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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
ANNUAL REPORT
DECEMBER 31, 1997
[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
While 1997 was another strong year for stocks, volatility increased markedly in
the latter part of the year. We think 1998 could be a time when money managers
will earn their money every day, every week, every month. The market has never
been up 20% for more than three years in a row. So the odds are it will be in a
trading range in 1998.
The financial turmoil in Asia has triggered concerns that the crisis will hurt
U.S. exports and corporate earnings as markets are flooded with cheap Asian
imports. Certainly the crisis will mean earnings disruptions and even
bankruptcies for companies in the Far East. But U.S. companies with a longer
view may be able to gain market share through acquisitions and joint ventures
in Southeast Asian markets with exciting growth potential over the next 20 or
30 years. So what was impossible during good times because of these countries'
closed economic systems may become possible now that Asian companies need U.S.
capital and ingenuity to get back on track.
We have enjoyed a long bull market with a lack of major corrections, and we are
entering a period when expectations should be lower. But we believe that the
bullish case for equities remains intact and that any market weakness next year
may merely be the pause that refreshes.
Investors' greatest fear should not be a correction, but a financial bubble
where stock valuations inflate to unrealistic levels and then crash, as they
did in 1973 and 1974. A long overdue market correction would allow us to buy
the same businesses at bargain prices, and that should be welcomed, not feared.
When merchandise goes on sale in stores, people are happy to buy it thinking
they are getting a bargain. But when stocks or industry groups go on sale,
people get nervous rather than using those times as buying opportunities. Most
investors should adopt a long-term perspective and make it a habit to invest
regularly every week or every month, without trying to second-guess short-term
market developments. That is the way to benefit from the power of compounding
over decades.(1)
At Davis Selected Advisers, our focus has always been on research. We
concentrate on finding good businesses with strong managements, and we think
three years or even 30 years ahead, not 30 days or three months ahead.
If you take a 30-year view of the market, assume a starting level of 8,000 for
the Dow and compound that figure at 7% annually--not an unreasonable growth
rate based on past performance--the Dow would be at 64,000 in three decades. If
you start that process with the Dow at 6,000 and compound that amount at 7% a
year, the Dow would reach 48,000 in 30 years.(12)
Either figure is so far ahead of where the market is today that we think it is
pointless to worry about the next 2,000 points on the Dow. That is why we
intend to remain committed owners of equities in 1998.
Sincerely,
/s/ Shelby M.C. Davis
- ---------------------
Shelby M.C. Davis
President
February 24, 1998
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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, which invests for growth of capital, was our
best-performing Fund for the one-, three- and five-year periods ended December
31, 1997.(2)
o The Fund also ranked among the 10 best-performing stock funds for the
five-year period ended December 31, 1997.(3)
o The Fund's Class A shares generated an average annual total return on net
asset value of 44.53% for the one-year period, 41.95% for the three-year period
and 25.69% for the five-year period ended December 31, 1997.(2)
o The Davis Financial Fund's Class A shares hold Morningstar's highest *****
(five-star) rating overall and for the latest three- and five-year periods.(4)
o According to Morningstar, "Davis Financial Fund has a lot of appeal as a
conservative route to financials...The fund offers the most diversification in
the specialty-financial group. Co-managers Ken Feinberg and Chris Davis spread
assets rather evenly across insurers, banks, brokerage houses, and nonfinancial
stocks...[The] fund is...positioned to run at lower volatility than its
peers...it has built a solid risk/reward profile."(5)
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG,
CO-PORTFOLIO MANAGERS
Q. What's behind the Davis Financial Fund's strong performance?
A. Our investment philosophy has been successfully practiced by the Davis
family for over fifty years and, as discussed in our semi-annual report last
June, revolves around the central theme that stocks are not merely pieces of
paper but represent true ownership interests in businesses. We are firm
believers that the greatest way to build investor wealth is to buy shares in
outstanding companies at reasonable prices and hold them for the long term.
Q. What attributes do you look for in investments?
A. We want to own world-class companies that can generate superior economic
returns and growth over the long term. Often these companies possess
competitive advantages that are difficult to duplicate, such as a dominant
market share position, an established defensible franchise or brand, a low-cost
producer status or an entrepreneurial performance-oriented culture. We also
place great emphasis on finding outstanding shareholder-oriented managements
with drive and vision who can anticipate and react to changing industry and
economic conditions and build their companies into best-in-class competitors
over time. As investors, we get very excited when we can find both superior
companies and great managements in the same package.
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 - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG,
CO-PORTFOLIO MANAGERS - CONTINUED
However, we are exceedingly careful about the price we pay for these
outstanding companies and prefer to buy when their share prices are depressed
due to some short-term fear or disappointment concerning the company or its
industry sector. Often, Wall Street's overwhelming focus on short-term concerns
provides us the opportunity to buy companies with solid long-term growth at a
value price and comfortably below-market multiples.
We also avoid the high-multiple glamour stocks because of the risk of
significant losses that may occur when these stocks fail to live up to the
market's great expectations and prices collapse. We always ask ourselves two
questions before making an investment. First, how much can we make if we are
right about the stock? Second, but just as important, how much can we lose if
the company's fundamentals deteriorate and make us wrong about the stock?
Asking the latter question is an invaluable part of the investment process and
particularly crucial when markets are high as they are today.
Q. As disciplined value investors, what valuation techniques do you use to
judge securities' prices?
A. While we use several valuation techniques to determine what price is
reasonable to pay for these companies, we always begin with the concept of
"owner earnings." Owner earnings, as written about over the years by legendary
investor Warren Buffett 6, represent the cash an owner of the entire business
can take out each year after reinvesting the appropriate capital expenditure
back into the company to maintain its competitive position. Not surprisingly,
these cash or owner earnings often differ, sometimes quite substantially, from
earnings reported according to Generally Accepted Accounting Principles (GAAP).
Owner earnings provide a truer glimpse into the economics of the business as
they represent the company's ability to pay dividends, repurchase shares, and
make acquisitions.
Q. Tell us about some of your favorite holdings in the fund.
A. We continue to favor financially strong companies that generate excess
capital with shareholder-friendly management, such as American Express,
BankAmerica and Wells Fargo. We remain extremely optimistic about the long-term
value associated with each of these outstanding consumer and business
franchises. During the year, we built up a large position in Cincinnati
Financial, a well managed, mid-sized regional property and casualty insurer.
Cincinnati Financial is a highly efficient insurer with an underwriting culture
that, due to its outstanding service reputation, receives the most preferred
(i.e. profitable) risks from one of the best independent agency franchises in
the industry. Less well-known is its talented investment department, that
through outstanding stock selection, has helped create billions of dollars in
shareholder wealth, including over $1.3 billion in profit from its holdings in
Fifth Third Bancorp. Management also eats its own cooking as employees and
insurance agents own approximately half of the stock, a large concentration
that is highly unusual in the insurance industry.(7)
Q. What is your current view about financial stocks?
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,
CO-PORTFOLIO MANAGERS - CONTINUED
A. We continue to believe financial stocks offer one of the greatest investment
opportunities, recognizing of course there can be no guarantee of future
results and there will be corrections in valuation along the way. One reason we
have always gravitated to financial companies is that they tend to be in
non-faddish businesses with products that don't become obsolete - a
particularly attractive attribute for long-term investors such as ourselves.
Another reason is that well-managed financial companies generate significant
free cash flow that can be used to benefit shareholders by repurchasing shares
or making acquisitions. Looking out over the next two decades, these companies
should benefit from powerful demographic and macroeconomic forces as 76 million
U.S. baby boomers plan for retirement and enter their peak earning and
investing years.
Another positive factor should be the continuing consolidation in financial
services, which even after the recent wave of mergers remain exceedingly
fragmented industries. Consolidation is being driven by irreversible trends,
including the huge and rapidly rising cost of technology and the difficulty
many mid-size and even large companies face in battling technologically
superior and more efficient competitors. The vast power and flexibility of
computer systems today has allowed savvy companies to engage in highly
selective micro-marketing that could only be dreamed of a few years ago. This
powerful new ability has made both the customer lists and distribution arms of
acquisition targets all the more valuable now that these companies' existing
franchises can be more productively marketed using advanced data-mining
techniques. If consolidation accelerates as one might expect, this should be
favorable for industry profit margins as weaker players get absorbed by the
strong and excess costs and capital are removed from the system. If industry
profitability does indeed improve, this could result in higher price-earnings
multiples going forward.
Financial stocks currently represent about two thirds of the portfolio.
However, given the fund's overriding philosophy to invest in high-quality
growth companies conservatively valued at a discount to that growth, we have
made significant investments outside of financial services as well. These
positions include U.S. multinationals such as McDonald's, Nike and Mattel.
Despite the current problems in Asia, these companies stand to benefit as more
and more countries open up to American-style capitalism in order to raise the
standard of living of their citizens and in the process create increasing
consumer wealth and purchasing power.(7)
Q. Do you expect increasing volatility in share prices?
A. Financial stocks in particular have benefited from the strong bond and
equity markets and favorable economic and interest rate environment of recent
years. Valuations relative to the market are higher than they have been in
three decades, which means these stocks could become more volatile and
vulnerable to any earnings disappointments or changes in investor sentiment
that arise in the near term. However, we remain quite bullish about the
long-term prospects for our portfolio companies and will take advantage of any
opportunity to add to our favorite holdings at even more attractive prices.
4
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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 REAL ESTATE FUND
PERFORMANCE OVERVIEW
o The Davis Real Estate Fund, which invests for growth and income primarily in
real estate investment trusts (REITs), continued to enjoy strong performance in
1997.(2)
o The Fund's Class A shares generated a total return on net asset value of
25.08% for the one-year period ended December 31, 19972--outperforming the
18.58% return on the Morgan Stanley REIT (Real Estate Investment Trust)
Index.(12)
o The Fund's Class A shares hold a **** (four-star) Morningstar rating for the
latest three-year period.(4)
o According to Morningstar, "Davis Real Estate Fund continues to play its cards
right....This fund has once again used a cash stake to its advantage ....These
forays into cash help explain the fund's superb risk score, which is among the
lowest in the category." At the same time, notes Morningstar, "the fund's
annual returns have consistently hit the category's top third....[Manager
Andrew] Davis...has proven his ability...and is overall one of the group's more
capable managers."(8)
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER
Q. What's behind the Davis Real Estate Fund's strong performance?
A. The performance in the real estate market over the past year has been driven
by the growth REITs, not the value REITs. The growth REITs are those with lower
yields that are more aggressive on the development, acquisition and merger
front.
