%, Ser. 144A Conv. Pfd.(b)........ 1,475,213
------------
3,148,463
------------
MARINE SUPPORT - (0.42%)
29,200 Hvide Capital Trust, 6.50%, Ser. 144A Conv. Pfd.(b).................. 1,241,000
------------
MULTI-FAMILY HOUSING (REITS) - (2.01%)
28,300 Camden Property Trust, $3.50, Ser. A Cum. Conv. Pfd.................. 749,950
128,900 Equity Residential Properties Trust, 7.00%, Ser. E Conv. Pfd......... 3,335,288
48,100 Equity Residential Properties Trust, 7.25%, Ser. G Cum. Conv. Pfd.... 1,166,425
25,000 Security Capital Pacific Trust Ser. A Conv. Pfd...................... 753,125
------------
6,004,788
------------
OFFICE/INDUSTRIAL (REIT) - (7.44%)
160,000 Crescent Real Estate Equities, 6.75%, Ser. A Conv. Pfd............... 3,590,000
153,000 Equity Office Properties Trust, 5.25%, Ser. 144A Cum. Conv. Pfd.(b).. 6,655,500
221,000 Reckson Assoc. Realty, 7.625%, Ser. A Cum. Conv. Pfd................. 5,207,313
20,000 Security Capital Industrial Trust, 7.00%, Ser. B Cum. Conv. Pfd..... 627,500
</TABLE>
25
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS CONVERTIBLE SECURITIES FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL (NOTE 1)
- ------- --------
CONVERTIBLE PREFERRED STOCK-CONTINUED
<S> <C> <C>
OFFICE/INDUSTRIAL (REIT) - CONTINUED
240,000 SL Green Realty Corp., 8.00%, Cum. Conv. Pfd.............................. $ 6,120,000
------------
22,200,313
------------
RESTAURANT (REITS) - (1.96%)
214,100 U.S. Restaurant Properties, 7.72%, Ser. A Cum. Conv. Pfd.................. 5,834,225
------------
SELF STORAGE (REIT) - (1.51%)
96,300 Public Storage, Inc., 8.25%, Conv. Pfd.................................... 4,514,063
------------
THEME PARKS - (0.64%)
30,000 Premier Parks, Inc., 7.50%, Cum. Conv. Pfd................................ 1,905,000
------------
TRANSPORTATION - (1.08%)
70,000 Union Pacific Cap. Trust, 6.25%, Ser. 144A Cum. Conv. Pfd.(b)............. 3,228,750
------------
Total Convertible Preferred Stock - (identified cost $109,745,772).. 110,939,780
------------
CONVERTIBLE BONDS - (28.47%)
DRILLING SERVICES - (1.30%)
$ 4,510,000 Parker Drilling Corp., Conv. Sub. Notes, 5.50%, 08/01/04................... 3,878,600
------------
ENERGY - (3.24%)
3,120,000 Baker Hughes Inc., Sr. Liquid Yield Option Notes, Zero Cpn., 05/05/08*.... 2,308,800
11,415,000 Valhi Inc., Conv. Sub. Deb., Zero Cpn., 10/20/07*......................... 7,348,406
------------
9,657,206
------------
ENGINEERING - (0.18%)
500,000 Thermo Electron Corp., 144A Conv. Sub. Deb., 4.25%, 01/01/03 (b).......... 534,375
------------
FINANCIAL SERVICES - (5.58%)
500,000 Alex Brown, Inc., Conv. Sub. Deb., 5.75%, 06/12/01........................ 2,773,894
10,000,000 American Express Credit, Conv. Notes, 1.125%, 02/19/03.................... 10,500,000
3,300,000 Bell Atlantic Financial Services, Series 144A, 5.75%, 04/01/03 (b)........ 3,382,500
------------
16,656,394
------------
GOLF - (0.82%)
1,350,000 Family Golf Centers, Inc., Conv. Sub. Notes, 5.75%, 10/15/04.............. 1,645,313
650,000 Family Golf Centers, Inc., 144A Conv. Sub. Notes, 5.75%, 10/15/04 (b)..... 792,188
------------
2,437,501
------------
HOTELS - (1.57%)
3,000,000 CapStar Hotel Corp., Conv. Sub. Notes, 4.75%, 10/15/04.................... 2,467,500
2,100,000 Hilton Hotels Corp., Conv. Sub. Notes, 5.00%, 05/15/06.................... 2,215,500
------------
4,683,000
------------
INDUSTRIAL - (1.84%)
9,600,000 Xerox Corp., 144A Conv. Sub. Notes, Zero Cpn., 04/12/18 (b) *............. 5,496,000
------------
</TABLE>
26
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS CONVERTIBLE SECURITIES FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
PRINCIPAL/SHARES (NOTE 1)
- ---------------- --------
CONVERTIBLE BONDS-CONTINUED
<S> <C> <C>
INSURANCE - (3.18)
$ 3,000,000 American International Group, Inc., Conv. Notes, 2.25%, 07/30/04...... $ 3,525,000
900,000 American Travellers Corp., Conv. Sub. Deb., 6.50%, 10/01/05........... 3,341,250
1,000,000 Cincinnati Financial Corp. Conv. Sub. Deb., 5.50%, 05/01/02........... 2,626,250
------------
9,492,500
------------
MEDICAL SERVICES - (2.27%)
830,000 Phycor Inc., Conv. Sub. Deb., 4.50%, 02/15/03......................... 709,650
5,618,000 RNB-Merck, Conv. Sub. Deb., 1.875%, 08/12/02.......................... 6,081,485
------------
6,791,135
------------
MULTI-FAMILY HOUSING (REIT) - (0.21%)
500,000 Camden Property Trust, Conv. Sub. Deb., 7.33%, 04/01/01............... 621,875
------------
MULTIMEDIA - (2.36%)
10,700,000 News America Holdings, Conv. Sub. Deb., Zero Cpn., 03/11/13*.......... 7,055,313
------------
POLLUTION CONTROL/WASTE MANAGEMENT - (0.62%)
1,500,000 USA Waste Services Inc., Conv. Sub. Notes, 4.00%, 02/01/02............ 1,845,000
------------
REAL ESTATE DEVELOPMENT - (1.09%)
3,032,000 Rouse Company, Conv. Sub. Deb., 5.75%, 07/23/02....................... 3,266,980
------------
RETAIL (REIT) - (0.15%)
350,000 Mid-Atlantic Realty Trust, Conv. Sub. Deb., 7.625%, 09/15/03.......... 437,938
------------
TECHNOLOGY - (4.04%)
13,299,000 Hewlett-Packard Co., Conv. Sub. Notes, 0.99%, 10/14/17................ 7,164,836
6,620,000 Motorola, Inc., Conv. Sub. Deb., Zero Cpn., 09/27/13*................. 4,898,800
------------
12,063,636
------------
TRANSPORTATION - (0.02%)
500,000 Florida West Airlines, Inc., 8.00%, 03/25/99+(c)...................... 50,000
------------
Total Convertible Bonds - (identified cost $ 78,131,830).. 84,967,453
------------
COMMON STOCK - (14.67%)
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (3.53%)
51,561 Banc One Corporation.................................................. 2,877,748
41,774 Bank of New York Co., Inc............................................. 2,535,160
42,012 Norwest Corp.......................................................... 1,570,199
82,359 U.S. Bancorp.......................................................... 3,541,437
------------
10,524,544
------------
BUILDING MATERIALS - (0.96%)
47,303 Masco Corp............................................................ 2,861,832
------------
CONSUMER PRODUCTS - (0.61%)
77,000 RJR Nabisco Holdings Corp............................................. 1,828,750
------------
</TABLE>
27
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS CONVERTIBLE SECURITIES FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ --------
COMMON STOCK-CONTINUED
<S> <C> <C>
DIVERSIFIED (REITS) - (3.05%)
87,810 Avalon Bay Communities, Inc........................................... $ 3,336,780
48,600 Glenborough Realty Trust, Inc......................................... 1,281,825
113,200 Vornado Realty Trust.................................................. 4,492,625
------------
9,111,230
------------
ENERGY - (0.68%)
30,706 Noble Affiliates, Inc................................................. 1,166,828
35,213 Noble Drilling Corp.*................................................. 847,313
------------
2,014,141
------------
HOTELS (REIT) - (0.17%)
21,399 Patriot American Hospitality Inc...................................... 512,239
------------
INDUSTRIAL - (0.30%)
35,000 Liberty Property Trust................................................. 894,688
------------
INSURANCE - (2.08%)
48,695 Leucadia National Corp................................................ 1,609,978
75,811 Travelers Group Inc................................................... 4,596,042
------------
6,206,020
------------
OFFICE /INDUSTRIAL (REITS/REOCS) - (1.06%)
58,156 Centerpoint Properties Corp........................................... 1,922,783
8,460 Crescent Operating, Inc.*............................................. 143,027
17,770 Equity Office Properties Trust........................................ 504,217
16,700 Mack-Cali Realty Corporation.......................................... 574,063
------------
3,144,090
------------
RETAIL (REIT) - (0.31%)
22,750 Kimco Realty Corp..................................................... 932,750
------------
TECHNOLOGY - (1.64%)
29,000 Intel Corp............................................................ 2,148,719
20,000 Motorola, Inc......................................................... 1,051,250
28,958 Texas Instruments, Inc................................................ 1,688,613
------------
4,888,582
------------
TRANSPORTATION/RAIL - (0.28%)
8,574 Burlington Northern Santa Fe Corp..................................... 841,860
------------
Total Common Stock - (identified cost $ 26,268,855)............. 43,760,726
------------
</TABLE>
28
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS CONVERTIBLE SECURITIES FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
- --------- --------
<S> <C> <C>
SHORT TERM - (19.05%)
$ 16,035,000 Fannie Mae Discount Note, 5.43%, 07/02/98................................. $ 16,032,581
26,346,000 Freddie Mac Discount Note, 5.47%, 07/02/98................................ 26,341,997
14,470,000 State Street Corporation Repurchase Agreement, 5.70%, 07/01/98, dated
06/30/98, repurchase value $14,472,291
(collateralized by $14,355,000 par value Federal Home
Loan Bank, 7.18%, 08/14/07, market value
$14,759,452)............................................................ 14,470,000
------------
Total Short Term - (identified cost $ 56,844,578).................. 56,844,578
------------
TOTAL INVESTMENTS - (99.37%) - (identified cost $270,991,035) - (a)...... 296,512,537
OTHER ASSETS LESS LIABILITIES - (0.63%).................................. 1,884,788
------------
NET ASSETS - (100%) .............................................. $298,397,325
============
</TABLE>
*Non-Income Producing Security.
+This security is in default and is not currently paying interest.
(a) Aggregate cost for Federal Income Tax purposes is $270,991,035. At June 30,
1998 unrealized appreciation (depreciation) of securities for Federal
Income Tax purposes is as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation.................................................. $ 36,446,550
Unrealized depreciation.................................................. (10,925,048)
------------
Net unrealized appreciation.................................. $ 25,521,502
============
</TABLE>
(b) These securities are subject to Rule 144A. The Board of Directors of the
Fund has determined that there is sufficient liquidity in these securities
to realize current valuations. These securities amounted to $30,677,701 and
10.28% of the Fund's total net assets as of June 30, 1998.