A number of the Fund's REITs and other real estate holdings have performed
quite well during this period. These include: Starwood Lodging, Patriot
American Hospitality and CapStar Hotel Company in the hotel arena; Parkway
Properties, Cali Realty and Boston Properties in the office arena, and
diversified REITs such as Crescent and Vornado.(7)
Q. Could you provide some perspective on current trends in real estate?
A. Given the new supply of real estate across the country today, there have
been concerns that the industry is entering another era of overbuilding and
overdevelopment. To our way of thinking, selective development and new
construction are not always bad. For instance, in a market with a serious
shortage of hotel rooms, like New York City, there is clearly a need for new
hotels.
Nonetheless, many markets have reached a point of equilibrium between the
supply of and demand for real estate. That being the case, the real estate
arena has become a stock picker's market, and investors must be nimble and able
to move quickly to capitalize on changing opportunities. For example, three or
four years ago, if you had decided you liked the California market and simply
invested in every real estate company there, you
5
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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 ANDREW A. DAVIS, PORTFOLIO MANAGER - CONTINUED
had an excellent chance of making a great deal of money almost without regard
for the kind of companies you bought. We believe those days are past.
Stock selection has become imperative--and we think that's an ideal scenario
for the Davis investment approach. We choose investments in line with the
philosophy that has been honed by the Davis family for more than 50 years. We
concentrate on companies with first-class management teams who view real estate
as an operating business that can generate steadily increasing rental income
and solid returns on capital by owning properties where thriving businesses
reside.
First-hand research is vital to what we do, including continually talking to
managements and personally visiting many of the companies in which the Fund
invests. As always, we monitor valuations closely, looking for companies
selling at a discount to their expected cash flow over the next few years.
Q. What is your long-term market outlook?
A. For two years now, real estate returns have exceeded 20% or 30%. This will
not continue. We do not expect real estate to outperform the Dow Jones average
or the S&P 500. Rather we expect it to provide returns of 10% to 15% annually
over the next five years.(12)
At the Davis Funds, we view real estate as a separate asset class, in addition
to stocks, bonds and cash. It is also a substantial and growing asset class.
The $3-trillion real estate market is larger than the stock market and the U.S.
government securities market, but to date, only about $180 billion of that real
estate has been securitized in the form of REITs or other publicly traded
companies. By the year 2000, we think the amount of securitized real estate
could total between $300 and $500 billion.
Furthermore, real estate has historically been one of the least volatile asset
classes. Given the high level of stock prices today and market uncertainties
related to Asian financial problems, real estate can help to diversify and
anchor a well-balanced portfolio. As a clear sign of our commitment to real
estate, a large portion of Davis Real Estate Fund is owned by our employees,
our board of directors and the Davis family.
MANAGEMENT'S DISCUSSION AND ANALYSIS
DAVIS CONVERTIBLE SECURITIES FUND
PERFORMANCE OVERVIEW
o The Davis Convertible Securities Fund, which invests for both income and
growth, posted another year of excellent results. (2)
o The Fund's Class A shares delivered an average annual total return on net
asset value of 18.21% over the five-year period, 28.27% for the three-year
period and 28.68% for the one-year period ended December 31, 1997.(2)
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 - CONTINUED
o This performance ranked the Class A shares #1 among 23 convertible securities
funds tracked by Lipper Analytical Services over the latest five-year period,
#1 among 36 such funds over the latest three-year period and #2 among 51 such
funds for the latest one-year period.(12)
o In addition, the Fund's Class A shares hold Morningstar's highest *****
(five-star) rating for the latest three-year period and a **** (four-star)
rating for the latest five-year period.(4)
o In U.S. News & World Report's annual survey of "Best Funds for the Long
Haul," the Davis Convertible Securities Fund's Class A shares were ranked as
the #1 total return fund to own for the long haul. According to U.S. News,
"While typical year-end fund listings showcase that year's winners, the U.S.
News rankings identify funds that should continue to be strong relative
performers."(10)
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER
Q. What is the Davis Convertible Securities Fund's general strategy?
A. Convertible bonds can be exchanged for shares of the underlying stock and,
therefore, combine features of both stocks and bonds. We regard the Davis
Convertible Securities Fund as a quasi-equity fund whose objective is to offer
investors a less risky way to participate in equity market total returns.
Convertible securities tend to be less volatile over time. If the issuing
company's common stock increases in price, the convertible security will
generally appreciate too. 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 think offer
at least 80% of the common stock's upside potential if the stock price
appreciates, but that have no more than 50% of the downside risk if the price
of the stock declines.
Q. Where do you see the greatest opportunities now in convertibles?
A. We continue to find excellent potential among the businesses we know best at
Davis Selected Advisers, namely financial services companies. Of course, the
financial sector encompasses a variety of industries that may react differently
to interest rate moves, changes in credit quality and other trends. So we
examine companies individually. Among the issues we favor in the financial area
are Citicorp, SunAmerica and Travelers.(7)
We also remain weighted in real estate, not only in convertible form but in
equity form, and that has served the fund well given the currently volatile
environment for common stocks in general. Real estate stocks tend to
7
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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 ANDREW A. DAVIS, PORTFOLIO MANAGER - CONTINUED
perform similarly to convertibles in that they provide some downside
protection, are less volatile than equities overall and offer attractive
yields.
One group that has not worked as well recently is energy, particularly oil
service companies. However, we are still quite bullish on the long-term case
for energy stocks. Our holdings here include higher quality companies such as
Unocal, Dresser, Devon and Baker Hughes.(7)
Generally, we have been adding higher quality names to the portfolio because
they represent good values and also provide a downside cushion for the Fund.
Among these issues are Motorola, Merck, Hewlett-Packard and American
International Group.(7)
Q. What is your market forecast?
A. If you believe, as we do, that the outlook for interest rates and inflation
is relatively benign for 1998, then the outlook for convertibles--particularly
for their downside protection--is reasonably good. IN other words, if interest
rates stay roughly where they are, rather than rising dramatically, the bond
element of convertibles should provide some downside support if stock prices
fall. And on the upside, if stock prices increase, convertibles should rally
nicely too. Of course, if interest rates shoot up and bond prices drop,
convertibles would provide investors with less downside protection.
All in all, we think the case for convertibles continues to be strong in 1998.
At the same time, valuations for most investments, be they stocks or bonds, are
leaning toward the higher end of fair. That makes it very much a stock picker's
game. And that's the kind of market we like best because it fits perfectly with
the Davis expertise and our research-oriented, long-term investment approach.
The Davis Convertible Securities Fund may be an appropriate diversification
alternative for investors seeking a defensive investment well-suited to a
variety of market conditions.
MANAGEMENT'S DISCUSSION AND ANALYSIS
DAVIS GROWTH OPPORTUNITY FUND
PERFORMANCE OVERVIEW
o The Davis Growth Opportunity Fund, which invests in a blend of small-, mid-
and large-cap stocks, continued to benefit in 1997 from its ability to look for
the best opportunities across all market sectors.
o The Fund's Class A shares provided an average annual total return on net
asset value of 30.52% for the three-year period and 27.70% for the one-year
period ended December 31, 1997.(2)
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
DAVIS GROWTH OPPORTUNITY FUND
PERFORMANCE OVERVIEW - CONTINUED
o This performance compares favorably to the Fund's benchmarks, outpacing the
one-year return of 22.36% on the Russell Index of 2000 small company stocks, as
well as the one-year return of 19.76% on the average mid-cap stock fund and of
25.17% on the average growth fund tracked by Lipper Analytical Services,
Inc.(12)
AN INTERVIEW WITH GRAHAM Y. TANAKA, PORTFOLIO MANAGER
Q. What were the reasons behind the Davis Growth Opportunity Fund's
performance?
A. We generally positioned the Fund quite well during the course of the year.
At the beginning of 1997, we had a little more emphasis on large-cap stocks,
which cushioned us when the small-cap sector corrected in the first quarter.
Then we gradually shifted to a greater focus on small- and mid-cap stocks
because we expected an upward revaluation of those shares, and that is exactly
what happened in the second and third quarter.
However, this rally was dramatically interrupted by the financial turmoil in
Asia, which caused a significant correction in small-cap and technology shares.
In fact, the three groups that contributed so heavily to our best-ever third
quarter results were among the groups hardest hit by the Asia crisis in the
fourth quarter: small-cap stocks; technology stocks, specifically semiconductor
and semiconductor equipment companies; and energy stocks. Fortunately, we had
raised cash levels in early October, which buffered the Fund--allowing us to
post positive results for the second half and achieve good returns for the full
year.
Q. What is your market outlook now?
We think that this small-cap setback is only temporary and that, as the Asian
problems are resolved over the next 12 months, the upward revaluation of these
stocks will begin anew. In fact, we expect small-caps, with an emphasis on
technology, to be the best group to own over the next 12 to 18 months. We
believe that now is a terrific time to be investing in these shares because
they are trading at such very low valuations, and we think the Fund owns some
of the best companies in this area.
Moreover, in our view, economic fundamentals in the United States are
outstanding for 1998. Among the positive factors are higher corporate
productivity, tighter monetary policy, fiscal policy that tends to benefit
savers and investors, and favorable demographics as baby boomers enter their
peak earning and investing years.
We expect gross domestic product (GDP) growth to slow to around 2% this year
while inflation could drop below 2%. That is a favorable environment for the
kinds of growth stocks the Fund owns because, as the economy slows, these
companies will show relatively better performance.
Q. Which of the Fund's holdings did particularly well last year?
9
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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
A. Among the best performing of the Fund's larger holdings were ASM
Lithography, a semiconductor equipment company, up 171%, and FIRSTPLUS
Financial, a specialty finance company that focuses on home-equity and
debt-consolidation loans, up 82%. Other strong performers included Pfizer, up
79%; MFC Bancorp, a Swiss merchant bank, up 70%; Brigham Exploration, a new
position for the Fund in the oil and gas exploration business, up 77%; Garden
Ridge, a home-decorating superstore, up 65%; and IHOP, the pancake restaurant
chain, up 38%.(7)
These holdings are representative of the Fund's portfolio, which we describe as
an all-cap portfolio with a mid-cap center of gravity. In addition, all of
these companies have above-average earnings growth of 15% or more a year and
very reasonable valuations.
Q. What's your plan for controlling risk while optimizing potential returns?
A. One strategy we've employed successfully to boost overall performance in the
past few years is to keep the portfolio fresh by replacing slow-moving stocks
with new ideas that have the potential for better long-term gains. 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 to lock in our gains
while still maintaining a long-term position. If the stock corrects in the
future, we can buy the shares back at a lower price. Finally, we are also
maintaining a little higher cash position, which helps control volatility.
All in all, we believe that investors today have a rare opportunity to broaden
their diversification with small- and mid-cap stock holdings trading at bargain
prices. Valuation levels relative to large-caps are as low as they were last
June. Whether it takes three months, six months or nine months, we believe it
is only a matter of time before small-cap stocks recover and start to
outperform, regaining the normal premiums that they have historically enjoyed
over the past 20 years.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 that are guaranteed or issued by the U.S. government or its
agencies.(11)
o The Fund's Class A shares provided a total return on net asset value of 7.92%
for the 12 months ended December 31, 1997 versus a return of 8.84% for Lipper
Analytical Services' general U.S. government fund category.(2)
10
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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 GOVERNMENT BOND FUND
PERFORMANCE OVERVIEW - CONTINUED
o The Fund's middle-of-the-road investment style emphasizes risk-adjusted
performance. It seeks to deliver competitive results with less risk or
volatility than other fixed-income funds. This cautious approach offers
downside protection in bearish bond markets but may lag somewhat in bullish
bond markets.
AN INTERVIEW WITH CAROLYN H. SPOLIDORO, PORTFOLIO MANAGER
Q. What is the Davis Government Bond Fund's general strategy?
A. In line with the other Davis funds, we avoid market timing for the simple
reason that even the most informed investment analysts cannot accurately
predict market moves all the time. Our strategy is to create a well-diversified
portfolio in terms of types of government securities, call features, maturity
lengths and interest rate coupons so that we are positioned to benefit in
various market environments.
Currently, the Davis Government Bond 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 in by the issuer before
maturity and some that cannot. Agency securities tend to offer higher yields
than comparable U.S. Treasury securities. The portfolio's duration is 4.1 years
and its average life is 6.1 years.
Q. Where has the Fund found opportunities recently?
A. Two recent fund purchases demonstrate the Fund's strategy. The first
purchase was a government agency security with a short maturity of about two
years. Short maturities are generally considered defensive because they entail
less risk in the event of adverse interest rate moves. At the time of
investment, the spread between one- and two-year maturities was historically
wide, and we expected it to narrow. This means the two-year security should
perform well as the yield curve narrows and as maturity approaches. That kind
of performance potential is not normally available with a defensive security.
The other purchase was a CMO with a relatively longer maturity of about 10
years. This CMO is backed by seasoned 7% mortgages that have been outstanding
for a period of time. So, even in the current low interest rate environment,
there is less risk that home owners might repay these loans more quickly than
expected. Because this security offers the opportunity for higher income with
reduced risk of accelerated mortgage prepayments, we believe its relative
performance should be good in any interest rate environment.(7)
Q. Could you provide some perspective on the bond market's performance
last year?
A. Overall, we think investors were taken by surprise at the way the market
performed in 1997--both in the first quarter when interest rates backed up and
prices declined, and then later on by the extent of the market's rally. In our
mind, that demonstrates why diversification is so important and why a two-year
note that offers
11
<PAGE>
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
both defensive characteristics and performance potential is such a sensible
investment. Because no one can predict with certainty what markets will do, it
is only prudent to be prepared for many different possibilities.
Looking ahead, we expect that 1998 will be a favorable environment for bond
funds. Generally, we think the current financial turmoil in Asia will be
noninflationary and could actually have a stabilizing effect on the U.S.
economy. Lower inflation would help to keep interest rates down and could
result in a slower rate of economic growth that may allow that growth to
continue even longer, without rekindling inflation. However, if the Asian
crisis resolves quickly, the flight to quality could be reversed, causing
interest rates--especially short-term interest rates--to go up.
Similarly, the nation's current progress toward a balanced budget is a positive
factor that should help to hold interest rates down as long as it continues.
But setbacks regarding that objective could cause rates to rise.
While our outlook is fairly rosy, 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. History has shown that forecasters are not always right.
Q. Why should investors choose a government bond fund?
A. A government bond fund can help create a strong foundation for any long-term
investment portfolio. The Davis Government Bond Fund provides potentially
higher monthly income than most short-term investments and can offer investors
an excellent means of balancing equity holdings with fixed income securities of
the highest credit quality.
- ------------------------
This Annual Report is furnished to you by Davis Distributors, LLC, which acts
as the distributor for the Davis Series. This Annual Report is authorized for
distribution only when accompanied or preceded by a current prospectus of the
Davis Series which contains more about fees and expenses. Please read the
prospectus carefully before investing or sending money.
12
<PAGE>
DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
(1) Neither dollar cost averaging, nor any other mechanical system can guarantee
a profit. Such a plan does not protect against loss in declining markets.
(2) 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
calculations are for Class A shares and include an initial sales charge of
4 3/4%.
<TABLE>
<CAPTION>
- ----------------------------------------- -------------- --------------- --------------- --------------------
FUND NAME 1 YEAR 3 YEAR 5 YEAR INCEPTION
- ----------------------------------------- -------------- --------------- --------------- --------------------
<S> <C> <C> <C> <C>
- ----------------------------------------- -------------- --------------- --------------- --------------------
Davis Financial 37.67% 39.68% 24.46% 26.84% - 05/01/91
- ----------------------------------------- -------------- --------------- --------------- --------------------
Davis Real Estate 19.14% 24.34% 20.11% - 01/03/94
- ----------------------------------------- -------------- --------------- --------------- --------------------
Davis Convertible Securities 22.56% 26.20% 17.07% 17.41% - 05/01/92
- ----------------------------------------- -------------- --------------- --------------- --------------------
Davis Growth Opportunity 21.66% 28.42% 26.37% - 12/01/94
- ----------------------------------------- -------------- --------------- --------------- --------------------
Davis Government Bond 2.75% 5.92% 5.81% - 12/01/94
- ----------------------------------------- -------------- --------------- --------------- --------------------
</TABLE>
(3) Source: The Wall Street Journal, January 8, 1998 issue citing Lipper
Analytical Services. "For the one year period ended 12/31/97, the Davis
Financial Fund (Class-A) was ranked 15th among the 28 funds in the Lipper
"Financial Services" fund category, for the three year period it was rated 6th
out of 18 funds and for the five year period ended 12/31/97, the Davis
Financial Fund was ranked 7th among the 15 funds in the Lipper "Financial
Services" fund category. Lipper Analytical Services' rankings and comparisons
are based on total returns unadjusted for commissions.
(4) Morningstar proprietary ratings reflect historical risk-adjusted
performance as of December 31, 1997. 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, 22.5%
receive four stars, 35% receive three stars, 22.5% receive two stars, and
10% receive one star. The Class A shares of Davis Financial Fund received
5 stars for the three-year period rated against 2,332 Domestic Equity funds.
For the five-year period it also received 5 stars when rated against 1,292
Domestic Equity funds. The Class A shares of the Davis Real Estate Fund
received 4 stars when rated against 2,323 Domestic Equity funds for the
three-year period. The Class A shares of the Davis Convertible Securities
Fund received 5 stars for the three-year period when rated against 2,332
Domestic Equity funds and 4 stars for the five-year period when rated against
1,292 Domestic Equity funds.
(5) Source: Morningstar Mutual Funds, December 5, 1997.
(6) For a transcript of Mr. Buffet's comments, we suggest subscribing to
Outstanding Investor Digest.
(7) Portfolio holdings are subject to change.
13
<PAGE>
DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
(8) Source: Morningstar Mutual Funds, December 19, 1997.
(9) For the one year period ended 12/31/97, the Davis Convertible Securities
Fund was ranked 2nd among the 51 funds in the Lipper "Convertibles" category.
For the three year period the fund was ranked 1st among the 36 funds and for
the five year period ended 12/31/97, the fund was ranked 1st among the 23
funds in the Lipper "Convertibles" category.
(10) Source: U.S. News & World Report, February 2, 1998.
(11) Shares of the Davis Government Bond Fund, like all mutual fund shares, are
not federally insured or guaranteed.
(12) Definition of Indices Quoted:
I. The Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks. The Dow Jones is calculated by adding the closing
prices of the component stocks and using a divisor that is adjusted for splits
and stock dividends equal to 10% or more of the market value of an issue as
well as substitutions and mergers. The average is quoted in points, not in
dollars.
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. It serves three mains purposes: to act as a performance standard
for active managers, to serve as a proxy for asset allocation purposes, and to
become a purchasable and replicable vehicle for passive investment strategy.
IV. 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. Investments cannot be made directly in the S&P 500 Index.
V. Lipper Growth Fund Index is composed of funds that normally invest in
companies with long-term earnings expected to grow significantly faster than
the earnings of the stocks represented in the major unmanaged stock indices.
VI. Lipper Mid-Cap Fund Index is composed of funds that by prospectus or
portfolio practice invest primarily in companies with market capitalizations
less than $5 billion at the time of purchase.
14
<PAGE>
DAVIS SERIES, INC.
DAVIS GROWTH OPPORTUNITY FUND
PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1997
==============================================================================
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
PORTFOLIO MAKEUP SECTOR WEIGHTINGS
(% OF FUND ASSETS) (% OF PORTFOLIO)
----------------- ---------------
Cash & Cash Equivalents Capital Equipment
8.1% 9.9%
Common Stocks Insurance
91.9% 6.5%
Pharmaceuticals
18.6%
Restaurants
3.6%
Financial Services
13.0%
Consumer Products
5.8%
Commercial
7.1%
Electronics
11.7%
Other
3.8%
Retail
5.9%
Energy
14.1%
<TABLE>
<CAPTION>
% OF FUND
TOP 10 HOLDINGS SECTOR NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pfizer, Inc. Pharmaceuticals 7.63%
FIRSTPLUS Financial Group, Inc. Financial Services 6.44%
AFLAC Inc. Insurance 5.99%
Adaptec, Inc. Electronics 5.52%
Philip Morris Cos., Inc. Consumer Products 5.37%
Cendant Corp. Commercial 5.28%
Intel Corp. Electronics 5.22%
Novellus Systems, Inc. Capital Equipment 4.06%
ASM Lithography Holding N.V. Capital Equipment 3.54%
Seitel, Inc. Energy 3.47%
</TABLE>
15
<PAGE>
DAVIS SERIES, INC.