(c) Illiquid security. See Note 8 of the Notes to Financial Statements.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS REAL ESTATE FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ --------
COMMON STOCK - (87.73%)
<S> <C> <C>
APARTMENTS (REITS) - (20.78%)
298,231 Apartment Investment & Management Company....... $11,780,124
317,267 Avalon Bay Communities, Inc..................... 12,056,146
915,000 Boardwalk Equities, Inc.*....................... 10,570,487
242,231 Camden Property Trust........................... 7,206,372
37,000 Equity Residential Properties Trust............. 1,755,187
226,200 Essex Property Trust............................ 7,012,200
492,000 Gables Residential Trust........................ 13,345,500
602,500 Home Properties of New York, Inc. .............. 16,079,219
90,300 Irvine Apartment Communities, Inc............... 2,613,056
110,000 Post Properties, Inc............................ 4,235,000
290,171 Security Capital Pacific Trust.................. 6,528,848
-----------
93,182,139
-----------
DIVERSIFIED - (14.71%)
300,000 AMB Property Corporation........................ 7,350,000
21,740 Crescent Operating, Inc.*....................... 367,542
201,400 Glenborough Realty Trust, Inc................... 5,311,925
125,000 Pacific Gulf Properties, Inc.................... 2,703,125
394,800 Reckson Associates Realty Corp.................. 9,327,150
189,504 Reckson Services Industries, Inc.*.............. 645,498
365,100 Rouse Company................................... 11,477,831
200,000 The St. Joe Company............................. 5,475,000
372,200 Security Capital Group Incorporated*............ 9,909,825
337,500 Vornado Realty Trust............................ 13,394,531
-----------
65,962,427
-----------
GOLF (REITS) - (1.05%)
137,000 Golf Trust of America, Inc...................... 4,709,375
-----------
HOTELS & LODGING - (10.69%)
285,500 CapStar Hotel Company*.......................... 7,994,000
209,500 FelCor Suite Hotels, Inc. (REIT)................ 6,573,062
272,800 Patriot American Hospitality, Inc. (REIT)....... 6,530,150
365,000 Servico, Inc.*.................................. 5,475,000
275,000 Sunstone Hotel Investors, Inc. (REIT)........... 3,660,938
366,300 Starwood Lodging Trust (REIT)................... 17,696,869
-----------
47,930,019
-----------
INDUSTRIAL (REITS) - (6.93%)
262,800 Centerpoint Properties Corp..................... 8,688,825
300,000 Centerpoint Properties Corp. Private (b)........ 9,422,812
165,000 First Industrial Realty Trust................... 5,249,062
303,000 Liberty Property Trust.......................... 7,745,438
-----------
31,106,137
-----------
</TABLE>
30
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS REAL ESTATE FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------ --------
COMMON STOCK - CONTINUED
<S> <C> <C>
MALLS - (1.21%)
166,964 Simon De Bartolo Group Inc....................................... $ 5,426,330
-------------
OFFICE SPACE (REITS) - (19.48%)
398,100 Alexandria Real Estate Equities, Inc............................. 11,918,119
291,500 Boston Properties, Inc........................................... 10,056,750
250,000 Brandywine Realty Trust.......................................... 5,593,750
380,000 Cornerstone Properties, Inc...................................... 6,697,500
284,000 Crescent Real Estate Equities Company............................ 9,549,500
242,819 Equity Office Properties Trust................................... 6,889,989
300,400 Mack-Cali Realty Corporation..................................... 10,326,250
302,000 Parkway Properties Inc........................................... 8,909,000
103,000 Prentiss Properties Trust........................................ 2,504,188
175,000 PS Business Parks, Inc........................................... 4,112,500
290,000 SL Green Realty Corp............................................. 6,525,000
200,000 Trizec Hahn Corporation.......................................... 4,287,500
-------------
87,370,046
-------------
REAL ESTATE DEVELOPMENT - (1.78%)
451,000 Catellus Development Corporation*................................ 7,977,063
-------------
RESORTS/THEME PARKS - (2.89%)
115,000 Premier Parks Inc.*.............................................. 7,661,875
200,000 Vail Resorts, Inc.*.............................................. 5,325,000
-------------
12,986,875
-------------
RESTAURANT ORIENTED - (1.02%)
168,600 U.S. Restaurant Properties, Inc.................................. 4,562,738
-------------
SHOPPING CENTERS - (3.43%)
418,200 JDN Realty Corp.................................................. 13,330,125
50,650 Kimco Realty Corp................................................ 2,076,650
-------------
15,406,775
-------------
STORAGE (REITS) - (3.76%)
283,300 Public Storage, Inc.............................................. 7,932,400
255,000 Storage USA Inc.................................................. 8,925,000
-------------
16,857,400
Total Common Stock - (identified cost $378,546,943)........... 393,477,324
-------------
CONVERTIBLE PREFERRED STOCK - (6.11%)
APARTMENTS - (1.46%)
16,700 Camden Property Trust, $2.25, Ser. A Cum. Conv. Pfd.............. 442,550
223,900 Equity Residential Properties Trust, 7.00%, Ser. E Conv. Pfd. ... 5,793,412
</TABLE>
31
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1998 (Unaudited)
DAVIS REAL ESTATE FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL (NOTE 1)
===================================================================================================================
CONVERTIBLE PREFERRED STOCK - CONTINUED
<S> <C> <C>
APARTMENTS - CONTINUED
10,000 Security Capital Pacific Trust, $1.75, Ser. A Conv. Pfd................... $ 301,250
-------------
6,537,212
-------------
DIVERSIFIED - (0.81%)
50,000 Rouse Company, $3.00, Ser. B Conv. Pfd..................................... 2,487,500
20,000 Vornado Realty Trust, 6.50%, Ser. A Conv. Pfd.............................. 1,147,500
-------------
3,635,000
-------------
MALLS - (2.93%)
520,000 General Growth Properties, 7.25%, Conv. Pfd................................ 13,130,000
-------------
OFFICE - (0.91%)
160,000 SL Green Realty Corp., 8.00%, Cum. Conv. Pfd............................... 4,080,000
-------------
Total Convertible Preferred Stock - (identified cost $27,688,655)...... 27,382,212
-------------
CONVERTIBLE CORPORATE BONDS - (0.48%)
$ 2,000,000 Rouse Company, Conv. Sub. Deb., 5.75%, 07/23/02 - (identified cost
$2,125,000)............................................................ 2,155,000
-------------
SHORT TERM - (4.09%)
11,610,000 Fannie Mae Discount Note, 5.75%, 07/01/98.................................. 11,610,000
17,180,000 State Street Corporation Repurchase Agreement, 5.70%, 07/01/98, dated
06/30/98, repurchase value $6,731,066 (collateralized
by $6,680,000 par value Federal Home Loan Bank,
7.18%, 08/14/07, market value $6,868,209)
- (identified cost $6,730,000)........................................... 6,730,000
-------------
Total Short Term - (identified cost $18,340,000) ...................... 18,340,000
-------------
TOTAL INVESTMENTS - (98.41%) - (identified cost $426,700,598) - (a)........ 441,354,536
OTHER ASSETS LESS LIABILITIES - (1.59%).................................... 7,149,950
-------------
NET ASSETS - (100%).................................................... $448,504,486
=============
</TABLE>
* Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $426,700,598. At June 30,
1998 unrealized appreciation (depreciation) of securities for Federal Income
Tax purposes is as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation.................................................... $ 25,703,820
Unrealized depreciation.................................................... (11,049,882)
-------------
Net unrealized appreciation ................................... $ 14,653,938
=============
</TABLE>
(b) Restricted security. See Note 8 of the Notes to Financial Statements.
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
DAVIS SERIES, INC.
STATEMENT OF ASSETS AND LIABILITIES At June 30, 1998 (Unaudited)
=================================================================
<TABLE>
<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 accompanying
Schedules of Investments)........ $138,091,894 $ 31,446,597 472,751,219 $910,221,734 $296,512,537 $441,354,536
Cash................................ 20,001 118,117 36,025 21,054 20,694 162,595
Receivables:
Dividends and interest........... 58,591 342,282 193,451 904,428 1,185,175 1,820,507
Capital stock sold............... 421,036 132,617 44,145 6,347,518 2,064,925 4,680,640
Investments sold................. - 53,320 - 3,468,145 - 1,596,726
Note receivable (Note 7)............ - - - 499,987 - -
Prepaid expenses.................... 13,435 35,232 159,834 107,016 37,817 58,161
------------ ------------ ------------ ------------- ------------- ------------
Total assets......... 138,604,957 32,128,165 473,184,674 921,569,882 299,821,148 449,673,165
------------- ------------ ------------ ------------- ------------ ------------
LIABILITIES:
Payables:
Investment securities
purchased..................... 1,204,533 - - 7,082,967 -
Capital stock reacquired......... 288,990 30,506 950,361 807,129 428,609 523,745
Accrued expenses.................... 137,746 31,560 228,618 663,071 231,714 359,551
Commissions payable to
distributor (Note 3)............. 109,379 24,670 - 682,080 190,578 285,383
Distributions payable............... - - 4,085 - 9,548 -
------------- ------------ ------------ ------------- ------------ ------------
Total liabilities.... 1,740,648 86,736 1,183,064 9,235,247 1,423,823 1,168,679
------------- ------------ ------------ ------------- ------------ -----------
NET ASSETS (NOTE 5)................. $136,864,309 $ 32,041,429 $472,001,610 $912,334,635 $298,397,325 $448,504,486
============= ============ ============ ============= ============ ============
CLASS A SHARES
Net assets....................... $ 63,877,267 $ 18,016,911 $444,195,275 $451,277,711 $147,429,937 $214,654,672
Shares outstanding............... 2,659,497 3,069,866 444,195,275 15,542,525 5,867,505 9,046,090
Net asset value and redemp-
tion price per share (net
assets/shares outstanding).... $ 24.02 $ 5.87 $ 1.00 $ 29.04 $ 25.13 $ 23.73
=========== =========== ========== =========== =========== ===========
Maximum offering price per
share (100/95.25 of net
asset value).................. $ 25.22 $ 6.16 $ 1.00 $ 30.49 $ 26.38 $ 24.91
=========== =========== ========== =========== =========== ===========
CLASS B SHARES
Net assets....................... $ 68,464,619 $ 13,116,335 $ 21,888,566 $376,548,560 $ 88,348,306 $168,211,554
Shares outstanding............... 2,942,862 2,239,864 21,888,566 13,185,982 3,554,941 7,127,364
Net asset value, offering and
redemption price per share
(net assets/shares
outstanding) (Note 3)......... $ 23.26 $ 5.86 $ 1.00 $ 28.56 $ 24.85 $ 23.60
=========== =========== ========== =========== =========== ===========
CLASS C SHARES
Net assets....................... $ 4,358,330 $ 908,183 $ 5,917,769 $ 74,339,389 $ 24,802,018 $ 28,493,731
Shares outstanding............... 182,732 154,322 5,917,769 2,566,716 985,136 1,198,903
Net asset value, offering and
redemption price per share
(net assets/shares
outstanding) (Note 3) ........ $ 23.85 $ 5.88 $ 1.00 $ 28.96 $ 25.18 $ 23.77
=========== =========== ========== =========== =========== ===========
CLASS Y SHARES
Net assets....................... $ 164,093 $ 10,168,975 $ 37,817,064 $ 37,144,529
Shares outstanding............... 6,814 349,873 1,498,611 1,554,884
Net asset value, offering and
redemption price per share
(net assets/shares
outstanding) ................. $ 24.08 $ 29.06 $ 25.23 $ 23.89
=========== =========== =========== ===========
</TABLE>
* Including repurchase agreements of $6,410,000, $17,220,000, $14,470,000 and
$6,730,000 for Growth Opportunity Fund, Financial Fund, Convertible
Securities Fund and Real Estate Fund, respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
DAVIS SERIES, INC.