DAVIS GROWTH OPPORTUNITY FUND
PORTFOLIO ACTIVITY JANUARY 1, 1997 THROUGH DECEMBER 31, 1997
============================================================================
NEW POSITIONS ADDED (1/1/97-12/31/97)
(Highlighted positions are those greater than 0.99% of 12/31/97 total
net assets)
<TABLE>
<CAPTION>
DATE OF 1ST % OF 12/31/97
SECURITY SECTOR PURCHASE FUND NET ASSETS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Brigham Exploration Company Energy 5/9/97 2.03%
Business Objects S.A. -ADR Software 2/14/97 1.36%
Cendant Corp. Commercial 12/19/97 5.28%
CUC International, Inc. Consumer Products 1/8/97 -
Deswell Industries, Inc. Manufacturing 10/14/97 1.07%
Eli Lilly and Company Pharmaceuticals 9/17/97 1.14%
FIRSTPLUS Financial Group, Inc. Financial Services 3/7/97 6.44%
Flores & Rucks, Inc. Energy 2/3/97 -
Forcenergy, Inc. Energy 2/6/97 0.59%
ICN Pharmaceuticals, Inc. Pharmaceuticals 9/22/97 1.48%
Integrated Process Equipment Corp. Capital Equipment 11/18/97 1.54%
KV Pharmaceutical Company Pharmaceuticals 5/30/97 2.04%
MFC Bancorp Ltd. Financial Services 3/6/97 2.10%
NFO Worldwide, Inc. Commercial 11/4/97 1.23%
Ocean Energy, Inc. Energy 6/18/97 2.73%
Schering-Plough Corporation Pharmaceuticals 10/7/97 2.22%
Staples, Inc. Retail 1/20/97 2.04%
Unique Casual Restaurants, Inc. Restaurants 7/15/97 1.28%
United Meridian Corporation Energy 10/29/97 0.81%
Venture Seismic Ltd. Energy 10/1/97 0.36%
Warner Lambert Co. Pharmaceuticals 12/2/97 1.65%
</TABLE>
POSITIONS CLOSED (1/1/97-12/31/97)
(Gains and losses greater than $500,000 are highlighted)
<TABLE>
<CAPTION>
DATE OF FINAL
SECURITY SECTOR SALE GAIN/(LOSS)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Brown & Sharpe Manufacturing, Class A Manufacturing 10/7/97 145,884
Chrysler Corp. Manufacturing 2/13/97 5,277
DAKA International, Inc. Restaurants 7/15/97 (908,088)
Johnson & Johnson Pharmaceuticals 5/15/97 71,431
Robert Mondavi, Class A Consumer Products 3/14/97 (30,771)
Score Board, Inc. Consumer Products 4/30/97 (465,977)
Texas Instruments, Inc. Electronics 5/23/97 373,057
TII Industries, Inc. Telecommunications 12/8/97 (194,734)
</TABLE>
16
<PAGE>
DAVIS SERIES, INC.
DAVIS GROWTH OPPORTUNITY FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS GROWTH OPPORTUNITY FUND
CLASS A SHARES AND STANDARD & POOR'S 500 STOCK INDEX
<TABLE>
<CAPTION>
==============================================================================================================
Average Annual Total Return For the Periods Non-Annualized Total Return For the Period
ended December 31, 1997. ended December 31, 1997.
<S> <C>
----------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS Y SHARES
(This calculation includes an initial sales (There is no sales charge applicable to this
charge of 4 3/4%.) calculation.)
One Year ............................... 21.66%
Life of Class (December 1, 1994 Life of Class
through December 31, 1997).......... 26.37% (September 18, 1997 through December 31, 1997)...(10.98%)
----------------------------------------------------------------------------------------------------------
</TABLE>
$10,000 INVESTED OVER THE LIFE OF THE CLASS. Let's say you invested $10,000 in
Davis Series, Inc., Class A shares of Davis Growth Opportunity Fund ("DGOF-A")
on December 1, 1994 (inception of Class) and paid a 4 3/4% sales charge. As the
chart shows, by December 31, 1997 the value of your investment would have grown
to $20,587 - a 105.87% increase on your initial investment. For comparison, the
Standard and Poor's 500 Stock Index is also presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
S&P 500 DGOF-A
12/1/94 $10,000 $ 9,525
12/31/94 $10,148 $ 9,259
12/31/95 $13,957 $13,578
12/31/96 $17,161 $16,121
12/31/97 $22,884 $20,587
Standard & Poor's 500 Stock Index is an unmanaged index which has no specific
investment objective. Investments cannot be made directly into the index. The
index used includes net dividends reinvested, but does not take into account
any sales charge.
The performance data for Davis Growth Opportunity Fund contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost
when redeemed.
17
<PAGE>
DAVIS SERIES, INC.
DAVIS GROWTH OPPORTUNITY FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS GROWTH OPPORTUNITY FUND
CLASS B SHARES AND STANDARD & POOR'S 500 STOCK INDEX
<TABLE>
<CAPTION>
==============================================================================================================
Average Annual Total Return For the Periods Non-Annualized Total Return For the Period
ended December 31, 1997. ended December 31, 1997.
<S> <C>
----------------------------------------------------------------------------------------------------------
CLASS B SHARES CLASS C SHARES
(This calculation includes any applicable (This calculation includes any applicable contingent
contingent deferred sales charge.) deferred sales charge.)
One Year ............................... 23.82%
Five Years.............................. 17.09% Life of Class
Ten Years............................... 16.13% (August 15, 1997 through December 31, 1997).....(6.53%)
----------------------------------------------------------------------------------------------------------
</TABLE>
$10,000 INVESTED OVER TEN YEARS. Let's say you invested $10,000 in Davis
Series, Inc., Class B shares of Davis Growth Opportunity Fund ("DGOF-B") on
December 31, 1987. As the chart shows, by December 31, 1997 the value of your
investment would have grown to $44,677 - a 346.77% increase on your initial
investment. For comparison, the Standard and Poor's 500 Stock Index is also
presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
S&P 500 DGOF-B
12/31/87 $10,000 $10,000
12/31/88 $11,655 $11,052
12/31/89 $15,342 $15,479
12/31/90 $14,867 $14,748
12/31/91 $19,388 $20,785
12/31/92 $20,864 $20,188
12/31/93 $22,963 $22,440
12/31/94 $23,266 $20,551
12/31/95 $32,001 $29,890
12/31/96 $39,345 $35,228
12/31/97 $52,468 $44,677
Standard & Poor's 500 Stock Index is an unmanaged index which has no specific
investment objective. Investments cannot be made directly into the index. The
index used includes net dividends reinvested, but does not take into account
any sales charge.
The performance data for Davis Growth Opportunity Fund contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost
when redeemed.
18
<PAGE>
DAVIS SERIES, INC.
DAVIS FINANCIAL FUND
PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1997
==============================================================================
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
PORTFOLIO MAKEUP SECTOR WEIGHTINGS
(% OF FUND ASSETS) (% OF PORTFOLIO)
------------------ ----------------
Cash & Cash Restaurants
Equivalents 2.8%
8.4%
Financial
Bonds Services
0.5% 18.4%
Common Stocks Other
91.1% 6.6%
Pharmaceuticals
2.8%
Banking
23.5%
Building
Materials
4.7%
Consumer
Products
7.9%
Technology
4.4%
Insurance
28.9%
<TABLE>
<CAPTION>
% OF FUND
TOP 10 HOLDINGS SECTOR NET ASSETS
- ----------------- ------ ----------
<S> <C> <C>
BankAmerica Corp. Banks and Savings & Loan Associations 4.81%
Cincinnati Financial Corp. Insurance 4.77%
American Express Co. Financial Services 4.02%
Philip Morris Cos., Inc. Consumer Products 3.92%
Bank of New York Co., Inc. Banks and Savings & Loan Associations 3.81%
Household International, Inc. Financial Services 3.80%
Transatlantic Holdings Inc. Insurance 3.76%
General Re Corp. Insurance 3.53%
Masco Corporation Building Materials 3.25%
Citicorp Banks and Savings & Loan Associations 3.11%
</TABLE>
19
<PAGE>
DAVIS SERIES, INC.
DAVIS FINANCIAL FUND
PORTFOLIO ACTIVITY JANUARY 1, 1997 THROUGH DECEMBER 31, 1997
=============================================================================
NEW POSITIONS ADDED (1/1/97-12/31/97)
(Highlighted positions are those greater than 0.99% of 12/31/97 total
net assets)
<TABLE>
<CAPTION>
DATE OF 1ST % OF 12/31/97
SECURITY SECTOR PURCHASE FUND NET ASSETS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AirTouch Communications, Inc. Telecommunication 5/6/97 0.49%
Amerus Life Holdings, Inc. Insurance 1/28/97 -
ARM Financial Group, Inc. Class A Financial Services 6/18/97 -
Bayard Drilling Technologies, Inc. Energy 11/4/97 0.34%
Burlington Northern Santa Fe Railroad 6/9/97 0.37%
Citicorp Banks and Savings
& Loan Associations 9/16/97 3.11%
Cooper Cameron Corporation Energy 2/27/97 0.36%
Dril Quip, Inc. Building Materials 10/22/97 -
ESG Re Limited Insurance 2/12/97 0.69%
EXEL Limited Insurance 12/31/97 0.31%
FPIC Insurance Group, Inc. Insurance 2/26/97 0.38%
Harcourt General, Inc. Retail 7/30/97 0.91%
Harleysville Group, Inc. Insurance 1/9/97 0.38%
Hartford Life Insurance Co. Insurance 5/21/97 -
Hewlett-Packard Company Technology 1/22/97 0.86%
Household International, Inc. Financial Services 11/20/97 3.80%
International Business Machines Corporation Technology 2/21/97 1.85%
Masco Corporation Building Materials 1/9/97 3.25%
Mattel, Inc. Consumer Products 9/10/97 1.98%
Nationwide Financial Services, Inc. Financial Services 3/5/97 -
Nestle S.A. (Sponsored ADR for Reg. Shrs.) Consumer Products 8/26/97 0.94%
Nike, Inc. Footware 7/16/97 1.21%
Novartis - ADR Pharmaceuticals 10/14/97 0.61%
Providian Financial Corporation Financial Services 10/3/97 2.67%
Smith International, Inc. Energy 2/25/97 0.30%
SmithKline Beecham PLC - ADR Pharmaceuticals 6/9/97 1.92%
Stirling Cooke Brown Holdings Limited Insurance 11/25/97 0.07%
Ticketmaster Group, Inc. Consumer Products 10/21/97 0.43%
Travelers Property Casualty Corp. Insurance 11/13/97 1.30%
Union Pacific Corp. Railroad 6/6/97 0.61%
POSITIONS CLOSED (1/1/97-12/31/97)
(Gains and losses greater than $500,000 are highlighted)
DATE OF FINAL
SECURITY SECTOR SALE GAIN/(LOSS)
- --------------------------------------------------------------------------------------------------------------
Amerus Life Holdings, Inc. Insurance 5/8/97 10,049
ARM Financial Group, Inc. Class A Financial Services 6/25/97 344
Barnett Banks, Inc. Banks and Savings
& Loan Associations 9/2/97 2,349,397
</TABLE>
20
<PAGE>
DAVIS SERIES, INC.