STATEMENT OF OPERATIONS Six months ended June 30, 1998 (Unaudited)
==================================================================
<TABLE>
<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 $758, $50,787,
$4,500 for Growth Opportunity
Fund, Financial Fund and Real
Estate Fund, respectively)......... $ 344,669 $ - $ - $ 4,173,868 $ 2,730,440 $ 7,511,629
Interest............................. 306,225 1,075,821 13,124,190 1,136,430 2,426,636 1,082,062
----------- ---------- ----------- ----------- ----------- ------------
Total income............. 650,894 1,075,821 13,124,190 5,310,298 5,157,076 8,593,691
----------- ---------- ----------- ----------- ----------- ------------
Expenses:
Management fees (Note 2)............. 485,120 78,130 1,121,333 2,310,954 906,568 1,356,566
Custodian fees....................... 25,015 23,813 31,522 69,977 37,113 32,639
Transfer agent fees
Class A......................... 55,220 32,154 46,122 276,026 62,052 127,534
Class B......................... 73,989 20,363 10,371 277,036 60,572 151,400
Class C......................... 6,031 586 2,768 35,252 13,073 18,746
Class Y......................... 26 - - 165 199 534
Audit fees........................... 2,631 1,119 8,562 13,300 4,617 7,337
Legal fees........................... 3,018 1,464 22,198 30,835 10,667 9,727
Accounting fees (Note 2)............. 3,252 1,248 18,750 7,248 3,750 4,752
Reports to shareholders.............. 10,435 21,733 20,092 50,047 22,106 32,088
Directors' fees and expenses........ 1,961 1,851 5,192 25,902 7,397 6,749
Registration and filing fees......... 43,273 40,415 26,481 115,802 65,283 86,748
Miscellaneous........................ 10,852 3,465 1,221 1,616 1,065 1,018
Distribution plan payments (Note 3)
Class A 74,948 22,694 - 349,899 139,792 236,251
Class B......................... 328,580 62,386 - 1,402,633 325,904 721,225
Class C......................... 19,337 2,853 - 228,474 78,582 94,462
---------- ---------- ----------- ----------- ----------- ------------
Total expenses........... 1,143,688 314,274 1,314,612 5,195,166 1,738,740 2,887,776
Fee Reduction (Note 6)... (1,666) (867) (317) (8,231) (7,063) (4,028)
---------- ---------- ----------- ----------- ----------- ------------
Net expenses............. 1,142,022 313,407 1,314,295 5,186,935 1,731,677 2,883,748
---------- ---------- ----------- ----------- ----------- ------------
Net investment
income (loss).... (491,128) 762,414 11,809,895 123,363 3,425,399 5,709,943
---------- ---------- ----------- ----------- ----------- ------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from
investment transactions.............. 470,817 18,854 - (2,304,324) 3,112,520 1,284,827
Net increase (decrease) in
unrealized appreciation
of investments
during the period.................... 7,107,162 18,395 - 87,789,950 (6,706,719) (31,441,451)
---------- ---------- ----------- ----------- ----------- ------------
Net realized and unrealized
gain (loss) on investments... 7,577,979 37,249 - 85,485,626 (3,594,199) (30,156,624)
---------- ---------- ----------- ----------- ----------- ------------
Net increase (decrease) in net
assets resulting from
operations................... $7,086,851 $ 799,663 $11,809,895 $85,608,989 $(168,800) $(24,446,681)
========== ========== =========== =========== =========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
DAVIS SERIES, INC.
STATEMENT OF CHANGES IN NET ASSETS Six months ended June 30, 1998 (Unaudited)
=============================================================================
<TABLE>
<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) ..... $ (491,128) $ 762,414 $ 11,809,895 $ 123,363 $ 3,425,399 $ 5,709,943
Net realized gain (loss) from
investment transactions ....... 470,817 18,854 -- (2,304,324) 3,112,520 1,284,827
Net increase (decrease) in
unrealized appreciation
of investments ................ 7,107,162 18,395 -- 87,789,950 (6,706,719) (31,441,451)
------------ ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations .................... 7,086,851 799,663 11,809,895 85,608,989 (168,800) (24,446,681)
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A ....................... -- (514,376) (11,383,865) -- (1,067,787) (1,570,383)
Class B ....................... -- (307,066) (352,884) -- (361,223) (889,538)
Class C ....................... -- (12,964) (73,146) -- (88,288) (120,992)
Class Y ....................... -- -- -- -- (315,293) (249,934)
CAPITAL SHARE
TRANSACTIONS (NOTE 5) ............ 17,329,539 1,569,625 7,056,322 318,089,283 131,916,446 178,541,512
------------ ------------- ------------- ------------- ------------- -------------
Total increase in net assets 24,416,390 1,534,882 7,056,322 403,698,272 129,915,055 151,263,984
NET ASSETS:
Beginning of period .............. 112,447,919 30,506,547 464,945,288 508,636,363 168,482,229 7,240,502
------------ ------------- ------------- ------------- ------------- -------------
End of period (including
undistributed net income
(deficit) of $23, ($50,953),
$123,363, $1,592,808 and $2,879,096
for Growth Opportunity Fund,
Government Bond Fund, Financial Fund,
Convertible Securities Fund and Real
Estate Fund, respectively)......... $136,864,309 $ 32,041,429 $ 472,001,610 $912,334,635 $ 298,397,325 $ 448,504,486
============ ============ ============= ============= =============== =============
NET ASSETS CONSIST OF:
Undistributed net investment
income (deficit) ............. $ 23 $ (50,953) $ -- $ 123,363 $ 1,592,808 $ 2,879,096
Paid-in capital ..................... 88,758,759 33,476,744 472,001,610 700,753,938 268,170,495 429,686,625
Accumulated net realized gain
(loss) ........................... 811,657 (1,883,030) -- (2,304,324) 3,112,520 1,284,827
Net unrealized appreciation
on investments ................... 47,293,870 498,668 -- 213,761,658 25,521,502 14,653,938
------------- -------------- ------------- ------------- ------------- -------------
$136,864,309 $ 32,041,429 $ 472,001,610 $912,334,635 $298,397,325 $448,504,486
============= ============== ============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENT
35
<PAGE>
DAVIS SERIES, INC.
STATEMENT OF CHANGES IN NET ASSETS Year ended December 31, 1997
===============================================================
<TABLE>
<CAPTION>
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE REAL
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES ESTATE
FUND FUND FUND FUND FUND FUND
------------ ------------ ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .. $ (915,106) $ 1,592,350 $ 21,417,709 $ 1,336,732 $ 3,119,520 $ 5,100,685
Net realized gain from
investment transactions .... 8,241,867 180,777 -- 5,559,641 7,446,372 3,100,154
Net increase in
unrealized appreciation/
depreciation of investments 7,600,470 311,113 -- 83,019,001 14,659,595 30,924,654
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations .. 14,927,231 2,084,240 21,417,709 89,915,374 25,225,487 39,125,493
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A .................... -- (969,050) (20,842,052) (1,374,310) (1,828,000) (2,918,713)
Class B .................... -- (599,532) (446,164) -- (253,756) (1,401,288)
Class C .................... -- (2,730) (129,493) -- (23,648) (33,966)
Class Y .................... -- -- -- (26,284) (1,014,116) (746,718)
Realized gains from investment
transactions
Class A .................... (3,341,914) -- -- (3,166,084) (3,941,934) (1,557,491)
Class B .................... (4,373,926) -- -- (2,146,055) (1,535,575) (1,182,155)
Class C .................... (178,569) -- -- (207,025) (266,342) (78,804)
Class Y .................... (6,618) -- -- (40,477) (1,602,998) (281,704)
Paid-in capital
Class A .................... -- -- -- (77,287) (250,992) (440,989)
Class B .................... -- -- -- (52,388) (75,195) (334,717)
Class C .................... -- -- -- (5,054) (12,165) (22,312)
Class Y .................... -- -- -- (988) (117,117) (79,763)
CAPITAL SHARE
TRANSACTIONS (NOTE 5) ......... 38,920,753 (1,093,835) 53,528,994 310,024,211 76,256,542 205,602,552
------------- ------------- ------------- ------------- ------------- -------------
Total increase (decrease)
in net assets ..... 45,946,957 (580,907) 53,528,994 392,843,633 90,560,191 235,649,425
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 ................. $ 112,447,919 $ 30,506,547 $ 464,945,288 $ 508,636,363 $ 168,482,270 $ 297,240,502
============= ============= ============= ============= ============= =============
NET ASSETS CONSIST OF:
Undistributed net investment
income ................. $ -- $ 21,039 $ -- $ -- $ -- $ --
Paid-in capital ............... 71,920,370 31,907,119 464,945,288 382,664,655 136,254,048 251,145,113
Accumulated net realized gain
(loss) ..................... 340,840 (1,901,884) -- -- -- --
Unrealized appreciation
on investments ............. 40,186,709 480,273 -- 125,971,708 32,228,222 46,095,389
------------- ------------- ------------- ------------- ------------- -------------
$ 112,447,919 $ 30,506,547 $ 464,945,288 $ 508,636,363 $ 168,482,270 $ 297,240,502
============= ============= ============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS
At June 30, 1998 (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 four classes, Class A, Class B, Class
C and Class Y (except for Davis Government Money Market Fund, which does not
offer Class Y shares). 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 and C shares are sold at net asset value and
may be subject to a contingent deferred sales charge upon redemption. Class Y
shares are sold at net asset value and are not subject to any contingent
deferred sales charge. Class Y shares are only available to certain qualified
investors. Income, expenses (other than those attributable to a specific class)
and gains and losses are allocated daily to each class of shares based upon the
relative proportion of net assets represented by each class. Operating expenses
directly attributable to a specific class are charged against the operations of
that class. All classes have identical rights with respect to voting (exclusive
of each Class' distribution arrangement), liquidation and distributions. The
following is a summary of significant accounting policies followed by the Funds
in the preparation of their financial statements.
37
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1998 (Unaudited)
===========================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
A. VALUATION OF SECURITIES - Portfolio 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 in good faith by the Board of
Directors. Short-term obligations are valued at amortized cost which
approximates fair value. The valuation procedures are reviewed and subject to
approval 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 Funds 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 Funds as an unrealized gain or loss. When the
forward currency contract is closed, the Funds record 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 Funds to risks resulting from
unanticipated movements in foreign currency exchange rates or failure of the
counter-party to the agreement to perform in accordance with the terms of the
contract.