DAVIS FINANCIAL FUND
PORTFOLIO ACTIVITY JANUARY 1, 1997 THROUGH DECEMBER 31, 1997-CONTINUED
=======================================================================
POSITIONS CLOSED (1/1/97-12/31/97)-CONTINUED
(Gains and losses greater than $500,000 are highlighted)
<TABLE>
<CAPTION>
DATE OF FINAL
SECURITY SECTOR SALE GAIN/(LOSS)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dril Quip, Inc. Building Materials 11/3/97 641,532
Equitable Cos. Inc. Financial Services 1/17/97 315,143
General Motors Corp. Automobiles 5/2/97 621,403
Guinness PLC ORD. Beverages 4/11/97 245,339
Hartford Life Insurance Co. Insurance 5/28/97 114,098
Nationwide Financial Services, Inc. Financial Services 5/6/97 196,954
</TABLE>
21
<PAGE>
DAVIS SERIES, INC.
DAVIS FINANCIAL FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS FINANCIAL FUND CLASS A SHARES AND
STANDARD & POOR'S 500 STOCK INDEX
<TABLE>
<CAPTION>
==============================================================================================================
<S> <C>
Average Annual Total Return For the Periods Non-Annualized Total Return For the Period
ended December 31, 1997. ended December 31, 1997.
----------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS Y SHARES
(This calculation includes an initial sales (There is no sales charge applicable to this
charge of 4 3/4%.) calculation.)
One Year ............................... 37.67%
Five Year .............................. 24.46% Life of Class
Life of Class (May 1, 1991 (March 10, 1997 through December 31, 1997)..... 28.66%
through December 31, 1997).......... 26.84%
----------------------------------------------------------------------------------------------------------
</TABLE>
$10,000 INVESTED OVER THE LIFE OF THE FUND. Let's say you invested $10,000 in
Davis Series, Inc., Class A shares of Davis Financial Fund ("DFF-A") on May 1,
1991 (inception of Fund) and paid a 4 3/4% sales charge. As the chart shows, by
December 31, 1997 the value of your investment would have grown to $48,887 - a
388.87% increase on your initial investment. For comparison, the Standard and
Poor's 500 Stock Index is also presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
S&P 500 DFF-A
5/1/91 $10,000 $ 9,525
12/31/91 $11,352 $11,749
12/31/92 $12,216 $15,587
12/31/93 $13,445 $17,906
12/31/94 $13,623 $17,091
12/31/95 $18,737 $25,723
12/31/96 $23,037 $33,825
12/31/97 $30,721 $48,887
Standard & Poor's 500 Stock Index is an unmanaged index which has no specific
investment objective. The index used includes net dividends reinvested, but
does not take into account any sales charge. Investments cannot be made
directly into the index.
The performance data for Davis Financial Fund contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost
when redeemed.
22
<PAGE>
DAVIS SERIES, INC.
DAVIS FINANCIAL FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS FINANCIAL FUND
CLASS B SHARES AND STANDARD & POOR'S 500 STOCK INDEX
<TABLE>
<CAPTION>
==============================================================================================================
Average Annual Total Return For the Periods Non-Annualized Total Return For the Period
ended December 31, 1997. ended December 31, 1997.
<S> <C>
----------------------------------------------------------------------------------------------------------
CLASS B SHARES CLASS C SHARES
(This calculation includes any applicable (This calculation includes any applicable contingent
contingent deferred sales charge.) deferred sales charge.)
One Year ...............................40.25%
Life of Class (December 27, 1994 Life of Class
through December 31, 1997)..........39.65% (August 12, 1997 through December 31, 1997)..... 8.45%
----------------------------------------------------------------------------------------------------------
</TABLE>
$10,000 INVESTED OVER THE LIFE OF THE CLASS. Let's say you invested $10,000 in
Davis Series, Inc., Class B shares of Davis Financial Fund ("DFF-B") on
December 27, 1994 (inception of Class). As the chart shows, by December 31,
1997 the value of your investment (less applicable contingent deferred sales
charges) would have grown to $27,359 - a 173.59% increase on your initial
investment. For comparison, the Standard and Poor's 500 Stock Index is also
presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
S&P 500 DFF-B
12/27/94 $10,000 $10,000
12/31/94 $10,024 $ 9,910
12/31/95 $13,788 $14,766
12/31/96 $16,957 $19,238
12/31/97 $22,606 $27,359
Standard & Poor's 500 Stock Index is an unmanaged index which has no specific
investment objective. The index used includes net dividends reinvested, but
does not take into account any sales charge. Investments cannot be made
directly into the index.
The performance data for Davis Financial Fund contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost
when redeemed.
23
<PAGE>
DAVIS SERIES, INC.
DAVIS CONVERTIBLE SECURITIES FUND
PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1997
==============================================================================
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
PORTFOLIO MAKEUP SECTOR WEIGHTINGS
(% OF FUND ASSETS) (% OF PORTFOLIO)
------------------ ----------------
Bonds Insurance
25.0% 9.5%
Preferred Stocks Banks and
37.2% Savings & Loan
Associations
Common Stocks 10.6%
23.8%
Communications
Warrants 3.9%
0.9%
Real Estate
Cash & Cash 31.9%
Equivalents
13.1% Technology
6.4%
Other
10.7%
Financial
Services
6.8%
Energy
20.2%
<TABLE>
<CAPTION>
% OF FUND
TOP 10 HOLDINGS SECTOR NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Morgan Stanley Group Inc. - Citicorp, 5.50%, Ser. CCI Conv. Pfd. Banks and Savings 3.45%
& Loan Associations
Vornado Realty Trust Diversified (REIT) 3.15%
Rouse Company, $3.00, Ser. B Conv. Pfd. Real Estate Development 2.94%
Public Storage, Inc., 8.25%, Conv. Pfd. Self Storage (REIT) 2.81%
Sunamerica Inc., Depository Shares, $2.78, Ser. D Conv. Pfd. Financial Services 2.46%
Valhi Inc., Conv. Sub. Deb., Zero Cpn., 10/20/07 Energy 2.44%
Travelers Group Inc. Insurance 2.42%
Hewlett-Packard Co., Series 144A Conv. Sub. Notes, 5.43%, 10/14/17 Technology 2.34%
Equity Residential Properties Trust, 7.00%, Ser. E Conv. Pfd. Multi-Family 2.03%
Housing (REIT)
Crescent Real Estate Equities Company Office/Industrial (REIT) 1.98%
</TABLE>
24
<PAGE>
DAVIS SERIES, INC.
DAVIS CONVERTIBLE SECURITIES FUND
PORTFOLIO ACTIVITY JANUARY 1, 1997 THROUGH DECEMBER 31, 1997
===============================================================================
NEW POSITIONS ADDED (1/1/97-12/31/97)
(Highlighted Positions are those greater than 0.99% of 12/31/97
total net assets)
<TABLE>
<CAPTION>
DATE OF 1ST % OF 12/31/97
SECURITY SECTOR PURCHASE FUND NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American International Group, Inc.,
Conv. Notes, 2.25%, 7/30/04 Insurance 10/29/97 1.17%
Baker Hughes Inc., Sr Liquid Yield
Option Notes, Zero Cpn., 05/05/08 Energy 1/9/97 1.59%
CalEnergy Capital Trust II, 6.25%,
Conv. Pfd. Energy 10/9/97 1.48%
CapStar Hotel Corp., Conv. Sub. Notes,
4.75%, 10/15/04 Hotels 10/9/97 1.78%
Commscope, Inc. Telecommunications 7/28/97 -
Crescent Operating, Inc. Office/Industrial (REIT/REOC) 6/30/97 0.12%
Equitable Companies, Inc. Insurance 8/4/97 -
Equity Office Properties Trust Office/Industrial (REIT/REOC) 12/19/97 0.71%
Equity Residential Properties Trust,
7.25%, Ser. G Conv. Pfd. Multi-Family Housing (REIT) 10/29/97 0.51%
Equity Residential Properties Trust,
7.00%, Ser. E Conv. Pfd. Multi-Family Housing (REIT) 8/19/97 2.03%
EVI, Inc., 5.00%, Ser. 144A Conv. Pfd. Energy 10/29/97 1.92%
Family Golf Centers, Inc., Conv.
Senior Notes, 5.75%, 10/15/04 Golf 10/10/97 0.63%
Felcor Suite Hotels, Inc., $1.95,
Ser. A Conv. Pfd Hotels 10/28/97 1.17%
Fort James Corp. Paper Products 9/2/97 -
General Semiconductor, Inc. Computer Products 7/28/97 -
Glenborough Realty Trust, Inc. Diversified (REIT) 7/11/97 0.85%
Hewlett-Packard Co., Series 144A
Conv. Sub. Notes, 5.43%, 10/14/17 Technology 10/8/97 2.34%
Host Marriott Financial Trust, 6.75%,
Ser. 144A Conv. Pfd. Hotels 3/25/97 1.01%
Hvide Capital Trust, 6.50%,
Ser. 144A Conv. Pfd. Marine Support 6/24/97 0.99%
Intel Corp. Warrants, Expiring 3/14/98 Technology 6/5/97 0.85%
Leucadia National Corp. Insurance 5/12/97 1.00%
Liberty Property Trust Industrial 10/8/97 0.59%
Loral Space & Communications, Inc.,
6.00%, 144A Conv. Pfd. Communications 10/7/97 1.74%
M.L.-SunAmerica Inc., 7.25%, Conv. Pfd. Financial Services 10/29/97 1.85%
Morgan Stanley Group Inc. - Citicorp, 5.50%, Banks and Savings
Ser. CCI Conv. Pfd. & Loan Associations 2/8/97 3.45%
</TABLE>
25
<PAGE>
DAVIS SERIES, INC.