D. FEDERAL INCOME TAXES - It is the Funds' policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of their taxable income to
shareholders. Therefore, no provision for federal income or excise tax is
required. At June 30, 1998, Davis Government Bond Fund had approximately
$1,901,900 of capital loss carryovers available to offset future capital gains,
if any, of which $1,110,900, $84,300, $376,100, $298,600 and $32,000 expire in
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 and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of income and
expenses during the reporting period. Actual results may differ from these
estimates.
F. SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME - Securities
transactions are accounted for on the trade date (date the order to buy or sell
is executed) with realized gain or loss on the sale of securities being
determined based upon identified cost. Interest income is recorded on the
accrual basis and dividend income is recorded on the ex-dividend date.
Discounts and premiums on debt securities are amortized over the lives of the
respective securities in accordance with the requirements of the Internal
Revenue Code.
38
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1998 (Unaudited)
===========================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions to
shareholders are recorded on the ex-dividend date. The character of the
distributions made during the year from net investment income may differ from
its ultimate characterization for federal income tax purposes. Also, due to the
timing of distributions, the fiscal year in which amounts are distributed may
differ from the fiscal year in which income or gain was recorded by the Funds.
The Funds adjust the classification of distributions to shareholders to reflect
the differences between financial statement amounts and distributions
determined in accordance with income tax regulations.
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 0.50% of the first $250 million of average net assets,
0.45% of the next $250 million of average net assets and 0.40% of average net
assets in excess of $500 million. The fee for the Davis Government Bond Fund is
0.50% average net assets. The rate for the Davis Growth Opportunity Fund, Davis
Financial Fund, Davis Convertible Securities Fund and Davis Real Estate Fund is
0.75% of the average net assets for the first $250 million, 0.65% of the
average net assets on the next $250 million, and 0.55% of the average net
assets in excess of $500 million.
The Adviser is paid for registering Fund shares for sale in various
states. The fee for the six months ended June 30, 1998 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 $4,998 for each fund. Boston Financial Data Services
is the Funds' primary transfer agent. The Adviser is also paid for certain
transfer agent services. The fee for these services for the six months ended
June 30, 1998 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 $16,759,
$3,675, $9,102, $70,721, $14,583 and $34,441, respectively. State Street Bank &
Trust Co. is the Funds' primary accounting provider. The Adviser is also paid
for certain accounting services. The fee for the six months ended June 30, 1998
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 $3,252, $1,248, $18,750,
$7,248, $3,750 and $4,752, respectively. Certain directors and officers of the
Funds are also directors and officers of the general partner of Davis Selected
Advisers, L.P.
Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of
the Adviser, 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 Funds pay no fees directly to DSA-NY.
Tanaka Capital Management, Inc. ("Tanaka") also 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 Fund pays no fees
directly to Tanaka. Tanaka receives from the Adviser a re-allowed portion of
its advisory fee equal to 0.30% of the first $100 million of the Davis Growth
Opportunity Fund's annual average net assets and 0.25% 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.
39
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1998 (Unaudited)
===========================================
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATE-
(CONTINUED)
Each Fund has adopted procedures to treat Shelby Cullom Davis & Co.
("SCD") as an affiliate of the Adviser. During the six months ended June 30,
1998, SCD received $23,880 and $7,020 in commissions on the purchases and sales
of portfolio securities in Davis Financial Fund and Davis Real Estate Fund,
respectively.
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, 1998, Davis Distributors, LLC, the
Funds' Underwriter (the "Underwriter" or "Distributor") received $302,390,
$52,093, $4,044,562, $1,020,060 and $1,441,382 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 $45,622, $6,759, $ 632,704,
$160,449 and $224,983 was retained by the Underwriter and the remaining
$256,768, $45,334, $3,411,858, $859,611 and $1,216,399 was re-allowed to
investment dealers. The Underwriter paid the costs of prospectuses in excess of
those required to be filed as part of the Funds' registration statement, sales
literature and other expenses assumed or incurred by it in connection with such
sales.
The Underwriter is reimbursed for amounts paid to dealers as a service fee
with respect to Class A shares sold by dealers which remain outstanding during
the period. The service fee is paid at the annual rate of 1/4 of 1% of the
average net assets maintained by the responsible dealers. The Underwriter is
not reimbursed for accounts in which the Underwriter pays no service fees to
other firms. The service 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,
1998, was $74,948, $22,694, $349,899, $139,792 and $236,251, 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) pay a distribution fee to reimburse the Distributor for commission
advances on the sale of each Fund's Class B shares. The National Association of
Securities Dealers Inc. (the "NASD"), limits the percentage of each Fund's
average annual net assets attributable to Class B shares which may be used to
reimburse the Distributor. The limit is 1%, of which 0.75% may be used to pay
distribution expenses and 0.25% may be used to pay
40
<PAGE>
DAVIS SERIES, INC. NOTES TO
FINANCIAL STATEMENTS - (CONTINUED) At June 30, 1998 (Unaudited)
===============================================================
NOTE 3 - DISTRIBUTION AND UNDERWRITING FEES - (CONTINUED)
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 (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, 1998, 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 distribution fees of $247,156, $ 47,113,
$1,051,563, $243,999 and $540,919, respectively and service fees of $81,424,
$15,273, $351,070, $81,905 and $180,306, respectively.
Commission advances by the Distributor during the six months ended June
30, 1998 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 $424,088, $69,435, $6,181,599,
$2,215,989 and $3,027,059 of which $418,553, $68,658, $6,180,672, $2,215,283
and $3,026,117 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
$758,828, $449,814, $11,535,234, $3,271,125 and $6,307,445, respectively,
representing the cumulative commission advances by the Distributor on the sale
of the Funds' Class B shares, plus interest, reduced by cumulative distribution
fees 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 June 30, 1998 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 $36,098, $9,362, $249,343, $47,330 and $127,281,
respectively.
CLASS C SHARES OF DAVIS GROWTH OPPORTUNITY FUND, DAVIS GOVERNMENT BOND
FUND, DAVIS FINANCIAL FUND, DAVIS CONVERTIBLE SECURITIES FUND AND DAVIS REAL
ESTATE FUND
Class C shares of the Funds are sold at net asset value and are redeemed
at net asset value less a contingent deferred sales charge of 1% if redeemed
within one year of purchase. The Funds pay the Distributor 1% of the Funds'
average annual net assets attributable to Class C shares, of which 0.75% may be
used to pay distribution expenses and 0.25% may be used to pay shareholder
service fees.
During the six months ended June 30, 1998, Class C shares of the Davis
Growth Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund,
Davis Convertible Fund and Davis Real Estate Fund made
41
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1998 (Unaudited)
===========================================
NOTE 3 - DISTRIBUTION AND UNDERWRITING FEES - (CONTINUED)
distribution payments of $19,337, $2,853, $228,474, $78,582 and $94,462,
respectively. During the six months ended June 30, 1998, the Distributor
received $1,514, $467, $12,862 $3,444 and $7,000 in contingent deferred sales
charges from Class C shares of Davis Growth Opportunity Fund, Davis Government
Bond Fund, Davis Financial Fund, Davis Convertible Securities and Davis Real
Estate Fund, 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.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the six months ended June 30, 1998 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 ......... $ 21,542,133 $ 1,993,400 $344,962,006 $107,604,095 $219,556,059
Proceeds of sales ......... $ 728,963 $ 186,175 $ 3,468,145 $ 12,732,013 $ 21,620,789
</TABLE>
NOTE 5 - CAPITAL STOCK
At June 30, 1998 there were 10 billion shares of capital stock ($0.01 par
value per share) authorized of which 550 million shares each are designated to
the Davis Growth Opportunity Fund, Davis Government Bond Fund, Davis Financial
Fund, Davis Convertible Securities Fund and Davis Real Estate Fund. 5.1 million
shares are designated to Davis Government Money Market Fund. Transactions in
capital stock were as follows:
42
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1998 (Unaudited)
===========================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
CLASS A JUNE 30, 1998 (UNAUDITED)
---------------------------------------------------------------------------------------------------
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE REAL
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES ESTATE
FUND FUND FUND FUND FUND FUND
------------- ------------ ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold .................. 962,941 762,364 200,912,978 7,571,734 2,827,844 5,090,759
Shares issued in reinvestment
of distributions ....... 89 62,865 11,266,071 -- 35,726 53,321
------------- ------------- ------------- ------------- ------------- -------------
963,030 825,229 212,179,049 7,571,734 2,863,570 5,144,080
Shares redeemed .............. (454,557) (749,735) (220,288,361) (3,404,101) (563,322) (1,903,319)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) 508,473 75,494 (8,109,312) 4,167,633 2,300,248 3,240,761
============= ============= ============= ============= ============= =============
Proceeds from shares sold .... $ 23,329,820 $ 4,488,433 $ 200,912,978 $ 205,636,789 $ 71,564,658 $ 125,778,153
Proceeds from shares issued in
reinvestment of
distributions...........