DAVIS CONVERTIBLE SECURITIES FUND
PORTFOLIO ACTIVITY JANUARY 1, 1997 THROUGH DECEMBER 31, 1997 - CONTINUED
===============================================================================
NEW POSITIONS ADDED (1/1/97-12/31/97) - CONTINUED
(Highlighted Positions are those greater than 0.99% of 12/31/97 total net
assets)
<TABLE>
<CAPTION>
DATE OF 1ST % OF 12/31/97
SECURITY SECTOR PURCHASE FUND NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Motorola, Inc., Conv. Sub. Deb.,
Zero Cpn., 09/27/13 Technology 10/13/97 1.64%
NextLevel Systems, Inc. Computer Products 7/28/97 -
Parker Drilling Corp., Conv. Sub. Notes,
5.50%, 08/01/04 Drilling Services 7/22/97 1.28%
Raymond Corp. Machinery 1/15/97 -
RJR Nabisco Holdings Corp. Consumer Products 4/24/97 1.71%
RNB-Merck, Conv. Sub. Deb.,
1.875%, 8/12/02 Medical Services 8/25/97 1.07%
Rouse Company, $3.00, Ser. B Conv. Pfd Real Estate Development 2/20/97 2.94%
Security Capital Group Warrants Real Estate 9/19/97 -
Texas Instruments, Inc. Technology 9/10/97 0.77%
Tosco Financing Trust, 5.75%,
Ser. 144A Conv. Pfd Energy 5/2/97 1.04%
Tosco Financing Trust, 5.75%, Conv. Pfd Energy 9/16/97 1.50%
U.S. Restaurant Properties, 7.72%,
Ser. A Conv. Pfd Restaurants 11/12/97 0.98%
USA Waste Services Inc., Conv. Sub. Pollution Control/
Notes, 4.00%, 2/01/02 Waste Management 2/4/97 0.97%
Vornado Realty Trust, 6.50%,
Ser. A Conv. Pfd. Diversified (REIT) 4/3/97 0.78%
POSITIONS CLOSED (1/1/97-12/31/97)
(Gains and losses greater than $500,000 are highlighted)
SECURITY SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- ------------------------------------------------------------------------------------------------------------
Commscope, Inc. Telecommunications 7/31/97 11,452
Equitable Companies, Inc. Insurance 12/31/97 2,570,213
Fort James Corp. Paper Products 9/16/97 172,389
General Semiconductor, Inc. Computer Products 12/31/97 4,140
Home Depot Inc., Conv. Sub Deb.,
3.25%, 10/01/01 Building & HomeProducts 11/4/97 77,813
Insignia Financial Group Ser 144A Conv. Pfd. Financial 5/5/97 (19,383)
International Paper Capital Trust,
5.25%, Conv. Pfd. Pulp & Paper 5/6/97 30,912
Irvine Apartment Communities, Inc. Multi-Family Housing (REIT) 3/27/97 184,782
Leucadia National Corp. Insurance 4/7/97 137,805
Merry Land & Investment Co., Inc.,
$1.75, Ser. A Conv. Pfd. Multi-Family Housing (REIT) 5/2/97 (27,168)
</TABLE>
26
<PAGE>
DAVIS SERIES, INC.
DAVIS CONVERTIBLE SECURITIES FUND
PORTFOLIO ACTIVITY JANUARY 1, 1997 THROUGH DECEMBER 31, 1997 - CONTINUED
===============================================================================
POSITIONS CLOSED (1/1/97-12/31/97) - CONTINUED
(Gains and losses greater than $500,000 are highlighted)
<TABLE>
<CAPTION>
STOCK/BOND SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
News Corp. Ltd. Spons. ADR Pfd. Publishing 6/12/97 (32,210)
NextLevel Systems, Inc. Computer Products 7/31/97 38,371
Rouse Co., Conv. Sub. Deb., 5.75%, 07/23/02 Retail 6/27/97 46,988
Salomon Inc. - Hewlett-Packard Company,
ELK, 5.25%, 01/01/97 Pfd. Computer Products 1/3/97 214,676
Security Capital Group Warrants Real Estate 10/13/97 19,095
Sonoco Products Co. Pulp & Paper 9/29/97 346,441
Storage Trust Realty Self Storage (REIT) 3/25/97 189,145
Trenwick Group, Inc. Insurance 3/25/97 30,241
</TABLE>
27
<PAGE>
DAVIS SERIES, INC.
DAVIS CONVERTIBLE SECURITIES FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS CONVERTIBLE SECURITIES FUND
CLASS A SHARES AND STANDARD & POOR'S 500 STOCK INDEX
=============================================================================
Average Annual Total Return For the Periods ended December 31, 1997.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
CLASS A SHARES (This calculation includes an initial sales charge of 4 3/4%.)
<S> <C>
One Year .................................................................................... 22.56%
Five Year ................................................................................... 17.07%
Life of Class (May 1, 1992
through December 31, 1997)................................................................ 17.41%
------------------------------------------------------------------------------------------------------------
</TABLE>
$10,000 INVESTED OVER THE LIFE OF THE FUND. Let's say you invested $10,000 in
Davis Series, Inc., Class A shares of Davis Convertible Securities Fund
("DCSF-A") on May 1, 1992 (inception of Fund) and paid a 4 3/4% sales charge.
As the chart shows, by December 31, 1997 the value of your investment would
have grown to $24,846 - a 148.46% increase on your initial investment. For
comparison, the Standard and Poor's 500 Stock Index is also presented on the
chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
S&P 500 DCSF-A
5/1/92 $10,000 $ 9,525
12/31/92 $10,712 $10,764
12/31/93 $11,790 $12,621
12/31/94 $11,945 $11,773
12/31/95 $16,430 $14,914
12/31/96 $20,201 $19,308
12/31/97 $26,938 $24,846
Standard & Poor's 500 Stock Index is an unmanaged index which has no specific
investment objective. The index used includes net dividends reinvested, but
does not take into account any sales charge. Investments cannot be made
directly into the index.
The performance data for Davis Convertible Securities Fund contained in this
report represents past performance and assumes that all distributions were
reinvested, and should not be considered as an indication of future performance
from an investment in the Fund today. The investment return and principal value
will fluctuate so that shares may be worth more or less than their original
cost when redeemed.
28
<PAGE>
DAVIS SERIES, INC.
DAVIS CONVERTIBLE SECURITIES FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS CONVERTIBLE SECURITIES FUND
CLASS B SHARES AND STANDARD & POOR'S 500 STOCK INDEX
<TABLE>
<CAPTION>
==============================================================================================================
Average Annual Total Return For the Periods Non-Annualized Total Return For the Period
ended December 31, 1997. ended December 31, 1997.
<S> <C>
----------------------------------------------------------------------------------------------------------
CLASS B SHARES CLASS C SHARES
(This calculation includes any applicable (This calculation includes any applicable contingent
contingent deferred sales charge.) deferred sales charge.)
One Year ...............................24.35%
Life of Class (February 3, 1995 Life of Class
through December 31, 1997)..........26.18% (August 12, 1997 through December 31, 1997)..... 6.38%
----------------------------------------------------------------------------------------------------------
</TABLE>
$10,000 INVESTED OVER THE LIFE OF THE CLASS. Let's say you invested $10,000 in
Davis Series, Inc., Class B shares of Davis Convertible Securities Fund
("DCSF-B") on February 3, 1995 (inception of Class). As the chart shows, by
December 31, 1997 the value of your investment (less applicable contingent
deferred sales charges) would have grown to $19,673 - a 96.73% increase on your
initial investment. For comparison, the Standard and Poor's 500 Stock Index is
also presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
S&P 500 DCSF-B
2/3/95 $10,000 $10,000
12/31/95 $13,399 $12,233
12/31/96 $16,474 $15,684
12/31/97 $21,968 $19,673
Standard & Poor's 500 Stock Index is an unmanaged index which has no specific
investment objective. The index used includes net dividends reinvested, but
does not take into account any sales charge. Investments cannot be made
directly into the index.
The performance data for Davis Convertible Securities Fund contained in this
report represents past performance and assumes that all distributions were
reinvested, and should not be considered as an indication of future performance
from an investment in the Fund today. The investment return and principal value
will fluctuate so that shares may be worth more or less than their original
cost when redeemed.
29
<PAGE>
DAVIS SERIES, INC.
DAVIS CONVERTIBLE SECURITIES FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS CONVERTIBLE SECURITIES FUND
CLASS Y SHARES AND STANDARD & POOR'S 500 STOCK INDEX
<TABLE>
<CAPTION>
==============================================================================================================
Average Annual Total Return For the Periods ended December 31, 1997.
<S> <C>
--------------------------------------------------------------------------------------------------------------
CLASS Y SHARES (There is no sales charge applicable to this calculation.)
One Year ...................................................................................... 28.80%
Life of Class (November 13, 1996
through December 31, 1997)................................................................... 32.78%
--------------------------------------------------------------------------------------------------------------
</TABLE>
$10,000 INVESTED OVER THE LIFE OF THE CLASS. Let's say you invested $10,000 in
Davis Series, Inc., Class Y shares of Davis Convertible Securities Fund
("DCSF-Y") on November 13, 1996 (inception of Class). As the chart shows, by
December 31, 1997 the value of your investment would have grown to $13,782 - a
37.82% increase on your initial investment. For comparison, the Standard and
Poor's 500 Stock Index is also presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
S&P 500 DCSF-Y
11/13/96 $10,000 $10,000
12/31/96 $10,538 $10,665
12/31/97 $14,053 $13,782
Standard & Poor's 500 Stock Index is an unmanaged index which has no specific
investment objective. The index used includes net dividends reinvested, but
does not take into account any sales charge. Investments cannot be made
directly into the index.
The performance data for Davis Convertible Securities Fund contained in this
report represents past performance and assumes that all distributions were
reinvested, and should not be considered as an indication of future performance
from an investment in the Fund today. The investment return and principal value
will fluctuate so that shares may be worth more or less than their original
cost when redeemed.