2,006 368,576 11,266,071 -- 919,201 1,349,484
------------- ------------- ------------- ------------- ------------- -------------
23,331,826 4,857,009 212,179,049 205,636,789 72,483,859 127,127,637
Cost of shares redeemed ...... (11,192,433) (4,403,363) (220,288,361) (92,571,249) (14,191,276) (46,746,840)
------------- ------------- ------------- ------------- -------------
Net increase (decrease) $ 12,139,393 $ 453,646 $ (8,109,312) $ 113,065,540 $ 58,292,583 $ 80,380,797
============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
CLASS A DECEMBER 31, 1997
-------------------------------------------------------------------------------------------------
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE REAL
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES ESTATE
FUND FUND FUND FUND FUND FUND
------------- -------------- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ..................... 1,100,536 558,992 330,851,219 7,335,160 1,550,872 5,548,659
Shares issued in reinvestment
of distributions .......... 140,718 119,025 8,451,998 171,367 208,426 200,588
------------- ------------- -------------
1,241,254 678,017 339,303,217 7,506,527 1,759,298 5,749,247
Shares redeemed ................. (525,239) (828,996) (293,545,839) (2,088,965) (210,921) (1,474,216)
------------- -------------- ------------- ------------- ------------- -------------
Net increase (decrease) ... 716,015 (150,979) 45,757,378 5,417,562 1,548,377 4,275,031
============= ============== ============= ============= ============= =============
Proceeds from shares sold ....... $ 26,573,315 $ 3,237,351 $ 330,851,219 $ 171,133,319 $ 38,576,000 $ 130,359,222
Proceeds from shares issued in
reinvestment of
distributions 3,149,356 683,818 8,451,998 4,379,988 5,173,270 4,870,372
------------- ------------- ------------- ------------- ------------- -------------
29,722,671 3,921,169 339,303,217 175,513,307 43,749,270 135,229,594
Cost of shares redeemed ......... (11,675,708) (4,767,135) (293,545,839) (50,496,593) (5,002,912) (36,105,903)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) ... $ 18,046,963 $ (845,966) $ 45,757,378 $ 125,016,714 $ 738,746,358 $ 99,123,691
============= ============= ============= ============= ============= =============
</TABLE>
43
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1998 (Unaudited)
===========================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
CLASS B JUNE 30, 1998 (UNAUDITED)
-------------------------------------------------------------------------------------------------
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE REAL
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES ESTATE
FUND FUND FUND FUND FUND FUND
------------ ------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................... 552,459 983,425 28,833,859 6,133,711 2,276,620 3,199,417
Shares issued in reinvestment
of distributions ........ (31) 32,133 320,603 (120) 8,790 23,001
------------- ------------- ------------- ------------- ------------- -------------
552,428 1,015,558 29,154,462 6,133,591 2,285,410 3,222,418
Shares redeemed ............... (415,541) (943,552) (18,187,948) (567,299) (150,192) (608,703)
------------- ------------- ------------- ------------- ------------- --------------
Net increase ............ 136,887 72,006 10,966,514 5,566,292 2,135,218 2,613,715
============= ============= ============= ============= ============= ==============
Proceeds from shares sold ..... $ 12,979,193 $ 5,773,776 $ 28,833,859 $ 165,356,547 $ 56,985,493 $ 78,539,068
Proceeds from shares issued in
issued in reinvestment of
distributions ........... (678) 187,971 320,603 (3,041) 224,270 580,307
------------- ------------- ------------- ------------- ------------- -------------
12,978,515 5,961,747 29,154,462 165,353,505 57,209,763 79,119,375
Cost of shares redeemed ....... (9,459,355) (5,540,864) (18,187,948) (15,332,703) (3,763,440) (14,773,415)
-------------- ------------- ------------- ------------- ------------- -------------
Net increase ............ $ 3,519,160 $ 420,883 $ 10,966,514 %150,020,803 $ 53,446,323 $ 64,345,960
============== ============= ============== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
CLASS B DECEMBER 31, 1997
--------------------------------------------------------------------------------------------------
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE REAL
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES ESTATE
FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Shares sold ..................... 920,970 705,850 35,233,515 7,370,436 1,293,882 4,127,099
Shares issued in reinvestment
of distributions .......... 193,330 64,235 392,764 79,728 65,853 94,831
------------- ------------- -------------
1,114,300 770,085 35,626,279 7,450,164 1,359,735 4,221,930
Shares redeemed ................. (425,487) (855,464) (28,858,833) (289,044) (38,593) (223,575)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) ... 688,813 (85,379) 6,767,446 7,161,120 1,321,142 3,998,355
============= ============= ============= ============= ============= =============
Proceeds from shares sold ....... $ 22,907,615 $ 4,070,952 $ 35,233,515 $ 167,332,980 $ 32,378,583 $ 96,109,813
Proceeds from shares issued in
reinvestment of
distributions.............. 4,209,771 368,528 392,764 2,016,400 1,639,955 2,349,788
------------- ------------- ------------- ------------- ------------- -------------
27,117,386 4,439,480 35,626,279 169,349,380 34,018,538 98,459,601
Cost of shares redeemed ......... (9,423,573) (4,900,910) (28,858,833) (6,584,559) (944,561) (5,351,225)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) ... $ 17,693,813 $ (461,430) $6,767,$46 162,764,821 $ 33,073,977 $ 93,108,376
============= ============= ============= ============= ============= =============
</TABLE>
44
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1998 (Unaudited)
===========================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
CLASS C JUNE 30, 1998 (UNAUDITED)
------------------------------------------------------------------------------------------------
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE REAL
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES ESTATE
FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Shares sold .................... 103,597 147,049 7,950,898 1,911,189 777,603 988,927
Shares issued in reinvestment
of distributions ......... -- 837 65,289 (16) 1,802 2,928
------------ ------------ ------------ ------------ ------------
103,597 147,886 8,016,187 1,911,173 779,405 991,855
Shares redeemed ................ (36,117) (30,063) (3,817,067) (103,418) (42,570) (119,462)
------------ ------------ ------------ ------------ ------------ ------------
Net increase ............. 67,480 117,823 4,199,120 1,807,755 736,835 872,393
============ ============ ============
Proceeds from shares sold ...... $ 2,471,528 $ 866,933 $ 7,950,898 $ 52,331,283 $ 19,769,874 $ 24,406,159
Proceeds from shares issued in
reinvestment of
distributions -- 4,913 65,289 (430) 46,653 74,363
------------ ------------ ------------ ------------ ------------ ------------
2,471,528 871,846 8,016,187 52,330,853 19,816,527 24,480,522
Cost of shares redeemed ........ (871,277) (176,750) (3,817,067) (2,835,533) (1,082,455) (2,930,930)
------------ ------------ ------------ ------------ ------------
Net increase ............. $ 1,600,251 $ 695,096 $ 4,199,120 $ 49,495,320 $ 18,734,072 $ 21,549,592
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
CLASS C
AUGUST 15, 1997 AUGUST 19, 1997 AUGUST 12, 1997 AUGUST 12, 1997 AUGUST 13, 1997
(COMMENCEMENT (COMMENCEMENT (COMMENCEMENT (COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) OF OPERATIONS) OF OPERATIONS) OF OPERATIONS) OF OPERATIONS)
THROUGH THROUGH YEAR ENDED THROUGH THROUGH THROUGH
12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE REAL
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES ESTATE
FUND FUND FUND FUND FUND FUND
------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ........... 117,836 81,512 11,684,526 761,161 244,199 335,470
Shares issued
in reinvestment
of distributions 6,062 186 105,277 7,941 11,513 4,832
------------ ------------ ------------ ------------ ------------ ------------
123,898 81,698 11,789,803 769,102 255,712 340,302
Shares redeemed ....... (8,646) (45,199) (10,785,633) (10,141) (7,411) (13,792)
------------ ------------ ------------ ------------ ------------ ------------
Net increase .... 115,252 36,499 1,004,170 758,961 248,301 326,510
============ ============ ============ ============ ============ ============
Proceeds from
shares sold ..... $ 3,139,205 $ 475,986 $ 11,684,526 $18,756,737 $ 6,408,741 $ 8,385,602
Proceeds from
shares issued in
reinvestment of
distributions ... 135,237 1,087 105,277 203,285 290,990 123,175
----------- ------------ ------------ ------------ ------------ ------------
3,274,442 477,073 11,789,803 18,960,022 6,699,731 8,508,777
Cost of shares
redeemed ........ (207,854) (263,512) (10,785,633) (250,089) (197,278) (344,542)
------------ ------------ ------------ ------------ ------------ ------------
Net increase .... $ 3,066,588 $ 213,561 $ 1,004,170 $ 18,709,933 $ 6,502,453 $ 8,164,235
============ ============ ============ ============ ============ ============
</TABLE>
45
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1998 (Unaudited)
===========================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<TABLE>
<CAPTION>
CLASS Y
SIX MONTHS
ENDED
JUNE 30, 1998
(UNAUDITED)
-------------------------------------------------------------------------
DAVIS DAVIS DAVIS
GROWTH DAVIS CONVERTIBLE REAL
OPPORTUNITY FINANCIAL SECURITIES ESTATE
FUND FUND FUND FUND
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................. 3.914 247,727 57,788 501,289
Shares issued in reinvestment
of distributions ...................... -- -- 11,469 9,140
------------ ------------ ------------ ------------
3,914 247,727 69,257 510,429
Shares redeemed ............................. (1,286) (46,099) (12,666) (17,743)
------------ ------------ ------------ ------------
Net increase (decrease) ............... 2,628 201,628 56,591 492,686
============ ============ ============
Proceeds from shares sold ................... $ 99,885 $ 6,777,766 $ 1,467,650 $ 12,470,257
Proceeds from shares issued in
reinvestment of distributions ......... -- -- 296,035 232,708
------------ ------------ ------------ ------------
99,885 6,777,766 1,763,685 12,702,965
Cost of shares redeemed ..................... (29,150) (1,270,146) (320,217) (437,802)
------------ ------------ ------------ ------------
Net increase (decrease) ............... $ 70,735 $ 5,507,620 $ 1,443,468 $ 12,265,163
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
CLASS Y
SEPTEMBER 18, 1997 MARCH 10, 1997
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) OF OPERATIONS)
THROUGH THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997
----------------- ----------------- ----------------------------------
DAVIS DAVIS DAVIS
GROWTH DAVIS CONVERTIBLE REAL
OPPORTUNITY FINANCIAL SECURITIES ESTATE
FUND FUND FUND FUND
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares sold ................................. 4,577 162,900 53,778 169,862
Shares issued in reinvestment
of distributions ...................... 235 2,156 109,438 44,811
----------- ----------- ----------- -----------
4,812 165,056 163,216 214,673
Shares redeemed ............................. (626) (16,811) (271,815) (2,344)
----------- ----------- ----------- -----------
Net increase (decrease) ............... 4,186 148,245 (108,599) 212,329
=========== =========== =========== ===========
Proceeds from shares sold ................... $ 123,437 $ 3,887,607 $ 1,260,826 $ 4,171,776
Proceeds from shares issued in
reinvestment of distributions ......... 5,264 55,087 2,706,537 1,092,773
----------- ----------- ----------- -----------
128,701 3,942,694 3,967,363 5,264,549
Cost of shares redeemed ..................... (15,312) (409,951) (6,033,609) (58,299)
----------- ----------- ----------- -----------
Net increase (decrease) ............... $ 113,389 $ 3,532,743 $(2,066,246) $ 5,206,250
=========== =========== =========== ===========
</TABLE>
46
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1998 (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 $1,666, $867, $317,
$8,231, $7,063 and $4,028 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, during
the six months ended June 30, 1998.
NOTE 7 - NOTE RECEIVABLE
At June 30, 1998, Davis Financial Fund owned a note receivable from the
Robert Plan Corporation in the amount of $499,987 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 - RESTRICTED AND ILLIQUID SECURITIES
Restricted securities are not registered under the Securities Act of 1933
and may have contractual restrictions on resale. They are valued under methods
approved by the Board of Directors as reflecting fair value. The aggregate
value of restricted securities in Davis Real Estate Fund was $9,422,812, or
2.10% of the Fund's total net assets as of June 30, 1998. Securities may be
considered illiquid if they lack a readily available market or if valuation has
not changed for a certain period of time. The aggregate value of illiquid
securities in Davis Convertible Securities Fund was $50,000, or 0.02% of the
Fund's total net assets as of June 30, 1998. Information concerning restricted
and illiquid securities is as follows:
<TABLE>
<CAPTION>
Valuation per Unit
Fund Security Acquisition Date Cost per Unit as of June 30, 1998
- ---- -------- ---------------- ------------- -------------------
<S> <C> <C> <C> <C>
Davis Real Estate Centerpoint Properties
Corp. Private 04/02/98 $ 33.375 $ 31.41
Davis Convertible Florida West Airlines,
Securities Inc., 8.00%, 03/25/99 03/23/94 $ 100.00 $ 10.00
</TABLE>
47
<PAGE>
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:
CLASS A
<TABLE>
<CAPTION>
SIX MONTHS ONE MONTH
ENDED ---YEAR ENDED--- ENDED
JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 1996 1995 1994
---------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .......... $ 22.49 $ 18.93 $ 17.25 $ 12.83 $ 13.70
------------ ------------ ------------ ---------- ----------
Income (Loss) From Investment Operations
Net Investment Loss ........................ (0.04) (0.10) (0.13) (0.11) (0.01)
Net Gains or Losses on Securities
(both realized and unrealized) ......... 1.57 5.34 3.37 6.08 (0.29)
------------ ------------ ------------ ---------- ----------
Total From Investment Operations .... 1.53 5.24 3.24 5.97 (0.30)
------------ ------------ ------------ ---------- ----------
Less Distributions
Distributions (from capital gains) ......... -- (1.68) (1.55) (1.55) (0.57)
Distributions (from paid-in capital) ....... -- -- (0.01) -- --
------------ ------------ ------------ ---------- ----------
Total Distributions .................. (1.68) (1.56) (1.55) (0.57)
------------ ------------ ------------ ---------- ----------
Net Asset Value, End of Period ................ $ 24.02 $ 22.49 $ 18.93 $ 17.25 $ 12.83
============ ============ ============ ========== ==========
Total Return1 ................................. 6.80% 27.70% 18.73% 46.65% (2.21)%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ... $ 63,877 $ 48,386 $ 27,158 $ 22,890 $ 12,455
Ratio of Expenses to Average Net Assets .... 1.34%* 1.27% 1.49%2 1.51% 1.42%*
Ratio of Net Loss to Average Net Assets ... (0.33)%* (0.58)% (0.76)% (0.71)% (0.08)%*
Portfolio Turnover Rate3 ................... 0.61% 19.33% 30.55% 30.07% 37.31%
Average Commission Rate Per Share4 ......... $ 0.0597 $ 0.0600 $ 0.0454 -- --
</TABLE>
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
2 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.
3 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
4 Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of
related shares purchased and sold.
* Annualized
48
<PAGE>
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>
<CAPTION>
CLASS B
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 ---------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 19931
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...... $ 21.88 $ 18.58 $ 17.08 $ 12.82 $ 14.67 $ 13.25
------------ ------------ ------------ ---------- ---------- ----------
Income (Loss) From Investment Operations
Net Investment Loss .................... (0.13) (0.25) (0.27) (0.26) (0.12) (0.07)
Net Gains or Losses on Securities
(both realized and unrealized) ..... 1.51 5.23 3.33 6.07 (1.11) 1.54
------------ ------------ ------------ ---------- ---------- ----------
Total From Investment
Operations ................... 1.38 4.98 3.06 5.81 (1.23) 1.47
------------ ------------ ------------ ---------- ---------- ----------
Less Distributions
Dividends (from net investment income) . -- -- -- -- -- (0.05)
Distributions (from capital gains) ..... -- (1.68) (1.55) (1.55) (0.62) --
Distributions (from paid-in capital) ... -- -- (0.01) -- -- --
------------ ------------ ------------ ---------- ---------- ----------
Total Distributions .............. -- (1.68) (1.56) (1.55) (0.62) (0.05)
------------ ------------ ------------ ---------- ---------- ----------
Net Asset Value, End of Period ............ $ 23.26 $ 21.88 $ 18.58 $ 17.08 $ 12.82 $ 14.67
============ ============ ============ ========== ========== ==========
Total Return2 ............................. 6.31% 26.82% 17.86% 45.44% (8.45)% 11.16%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $ 68,465 $ 61,383 $ 39,343 $ 35,326 $ 36,087 $ 51,762
Ratio of Expenses to Average Net Assets 2.13%*3 2.09%3 2.25%3 2.30% 2.15% 2.39%
Ratio of Net Loss to Average Net Assets (1.11)%* (1.40)% (1.52)% (1.50)% (0.81)% (0.55)%
Portfolio Turnover Rate4 ............... 0.61% 19.33% 30.55% 30.07% 37.31% 38.93%
Average Commission Rate Per Share5 ..... $ 0.0597 0.0600$ 0.0454 -- -- --
</TABLE>
1 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.
2 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
3 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.12% for the six months ended June
30, 1998 and 2.08% and 2.24% for 1997 and 1996, respectively. Prior to
1996, such reductions were reflected in the expenses ratios.
4 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
5 Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of
related shares purchased and sold.
* Annualized
49
<PAGE>
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>
<CAPTION>
------------CLASS C------------- -------------CLASS Y-------
AUGUST 15, 1997 SEPTEMBER 18, 1997
(COMMENCEMENT (COMMENCEMENT
SIX MONTHS OF OPERATIONS) SIX MONTHS OF OPERATIONS)
ENDED THROUGH ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997 (UNAUDITED) 1997
----------- ---- ----------- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .......... $ 22.43 $ 25.56 $ 22.52 $ 27.19
----------- ----------- --------- --------
Income (Loss) From Investment Operations
Net Investment Loss ........................ (0.13) (0.04) -- --
Net Gains or Losses on Securities
(both realized and unrealized) ........... 1.55 (1.41) 1.56 (2.99)
----------- ----------- --------- --------
Total From Investment
Operations ....................... 1.42 (1.45) 1.56 (2.99)
----------- ----------- --------- --------
Less Distributions
Distributions (from capital gains) ......... -- (1.68) -- (1.68)
----------- ----------- --------- --------
Total Distributions .................. -- (1.68) -- (1.68)
----------- ----------- --------- --------
Net Asset Value, End of Period ................ $ 23.85 $ 22.43 $ 24.08 $ 22.52
=========== =========== ========= ========
Total Return1 ................................. 6.33% (5.66)% 6.93% (10.98)%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ... $ 4,358 $ 2,585 $ 164 $ 94
Ratio of Expenses to Average Net Assets ... 2.22%*2 2.19%* 0.95%*2 1.01%*
Ratio of Net Loss to Average Net Assets ... (1.20)%* (1.51)%* 0.07%* (0.33)%*
Portfolio Turnover Rate3 ................... 0.61% 19.33% 0.61% 19.33%
Average Commission Rate Per Share4 ......... $ 0.0597 $ 0.0600 $ 0.0597 $ 0.0600
</TABLE>
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
2 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.21% and 0.94% for the six months
ended June 30, 1998 for Class C and Y shares, respectively. Prior to 1996,
such reductions were reflected in the expenses ratios.
3 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
4 Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of
related shares purchased and sold.
* Annualized
50
<PAGE>
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>
<CAPTION>
CLASS A
SIX MONTHS ONE MONTH
ENDED -------YEAR ENDED------- ENDED
JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 1996 1995 1994
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........... $ 5.87 $ 5.76 $ 6.00 $ 5.79 $ 5.78
---------- ---------- ---------- ---------- ----------
Income (Loss) From Investment Operations
Net Investment Income ...................... 0.15 0.33 0.33 0.39 0.02
Net Gains or Losses on Securities
(both realized and unrealized) ........... 0.02 0.11 (0.14) 0.27 (0.01)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations .... 0.17 0.44 0.19 0.66 0.01
---------- ---------- ---------- ---------- ----------
Less Distributions
Dividends (from net investment income) ...... (0.17) (0.33) (0.33) (0.36) --
Distributions (from paid-in capital) ........ -- -- (0.10) (0.09) --
---------- ---------- ---------- ---------- ----------
Total Distributions .................. (0.17) (0.33) (0.43) (0.45) --
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ................. $ 5.87 $ 5.87 $ 5.76 $ 6.00 $ 5.79
========== ========== ========== ========== ==========
Total Return1 .................................. 2.85% 7.92% 3.40% 11.82% (0.97)%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) .... $ 18,017 $ 17,589 $ 18,129 $ 21,485 $ 20,035
Ratio of Expenses to Average Net Assets ..... 1.71%* 1.27%2 1.77% 1.74% 1.64%*
Ratio of Net Income to Average Net Assets ... 5.17%* 5.82% 5.88% 6.54% 6.22%*
Portfolio Turnover Rate3 .................... 0.63% 24.35% 45.50% 41.04% 62.17%
</TABLE>
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
2 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.26% for 1997. Prior to 1996,
such reductions were reflected in the expenses ratios.
3 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
51
<PAGE>
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>
<CAPTION>
CLASS B
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 -----------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $ 5.86 $ 5.75 $ 5.98 $ 5.79 $ 6.33 $ 6.61
--------- --------- --------- --------- --------- ---------
Income (Loss) From Investment Operations
Net Investment Income...................... 0.13 0.29 0.29 0.34 0.31 0.36
Net Gains or Losses on Securities
(both realized and unrealized)....... 0.01 0.11 (0.13) 0.26 (0.37) (0.12)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations.... 0.14 0.40 0.16 0.60 (0.06) 0.24
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends (from net investment
income).............................. (0.14) (0.29) (0.29) (0.33) (0.37) (0.42)
Distributions (from paid-in capital)....... - - (0.10) (0.08) (0.11) (0.10)
---------- ---------- --------- --------- --------- ---------
Total Distributions.................. (0.14) (0.29) (0.39) (0.41) (0.48) (0.52)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period................. $ 5.86 $ 5.86 $ 5.75 $ 5.98 $ 5.79 $ 6.33
========== ========== ========== ========= ========= =========
Total Return2.................................. 2.47% 7.12% 2.78% 10.62% (0.97)% 3.69%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted).... $13,116 $12,703 $12,959 $15,976 $19,241 $50,080
Ratio of Expenses to Average Net Assets... 2.43%*3 2.01%3 2.53%3 2.51% 2.38% 2.37%
Ratio of Net Income to Average Net Assets.. 4.46%* 5.07% 5.13% 5.77% 5.48% 5.52%
Portfolio Turnover Rate4.................... 0.63% 24.35% 45.50% 41.04% 62.17% 42.82%
</TABLE>
1 Per share calculations other than distributions were based on average shares
outstanding during the period.
2 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
3 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.42% for the six months ended June
30, 1998 and 2.00% and 2.52% for 1997 and 1996, respectively. Prior to
1996, such reductions were reflected in the expenses ratios.
4 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
52
<PAGE>
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>
<CAPTION>
CLASS C
AUGUST 19, 1997
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED THROUGH
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
---------- ----
<S> <C> <C>
Net Asset Value, Beginning of Period...................................... $ 5.88 $ 5.79
--------- ---------
Income (Loss) From Investment Operations
Net Investment Income................................................ 0.14 0.08
Net Gains on Securities (both realized and unrealized).............. - 0.09
---------- ---------
Total From Investment Operations............................... 0.14 0.17
--------- ---------
Less Distributions
Dividends (from net investment income)................................ (0.14) (0.08)
--------- ---------
Total Distributions............................................. (0.14) (0.08)
--------- ---------
Net Asset Value, End of Period............................................ $ 5.88 $ 5.88
========== =========
Total Return1............................................................. 2.47% 2.97%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)
$908 $215
Ratio of Expenses to Average Net Assets...............................
2.31%* 1.97%*2
Ratio of Net Income to Average Net Assets.............................
4.57%* 5.11%*
Portfolio Turnover Rate3 0.63% 24.35%
</TABLE>
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
2 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.96% for 1997.