30
<PAGE>
DAVIS SERIES, INC.
DAVIS REAL ESTATE FUND
PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1997
===============================================================================
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
PORTFOLIO MAKEUP SECTOR WEIGHTINGS
(% OF FUND ASSETS) (% OF PORTFOLIO)
------------------ ----------------
Preferred Stocks Resorts/Theme
3.7% Parks
1.8%
Common Stocks
82.1% Real Estate
79.0%
Cash & Cash
Equivalents Restaurants
14.2% 0.9%
Hotels & Lodging
18.3%
<TABLE>
<CAPTION>
% OF
TOP 10 HOLDINGS SECTOR FUND ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Crescent Real Estate Equities Company Office Space (REITS) 3.10%
Catellus Development Corporation Real Estate Development 3.03%
Vornado Realty Trust Diversified (REITS) 2.96%
Starwood Lodging Trust (REIT) Hotels & Lodging 2.95%
Mack-Cali Realty Corporation Office Space (REITS) 2.76%
CapStar Hotel Company Hotels & Lodging 2.72%
Boston Properties, Inc. Office Space (REITS) 2.69%
Equity Office Properties Trust Office Space (REITS) 2.58%
Liberty Property Trust Industrial (REITS) 2.56%
Parkway Properties Inc. Office Space (REITS) 2.33%
</TABLE>
31
<PAGE>
DAVIS SERIES, INC.
DAVIS REAL ESTATE FUND
PORTFOLIO ACTIVITY - JANUARY 1, 1997 THROUGH DECEMBER 31, 1997
==============================================================================
NEW POSITIONS ADDED (1/1/97-12/31/97)
(Highlighted Positions are those greater than 0.99% of 12/31/97
total net assets)
<TABLE>
<CAPTION>
DATE OF 1ST % OF 12/31/97
SECURITY SECTOR PURCHASE FUND NET ASSETS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alexandria Real Estate Equities, Inc. Office Space (REIT) 5/28/97 1.38%
Apartment Investment & Management Company Apartments (REIT) 4/28/97 0.67%
Arden Realty. Inc. Office Space (REIT) 7/17/97 0.41%
Boardwalk Equities, Inc. Real Estate Development 9/29/97 1.44%
Boston Properties, Inc. Office Space (REIT) 6/17/97 2.69%
Boykin Lodging Company Hotels & Lodging (REIT) 1/7/97 0.58%
CapStar Hotel Company Hotels & Lodging 1/3/97 2.72%
Catellus Development Corporation Real Estate Development 2/13/97 3.03%
Chateau Properties, Inc. Office Space (REIT) 2/12/97 -
Cornerstone Properties, Inc. Office Space (REIT) 9/15/97 -
Crescent Operating, Inc. Office Space (REIT) 6/30/97 0.18%
Equity Office Properties Trust Office Space (REIT) 7/7/97 2.58%
Equity Residential Properties Trust,
7.00%, Ser. E Conv. Pfd. Real Estate 8/19/97 2.17%
First Union Real Estate Investments Diversified (REIT) 5/29/97 0.55%
Glenborough Realty Trust, Inc. Diversified (REIT) 7/10/97 2.01%
Golf Trust of America, Inc. Golf (REIT) 2/7/97 1.29%
Home Properties of New York, Inc. Apartments (REIT) 9/26/97 0.57%
Insignia Financial Group, Inc. Financial 1/22/97 -
IRT Property Company Retail (REIT) 6/17/97 0.40%
Kilroy Realty Corporation Office Space (REIT) 1/28/97 0.65%
National Golf Properties, Inc. Golf (REIT) 5/14/97 0.45%
Pacific Gulf Properties, Inc. Diversified (REIT) 1/15/97 0.32%
Pennsylvania Real Estate Investment Trust Apartments (REIT) 12/17/97 0.66%
Post Properties, Inc. Apartments (REIT) 5/21/97 1.50%
Premier Parks Inc. Resorts/Theme Parks 1/27/97 1.57%
Prentiss Properties Trust Office Space (REIT) 4/29/97 0.97%
CCA Prison Realty Trust Diversified (REIT) 7/15/97 0.80%
Rouse Company Real Estate Development 6/17/97 0.33%
Rouse Company, $3.00, Ser. B Conv. Pfd. Real Estate 2/20/97 0.85%
Security Capital Group Warrants Real Estate 9/9/97 -
Security Capital Group Incorporated Real Estate Development 9/23/97 0.79%
Servico, Inc. Hotels & Lodging 6/24/97 2.07%
SL Green Realty Corp. Office Space (REIT) 8/15/97 0.79%
Sunstone Hotel Investors, Inc. Hotels & Lodging (REIT) 4/23/97 1.60%
Tower Realty Trust, Inc. Office Space (REIT) 10/9/97 0.50%
Trizec Hahn Corporation Real Estate Development 1/29/97 1.56%
U.S. Restaurant Properties, Inc. Restaurants 10/17/97 0.72%
Vornado Realty Trust, 6.50%, Ser. A Conv. Pfd. Real Estate 4/3/97 0.44%
WHG Resorts & Casinos Inc. Hotels & Lodging 9/16/97 0.37%
</TABLE>
32
<PAGE>
DAVIS SERIES, INC.
DAVIS REAL ESTATE FUND
PORTFOLIO ACTIVITY - JANUARY 1, 1997 THROUGH DECEMBER 31, 1997-CONTINUED
=============================================================================
POSITIONS CLOSED (1/1/97-12/31/97)
<TABLE>
<CAPTION>
SECURITY SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bancorp Hawaii, Inc. Banks and Savings
& Loan Association 2/20/97 119,027
Bedford Property Investments Office Space (REIT) 6/9/97 146,489
Chateau Properties, Inc. Office Space (REIT) 2/20/97 156,293
Cornerstone Properties, Inc. Office Space (REIT) 10/10/97 509
Developers Diversified Realty Retail (REIT) 10/10/97 140,530
Equitable Cos. Inc., Conv. Sub. Deb.,
6.125%, 12/15/24 Real Estate 4/28/97 25,920
Equitable Cos. Inc. Insurance 6/11/97 190,861
Homestead Village Properties Inc. Hotels & Lodging 2/20/97 (7,050)
Homestead Village Properties Inc., Warrants Hotels & Lodging 2/20/97 (1,882)
Insignia Financial Group, Inc. Financial 2/20/97 (31,726)
Jameson Inns Inc. Hotels & Lodging 10/28/97 (24,277)
Kaufman & Broad Home Corp. Construction 2/20/97 (40,289)
Regency Realty Corp. Retail (REIT) 10/10/97 126,636
Security Capital Group Warrants Real Estate 10/10/97 44,603
Security Capital Industrial Trust Industrial (REIT) 10/10/97 224,222
Sovran Self Storage Inc. Storage (REIT) 10/10/97 112,841
Spieker Properties Inc. Office Space (REIT) 10/10/97 80,028
Storage Trust Realty Storage (REIT) 10/13/97 162,388
United Dominion Realty Trust Inc. Apartments (REIT) 10/13/97 74,073
Weeks Corp. Industrial (REIT) 10/10/97 156,026
</TABLE>
33
<PAGE>
DAVIS SERIES, INC.
DAVIS REAL ESTATE FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS REAL ESTATE FUND CLASS A SHARES AND
STANDARD & POOR'S 500 STOCK INDEX
===============================================================================
Average Annual Total Return For the Period ended December 31, 1997.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
CLASS A SHARES (This calculation includes an initial sales charge of 4 3/4%.)
<S> <C>
One Year ...................................................................................... 19.14%
Life of Class (January 3, 1994
through December 31, 1997).................................................................. 20.11%
-------------------------------------------------------------------------------------------------------------
</TABLE>
$10,000 INVESTED OVER THE LIFE OF THE FUND. Let's say you invested $10,000 in
Davis Series, Inc., Class A shares of Davis Real Estate Fund ("DREF-A") on
January 3, 1994 (inception of Fund) and paid a 4 3/4% sales charge. As the
chart shows, by December 31, 1997 the value of your investment would have grown
to $20,794 a 107.94% increase on your initial investment. For comparison, the
Standard and Poor's 500 Stock Index is also presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
S&P 500 DREF-A
1/3/94 $10,000 $ 9,525
12/31/94 $10,132 $10,306
12/31/95 $13,936 $12,131
12/31/96 $17,134 $16,625
12/31/97 $22,849 $20,794
Standard & Poor's 500 Stock Index is an unmanaged index which has no
specific investment objective. The index used includes net dividends
reinvested, but does not take into account any sales charge.
Investments cannot be made directly into the index.
The performance data for Davis Real Estate Fund contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost
when redeemed.
34
<PAGE>
DAVIS SERIES, INC.
DAVIS REAL ESTATE FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS REAL ESTATE FUND
CLASS B SHARES AND STANDARD & POOR'S 500 STOCK INDEX
<TABLE>
<CAPTION>
==============================================================================================================
Average Annual Total Return For the Periods Non-Annualized Total Return For the Period
ended December 31, 1997. ended December 31, 1997.
<S> <C>
----------------------------------------------------------------------------------------------------------
CLASS B SHARES CLASS C SHARES
(This calculation includes any applicable (This calculation includes any applicable contingent
contingent deferred sales charge.) deferred sales charge.)
One Year ...............................20.88%
Life of Class (December 27, 1994 Life of Class
through December 31, 1997)..........24.98% (August 13, 1997 through December 31, 1997).....10.12%
----------------------------------------------------------------------------------------------------------
</TABLE>
$10,000 INVESTED OVER THE LIFE OF THE CLASS. Let's say you invested $10,000 in
Davis Series, Inc., Class B shares of Davis Real Estate Fund ("DREF-B") on
December 27, 1994 (inception of Class). As the chart shows, by December 31,
1997 the value of your investment (less applicable contingent deferred sales
charges) would have grown to $19,581 - a 95.81% increase on your initial
investment. For comparison, the Standard and Poor's 500 Stock Index is also
presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
S&P 500 DREF-B
12/27/94 $10,000 $10,000
12/31/94 $10,024 $10,089
12/31/95 $13,788 $11,741
12/31/96 $16,952 $15,968
12/31/97 $22,606 $19,581
Standard & Poor's 500 Stock Index is an unmanaged index which has no
specific investment objective. The index used includes net dividends
reinvested, but does not take into account any sales charge.