3 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
53
<PAGE>
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>
<CAPTION>
CLASSES A, B & C
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1998 --------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
----------- ---- ---- ---- ---- ----
<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...................... .025 .049 .047 .051 .034 .020
Less Distributions
Dividends (from net investment income)... (.025) (.049) (.047) (.051) (.034) (.020)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period.................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ======= =======
Total Return1 .................................. 2.49% 5.02% 4.80% 5.25% 3.48% 2.01%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)... $472,002 $464,459 $411,416 $360,290 $240,727 $39,531
Ratio of Expenses to Average Net Assets... 0.56%* 0.57% 0.66% 0.73% 0.64% 1.15%
Ratio of Net Income to Average Net Assets.. 5.02%* 4.92% 4.72% 5.13% 3.43% 1.98%
</TABLE>
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Total returns are not annualized for periods of less than one full
year.
* Annualized
54
<PAGE>
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS FINANCIAL FUND
===============================================================================
The following financial information for each respective fund represents
selected data for each share of capital stock outstanding throughout each
period.
<TABLE>
<CAPTION>
CLASS A
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1998 -------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 19932
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...........$ 25.68 $ 18.06 $ 14.50 $ 10.68 $ 11.70 $ 11.20
---------- ---------- ---------- --------- --------- ---------
Income (Loss) From Investment Operations
Net Investment Income....................... 0.05 0.13 0.14 0.07 0.08 0.07
Net Gains or Losses on Securities
(both realized and unrealized)......... 3.31 7.92 4.44 5.32 (0.61) 1.59
---------- ---------- ---------- --------- --------- ---------
Total From Investment Operations..... 3.36 8.05 4.58 5.39 (0.53) 1.66
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends (from net investment income)...... - (0.13) (0.15) (0.07) (0.08) (0.08)
Distributions (from capital gains).......... - (0.30) (0.87) (1.50) (0.39) (1.08)
Distributions (from paid-in capital)........ - - - - (0.02) -
---------- --------- --------- --------- --------- -------
Total Distributions................... - (0.43) (1.02) (1.57) (0.49) (1.16)
---------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period.................$ 29.04 $ 25.68 $ 18.06 $ 14.50 $ 10.68 $ 11.70
========== ========== ========== ========= ========= =========
Total Return 1................................. 13.08% 44.53% 31.50% 50.51% (4.55)% 14.87%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted).... $451,278 $292,059 $107,579 $79,874 $57,670 $50,778
Ratio of Expenses to Average Net Assets..... 1.10%* 1.07% 1.15% 1.18% 1.24% 1.32%
Ratio of Net Income to Average Net Assets.. 0.41%* 0.77% 0.92% 0.53% 0.67% 0.57%
Portfolio Turnover Rate3.................... 0.51% 6.23% 25.78% 41.89% 43.95% 70.33%
Average Commission Rate Per Share4.......... $0.0600 $0.0600 $0.0518 - - -
</TABLE>
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
2 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.
3 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
4 Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of
related shares purchased and sold.
* Annualized
55
<PAGE>
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
DECEMBER 27, 1994
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED ---------------YEAR ENDED----------------- THROUGH
JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 1996 1995 1994
---------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $ 25.36 $ 17.91 $ 14.41 $ 10.68 $ 11.22
---------- --------- --------- --------- ---------
Income (Loss) From Investment Operations
Net Investment Income (Loss).................... (0.05) (0.01) 0.01 0.01 0.03
Net Gains or Losses on Securities
(both realized and unrealized).............. 3.25 7.76 4.37 5.22 (0.13)
---------- --------- --------- --------- ---------
Total From Investment Operations........ 3.20 7.75 4.38 5.23 (0.10)
---------- --------- --------- --------- ---------
Less Distributions
Dividends (from net investment income).......... - - (0.01) - (0.03)
Distributions (from capital gains).............. - (0.30) (0.87) (1.50) (0.39)
Distributions (from paid-in capital)............ - - - - (0.02)
---------- ---------- --------- --------- ---------
Total Distributions...................... (0.30) (0.88) (1.50) (0.44)
---------- ---------- ---------- ---------- ---------
Net Asset Value, End of Period..................... $ 28.56 $ 25.36 $ 17.91 $ 14.41 $ 10.68
========== ========== ========== ========= =========
Total Return 1..................................... 12.62% 43.25% 30.29% 49.00% (0.90)%
- ------------ -------------------------------------
Ratios/Supplemental Data
Net Assets, End of Period(000 omitted)......... $$376,549 $193,257 $8,213 $1,762 $28
Ratio of Expenses to Average Net Assets......... 1.95%* 1.97% 2.04% 2.09% 2.04%*
Ratio of Net Income (Loss)to Average Net
Assets
(0.44)%* (0.12)% 0.19% (0.38)% (0.13)%*
Portfolio Turnover Rate2........................ 0.51% 6.23% 25.78% 41.89% 43.95%
Average Commission Rate Per Share3.............. $0.0600 $0.0600 $0.0518 - -
</TABLE>
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on
the last business day of the fiscal period. Sales charges are not
reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
2 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or
expiration date at the time of acquisition of one year or less are
excluded from the calculation.
3 Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of
related shares purchased and sold.
* Annualized
56
<PAGE>
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 C-------------- ---------------CLASS Y----------
AUGUST 12, 1997 MARCH 10, 1997
(COMMENCEMENT (COMMENCEMENT
SIX MONTHS OF OPERATIONS) SIX MONTHS OF OPERATIONS)
ENDED THROUGH ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997 (UNAUDITED) 1997
------------ ---- ----------- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................. $ 25.71 $ 23.76 $ 25.66 $ 20.32
--------- --------- --------- ---------
Income (Loss) From Investment Operations
Net Investment Income (Loss)....................... (0.03) - 0.07 0.09
Net Gains on Securities
(both realized and unrealized)................. 3.28 2.25 3.33 5.74
--------- --------- --------- ---------
Total From Investment Operations........... 3.25 2.25 3.40 5.83
--------- --------- --------- ---------
Less Distributions
Dividends (from net investment income)............. - - - (0.19)
Distributions (from capital gains)................. - (0.30) - (0.30)
--------- ---------- ---------- ---------
Total Distributions......................... - (0.30) - (0.49)
--------- --------- ---------- ---------
Net Asset Value, End of Period........................ $ 28.96 $ 25.71 $ 29.06 $ 25.66
========= ========== ========== =========
Total Return 1........................................ 12.64% 9.45% 13.25% 28.66%
Ratios/Supplemental Data
Net Assets, End of Period(000 omitted)............ $74,339 $19,515 $10,169 $3,805
Ratio of Expenses to Average Net Assets............ 1.91%* 1.93%* 0.75%* 0.79%*
Ratio of Net Income (Loss) to Average Net
Assets......................................... (0.40)%* (0.09)%* 0.76%* 1.06%*
Portfolio Turnover Rate2........................... 0.51% 6.23% 0.51% 6.23%
Average Commission Rate Per Share3................. $0.0600 $0.0600 $0.0600 $0.0600
</TABLE>
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on
the last business day of the fiscal period. Sales charges are not
reflected in total returns. Total returns are not annualized for periods
of less than one full year.
2 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or
expiration date at the time of acquisition of one year or less are
excluded from the calculation.
3 Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of
related shares purchased and sold.
* Annualized
57
<PAGE>
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 A
SIX MONTHS
ENDED ----------------------YEAR ENDED DECEMBER 31,------------------
JUNE 30, 1998
(UNAUDITED) 1997 1996 1995 1994 1993
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $ 25.26 $ 21.22 $ 18.22 $ 15.57 $ 17.45 $ 15.73
---------- ---------- ---------- --------- --------- ---------
Income From Investment Operations
Net Investment Income........................ 0.34 0.67 0.71 0.67 0.67 0.67
Net Gains or Losses on Securities
(both realized and unrealized)........... (0.27) 5.33 4.56 3.42 (1.83) 2.02
--------- --------- --------- --------- --------- ---------
Total From Investment
Operations........................ 0.07 6.00 5.27 4.09 (1.16) 2.69
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends (from net investment income)....... (0.20) (0.67) (0.69) (0.66) (0.67) (0.67)
Distributions (from capital gains)........... - (1.22) (1.54) (0.78) (0.05) (0.30)
Distributions (from paid-in capital)......... - (0.07) (0.04) - - -
---------- ---------- --------- ---------- ---------- --------
Total Distributions................... (0.20) (1.96) (2.27) (1.44) (0.72) (0.97)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period.................. $ 25.13 $ 25.26 $ 21.22 $ 18.22 $ 15.57 $ 17.45
========= ========= ========= ========= ========= =========
Total Return 1.................................. 0.26% 28.68% 29.46% 26.68% (6.72)% 17.26%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)..... $147,430 $90,107 $42,841 $59,757 $47,844 $44,730
Ratio of Expenses to Average Net Assets...... 1.19%*2 1.08%2 1.05% 1.14% 1.20% 1.21%
Ratio of Net Income to Average Net Assets... 3.05%* 3.00% 3.34% 3.87% 4.06% 3.89%
Portfolio Turnover Rate3..................... 6.54% 23.68% 43.16% 53.58% 45.15% 62.17%
Average Commission Rate Per Share4........... $0.0600 $0.0600 $0.0552 - - -
</TABLE>
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in total returns. Total returns
are not annualized for periods of less than one full year.
2 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.18% and 1.07% for the six months
ended June 30, 1998 and for 1997, respectively. Prior to 1996, such
reductions were reflected in the expenses ratios.
3 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or
expiration date at the time of acquisition of one year or less are
excluded from the calculation.
4 Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of
related shares purchased and sold.
* Annualized
58
<PAGE>
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 C---------
FEBRUARY 3, 1995 AUGUST 12, 1997
(COMMENCEMENT (COMMENCEMENT
SIX MONTHS OF OPERATIONS) SIX MONTHS OF OPERATIONS)
ENDED YEAR ENDED THROUGH ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, DECEMBER 31, JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997 1996 1995 (UNAUDITED) 1997
----------- ---- ---- ---- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................. $ 25.03 $ 21.05 $ 18.14 $ 15.95 $ 25.36 $ 24.91
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income............... 0.24 0.44 0.59 0.54 0.24 0.11
Net Gains or Losses on
Securities (both realized
and unrealized).................. (0.29) 5.26 4.45 2.97 (0.28) 1.72
--------- --------- --------- --------- --------- ---------
Total From Investment
Operations................. (0.05) 5.70 5.04 3.51 (0.04) 1.83
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends (from net
investment income)............... (0.13) (0.44) (0.56) (0.54) (0.14) (0.11)
Distributions (from
capital gains)................... - (1.22) (1.54) (0.78) - (1.22)
Distributions (from
paid-in capital)................. - (0.06) (0.03) - - (0.05)
---------- ---------- --------- ---------- ---------- ---------
Total Distributions........... (0.13) (1.72) (2.13) (1.32) (0.14) (1.38)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period ........ $ 24.85 $ 25.03 $ 21.05 $ 18.14 $ 25.18 $ 25.36
========= ========= ========== ========= ========= =========
Total Return 1......................... ( 0.21)% 27.35% 28.21% 25.31% (0.15)% 7.38%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted).................... $88,348 $35,536 $2,075 $378 $24,802 $6,296
Ratio of Expenses to
Average Net Assets............... 2.06%*2 2.11%2 2.01%2 2.01%* 2.03%* 2.08%*2
Ratio of Net Income
to Average Net Assets........... 2.18%* 2.09% 2.40% 3.00%* 2.20%* 2.01%*
Portfolio Turnover Rate3............ 6.54% 23.68% 43.16% 53.58% 6.54% 23.68%
Average Commission
Rate Per Share4.................. $0.0600 $0.0600 $0.0552 - $0.0600 $0.0600
</TABLE>
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
2 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.05% for Class B shares for the
six months ended June 30, 1998 and 2.10% and 2.00% for Class B shares for
1997 and 1996, respectively and 2.07% for Class C Shares for 1997.
Prior to 1996, such reductions were reflected in the expenses ratios.
3 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
4 Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of
related shares purchased and sold.
* Annualized
59
<PAGE>
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 Y
NOVEMBER 13, 1996
(COMMENCEMENT
SIX MONTHS YEAR OF OPERATIONS)
ENDED ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 1996
----------- ---- ----
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period................................... $ 25.34 $ 21.29 $ 21.39
--------- --------- ---------
Income From Investment Operations
Net Investment Income................................. 0.40 0.69 0.07
Net Gains on Securities
(both realized and unrealized)..................... (0.30) 5.35 1.44
--------- --------- ---------
Total From Investment Operations............... 0.10 6.04 1.51
--------- --------- ---------
Less Distributions
Dividends (from net investment income)................ (0.21) (0.69) (0.06)
Distributions (from capital gains).................... - (1.22) (1.54)
Distributions (from paid-in capital).................. - (0.08) (0.01)
---------- --------- ---------
Total Distributions............................. (0.21) (1.99) (1.61)
--------- --------- ---------
Net Asset Value, End of Period........................... $ 25.23 $ 25.34 $ 21.29
========= ========= ==========
Total Return 1........................................... 0.39% 28.80% 7.01%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted).............. $37,817 $36,543 $33,006
Ratio of Expenses to Average Net Assets............... 0.87%*2 0.95% 0.98%*
Ratio of Net Income to Average Net Assets............ 3.37%* 3.09% 3.11%*
Portfolio Turnover Rate3.............................. 6.54% 23.68% 43.16%
Average Commission Rate Per Share4..... $0.0600 $0.0600 $0.0552
</TABLE>
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
2 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 0.86% for the six months ended June
30, 1998.
3 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or
expiration date at the time of acquisition of one year or less are
excluded from the calculation.
4 Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of
related shares purchased and sold.
* Annualized
60
<PAGE>
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS REAL ESTATE FUND
===============================================================================
The following financial information represents selected data for each share of
capital stock outstanding throughout the period.
<TABLE>
<CAPTION>
CLASS A
JANUARY 3, 1994
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED ---------------YEAR ENDED---------------- THROUGH
JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 19961 1995 1994
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..............$ 25.41 $ 21.24 $ 16.44 $ 14.72 $ 14.29
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income.......................... 0.37 0.74 0.71 0.82 0.62
Net Gains or Losses on Securities
(both realized and unrealized)................ (1.85) 4.51 5.22 1.71 0.55
--------- - ---------- ---------- --------- ---------
Total From Investment Operations........ (1.48) 5.25 5.93 2.53 1.17
--------- --------- --------- --------- ---------
Less Distributions
Dividends (from net investment income)......... (0.20) (0.74) (0.70) (0.81) (0.62)
Distributions (from capital gains)............. - (0.27) (0.25) - (0.12)
Distributions (from paid-in capital gains)..... - (0.07) (0.18) - -
-------- --------- - --------- --------- -------
Total Distributions...................... (0.20) (1.08) (1.13) (0.81) (0.74)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period....................$ 23.73 $ 25.41 $ 21.24 $ 16.44 $ 14.72
========= ========= ========= ========= =========
Total Return 2.................................... (5.87)% 25.08% 37.05% 17.70% 8.18%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)....... $214,655 $147,488 $32,507 $29,320 $25,450
Ratio of Expenses to Average Net Assets........ 1.20%*3 1.18% 1.32%3 1.43% 1.86%*
Ratio of Net Income to Average Net Assets...... 3.33%* 3.40% 3.95% 5.44% 3.98%*
Portfolio Turnover Rate4....................... 6.33% 12.50% 18.60% 38.82% 35.80%
Average Commission Rate Per Share5............. $0.0600 $0.0600 $0.0600 - -
</TABLE>
1 Per share calculations other than distributions were based on average
shares outstanding during the period.
2 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
3 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.19% and 1.31% for the six months
ended June 30, 1998 and for 1996, respectively. Prior to 1996, such
reductions were reflected in the expenses ratios.
4 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
5 Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of
related shares purchased and sold.
* Annualized
61
<PAGE>
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>
<CAPTION>
CLASS B
DECEMBER 27, 1994
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED -------------YEAR ENDED-------------- THROUGH
JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 19961 1995 1994
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 25.32 $ 21.19 $ 16.41 $ 14.72 $ 14.73
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income.......................... 0.28 0.54 0.56 0.68 0.02
Net Gains or Losses on Securities
(both realized and unrealized).............. (1.85) 4.47 5.21 1.70 0.11
--------- --------- --------- --------- ---------
Total From Investment Operations........ (1.57) 5.01 5.77 2.38 0.13
--------- --------- --------- --------- ---------
Less Distributions
Dividends (from net investment income)......... (0.15) (0.54) (0.63) (0.69) (0.02)
Distributions (from capital gains)............. - (0.27) (0.25) - (0.12)
Dividends (from paid-in capital)............... - (0.07) (0.11) - -
---------- ----------- --------- ---------- ---------
Total Distributions...................... (0.15) (0.88) (0.99) (0.69) (0.14)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period.................... $ 23.60 $ 25.32 $ 21.19 $ 16.41 $ 14.72
========= ========= ========= ========= =========
Total Return 2.................................... (6.25)% 23.88% 35.99% 16.59% 0.89%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)....... $168,212 $114,283 $10,919 $414 $34
Ratio of Expenses to Average Net Assets........ 2.03%*2 2.04% 2.22% 2.39% 2.64%*
Ratio of Net Income to Average Net Assets...... 2.50%* 2.60% 3.46% 4.48% 3.20%*
Portfolio Turnover Rate4....................... 6.33% 12.50% 18.60% 38.82% 35.80%
Average Commission Rate Per Share5............. $0.0600 $0.0600 $0.0600 - -
</TABLE>
1 Per share calculations other than distributions were based on average
shares outstanding during the period.
2 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
3 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.02% for the six months ended
June 30, 1998.
4 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
5 Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of
related shares purchased and sold.
* Annualized
62
<PAGE>
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>
<CAPTION>
CLASS C
AUGUST 13, 1997
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED THROUGH
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
<S> <C> <C>
Net Asset Value, Beginning of Period................................. $ 25.49 $ 23.41
--------- ---------
Income From Investment Operations
Net Investment Income............................................. 0.27 0.18
Net Gains or Losses on Securities (both realized and
unrealized).................................................... (1.84) 2.42
--------- ---------
Total From Investment Operations........................... (1.57) 2.60
--------- ---------
Less Distributions
Dividends (from net investment income)............................ (0.15) (0.18)
Distributions (from capital gains)................................ - (0.27)
Dividends (from paid-in capital).................................. - (0.07)
---------- ---------
Total Distributions......................................... (0.15) (0.52)
--------- ---------
Net Asset Value, End of Period....................................... $ 23.77 $ 25.49
========= =========
Total Return1 ....................................................... (6.19)% 11.12%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted).......................... $28,494 $8,322
Ratio of Expenses to Average Net Assets........................... 2.01%*2 2.03%*
Ratio of Net Income to Average Net Assets......................... 2.52%* 2.56%*
Portfolio Turnover Rate3.......................................... 6.33% 12.50%
Average Commission Rate Per Share4................................ $0.0600 $0.0600
</TABLE>
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
2 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.00% for the six months ended June
30, 1998.
3 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
4 Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of
related shares purchased and sold.
* Annualized
63
<PAGE>
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>
<CAPTION>
CLASS Y
NOVEMBER 8, 1996
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED YEAR ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 1996
----------- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................................. $ 25.56 $ 21.37 $ 19.29
--------- --------- ---------
Income From Investment Operations
Net Investment Income............................................. 0.42 0.79 0.13
Net Gains or Losses on Securities (both realized and
Unrealized................................................... (1.87) 4.54 2.35
--------- --------- ---------
Total From Investment Operations........................... (1.45) 5.33 2.48
--------- --------- ---------
Less Distributions
Dividends (from net investment income)............................ (0.22) (0.79) (0.13)
Distributions (from capital gains)................................ - (0.27) (0.25)
Dividends (from paid-in capital).................................. - (0.08) (0.02)
--------- --------- ---------
Total Distributions......................................... (0.22) (1.14) (0.40)
--------- --------- ---------
Net Asset Value, End of Period....................................... $ 23.89 $ 25.56 $ 21.37
========= ========= =========
Total Return1........................................................ (5.71)% 25.29% 12.89%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted).......................... $37,145 $27,147 $18,165
Ratio of Expenses to Average Net Assets........................... 0.81%* 1.00% 1.18%*
Ratio of Net Income to Average Net Assets......................... 3.71%* 3.47% 4.22%*
Portfolio Turnover Rate2.......................................... 6.33% 12.50% 18.60%
Average Commission Rate Per Share3................................ $0.0600 $0.0600 $0.0600
</TABLE>
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
2 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
3 Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of
related shares purchased and sold.
* Annualized
64
<PAGE>
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
Andrew A. Davis President
Christopher C. Davis Kenneth C. Eich
Jerry D. Geist Vice President
D. James Guzy Sharra L. Reed
G. Bernard Hamilton Vice President,
LeRoy E. Hoffberger Treasurer &
Laurence W. Levine Assistant Secretary
Christian R. Sonne Thomas D. Tays
Vice President & Secretary
Christopher C. Davis
Vice President
Andrew A. Davis
Vice President
Carolyn H Spolidoro
Vice President
INVESTMENT ADVISER
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
DISTRIBUTOR
Davis Distributors, LLC
124 East Marcy Street
Santa Fe, New Mexico 87501
TRANSFER AGENT & CUSTODIAN
State Street Bank and Trust Company
c/o The Davis Funds
P.O. Box 8406
Boston, MA 02266-8406
COUNSEL
D'Ancona & Pflaum
30 North LaSalle Street
Chicago, Illinois 60602
AUDITORS
KPMG Peat Marwick LLP
707 Seventeenth Street, Suite 2300
Denver Colorado 80202
===============================================================================
FOR MORE INFORMATION ABOUT DAVIS SERIES, INC. INCLUDING MANAGEMENT FEE, CHARGES
AND EXPENSES, SEE THE CURRENT PROSPECTUS WHICH MUST PRECEDE OR ACCOMPANY THIS
REPORT.
65