Investments cannot be made directly into the index.
The performance data for Davis Real Estate Fund contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost
when redeemed.
35
<PAGE>
DAVIS SERIES, INC.
DAVIS REAL ESTATE FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS REAL ESTATE FUND
CLASS Y SHARES AND STANDARD & POOR'S 500 STOCK INDEX
<TABLE>
<CAPTION>
==============================================================================================================
Average Annual Total Return For the Period ended December 31, 1997.
<S> <C>
-------------------------------------------------------------------------------------------------------------
CLASS Y SHARES (There is no sales charge applicable to this calculation.)
One Year ..................................................................................... 25.29%
Life of Class (November 8, 1996
through December 31, 1997).................................................................. 35.36%
-------------------------------------------------------------------------------------------------------------
</TABLE>
$10,000 INVESTED OVER THE LIFE OF THE CLASS. Let's say you invested $10,000 in
Davis Series, Inc., Class Y shares of Davis Real Estate Fund ("DREF-Y") on
November 8, 1996 (inception of Class). As the chart shows, by December 31, 1997
the value of your investment would have grown to $14,145 - a 41.45% increase on
your initial investment. For comparison, the Standard and Poor's 500 Stock
Index is also presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
S&P 500 DREF-Y
11/8/96 $10,000 $10,000
12/31/96 $10,538 $11,221
12/31/97 $14,053 $14,145
Standard & Poor's 500 Stock Index is an unmanaged index which has no
specific investment objective. The index used includes net dividends
reinvested, but does not take into account any sales charge.
Investments cannot be made directly into the index.
The performance data for Davis Real Estate Fund contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost
when redeemed.
36
<PAGE>
DAVIS SERIES, INC.
DAVIS GOVERNMENT BOND FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS GOVERNMENT BOND FUND
CLASS A SHARES AND THE LEHMAN BROTHERS INTERMEDIATE TERM
U.S. TREASURY SECURITIES INDEX
<TABLE>
<CAPTION>
==============================================================================================================
Average Annual Total Return For the Periods ended December 31, 1997.
<S> <C>
-------------------------------------------------------------------------------------------------------------
CLASS A SHARES (This calculation includes an initial sales charge of 4 3/4%.)
One Year ..................................................................................... 2.75%
Life of Class (December 1, 1994
through December 31, 1997).................................................................. 5.81%
-------------------------------------------------------------------------------------------------------------
</TABLE>
$10,000 INVESTED OVER THE LIFE OF THE CLASS. Let's say you invested $10,000 in
Davis Series, Inc., Class A shares of Davis Government Bond Fund ("DGBF-A") on
December 1, 1994 (inception of Class) and paid a 4 3/4% sales charge. As the
chart shows, by December 31, 1997 the value of your investment would have grown
to $11,902 - a 19.02% increase on your initial investment. For comparison, the
Lehman Brothers Intermediate Term U.S. Treasury Securities Index is also
presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
Lehman Index DGBF-A
12/1/94 $10,000 $ 9,525
12/31/94 $10,032 $ 9,539
12/31/95 $11,485 $10,666
12/31/96 $11,941 $11,029
12/31/97 $12,857 $11,902
The Lehman Brothers Intermediate Term U.S. Treasury Securities Index is an
unmanaged index which has no specific investment objective. Investments cannot
be made directly into the index.
The performance data for Davis Government Bond Fund contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost
when redeemed.
37
<PAGE>
DAVIS SERIES, INC.
DAVIS GOVERNMENT BOND FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS GOVERNMENT BOND FUND
CLASS B SHARES AND THE LEHMAN BROTHERS INTERMEDIATE TERM
U.S. TREASURY SECURITIES INDEX
<TABLE>
<CAPTION>
==============================================================================================================
Average Annual Total Return For the Periods Non-Annualized Total Return For the Period
ended December 31, 1997. ended December 31, 1997.
<S> <C>
----------------------------------------------------------------------------------------------------------
CLASS B SHARES CLASS C SHARES
(This calculation includes any applicable (This calculation includes any applicable contingent
contingent deferred sales charge.) deferred sales charge.)
One Year ................................ 4.12%
Five Years............................... 4.42% Life of Class
Ten Years................................ 6.03% (August 19, 1997 through December 31, 1997)..... 1.97%
----------------------------------------------------------------------------------------------------------
</TABLE>
$10,000 INVESTED OVER TEN YEARS. Let's say you invested $10,000 in Davis
Series, Inc., Class B shares of Davis Government Bond Fund ("DGBF-B") on
December 31, 1987. As the chart shows, by December 31, 1997 the value of your
investment would have grown to $17,969 - an 79.69% increase on your initial
investment. For comparison, the Lehman Brothers Intermediate Term U.S. Treasury
Securities Index is also presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
LEHMAN INDEX DGBF-B
12/31/87 $10,000 $10,000
12/31/88 $10,640 $10,572
12/31/89 $11,989 $11,571
12/31/90 $13,135 $12,278
12/31/91 $14,993 $13,796
12/31/92 $16,038 $14,368
12/31/93 $17,362 $14,899
12/31/94 $17,007 $14,754
12/31/95 $19,470 $16,321
12/31/96 $20,242 $16,774
12/31/97 $21,794 $17,969
The Lehman Brothers Intermediate Term U.S. Treasury Securities Index is an
unmanaged index which has no specific investment objective. Investments cannot
be made directly into the index.
The performance data for Davis Government Bond Fund contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost
when redeemed.
38
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS GROWTH OPPORTUNITY FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
==============================================================================================================
<S> <C> <C>
COMMON STOCK - (91.88%)
BUSINESS SERVICES - (1.02%)
92,500 Thomas Group, Inc.*............................................................ $ 1,144,688
-------------
CAPITAL EQUIPMENT - (9.14%)
58,900 ASM Lithography Holding N.V.*................................................. 3,979,431
110,000 Integrated Process Equipment Corp.* ........................................... 1,735,937
141,000 Novellus Systems, Inc.*........................................................ 4,560,469
-------------
10,275,837
-------------
COMMERCIAL - (6.51%)
172,800 Cendant Corp.*................................................................. 5,940,000
66,000 NFO Worldwide, Inc.* .......................................................... 1,381,875
-------------
7,321,875
-------------
CONSUMER PRODUCTS & SERVICES - (5.37%)
133,200 Philip Morris Cos., Inc........................................................ 6,035,625
-------------
ELECTRONICS - (10.74%)
166,800 Adaptec, Inc.*................................................................. 6,202,875
83,600 Intel Corp..................................................................... 5,870,287
-------------
12,073,162
-------------
ENERGY - (13.00%)
55,800 Anadarko Petroleum Corp........................................................ 3,386,363
160,000 Brigham Exploration Company*................................................... 2,280,000
25,300 Forcenergy, Inc.*.............................................................. 662,544
62,300 Ocean Energy, Inc.*............................................................ 3,072,169
227,600 Seitel, Inc.*.................................................................. 3,897,650
32,500 United Meridian Corporation*................................................... 914,063
64,000 Venture Seismic Ltd.* ......................................................... 410,000
-------------
14,622,789
-------------
FINANCIAL SERVICES - (11.91%)
2,000 Associates First Capital Corp.................................................. 142,250
42,700 Fannie Mae .................................................................... 2,436,569
189,100 FIRSTPLUS Financial Group, Inc.*............................................... 7,244,894
101,500 IMC Mortgage Co.*.............................................................. 1,211,656
208,700 MFC Bancorp Ltd. .............................................................. 2,360,919
-------------
13,396,288
-------------
INSURANCE - (5.99%)
131,675 AFLAC Inc...................................................................... 6,731,884
-------------
MANUFACTURING - (1.07%)
75,600 Deswell Industries, Inc........................................................ 1,207,237
-------------
PHARMACEUTICALS - (17.09%)
18,400 Eli Lilly and Company.......................................................... 1,281,100
34,200 ICN Pharmaceuticals, Inc....................................................... 1,669,387
110,500 KV Pharmaceutical Company*..................................................... 2,292,875
</TABLE>
39
<PAGE>
DAVIS SERIES, INC
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS GROWTH OPPORTUNITY FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL (NOTE 1)
==============================================================================================================
<S> <C> <C>
COMMON STOCK - CONTINUED
PHARMACEUTICALS - CONTINUED
115,000 Pfizer, Inc.................................................................. $ 8,574,687
40,200 Schering-Plough Corporation.................................................. 2,497,425
924,000 Viragen, Inc.*............................................................... 1,039,500
15,000 Warner Lambert Co............................................................ 1,860,000
--------------
19,214,974
--------------
RESTAURANTS - (3.28%)
69,000 IHOP Corp.*.................................................................. 2,251,125
204,000 Unique Casual Restaurants, Inc.*............................................. 1,434,375
--------------
3,685,500
--------------
RETAIL - (5.40%)
264,000 Garden Ridge Corp.*.......................................................... 3,778,500
82,600 Staples, Inc.*............................................................... 2,297,313
--------------
6,075,813
--------------
SOFTWARE - (1.36%)
147,900 Business Objects S.A. - ADR*................................................. 1,525,219
--------------
Total Common Stock - (identified cost $63,124,182)................ 103,310,891
--------------
SHORT TERM - (7.48%)
$3,530,000Federal Home Loan Bank Discount Note, 4.90%, 01/02/98........................... 3,529,520
4,885,000 Federal Home Loan Mortgage Discount Note, 5.72%, 01/02/98.................... 4,884,223
--------------
- (identified cost $8,413,743)........................................ 8,413,743
--------------
TOTAL INVESTMENTS - (99.36%) - (identified cost $71,537,925) - (a)........... 111,724,634
OTHER ASSETS LESS LIABILITIES - (0.64%)...................................... 723,285
--------------
NET ASSETS - (100%)............................................... $ 112,447,919
==============
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $71,537,925. At December
31, 1997 unrealized appreciation (depreciation) of securities for Federal
Income Tax purposes is as follows:
Unrealized appreciation.................................................... $ 45,118,810
Unrealized depreciation................................................... (4,932,101)
--------------
Net unrealized appreciation ...................................... $ 40,186,709
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
==============================================================================================================
<S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION - MORTGAGE POOLS - (12.58%)
$ 31,106 9.00%, 07/01/01............................................................. $ 32,068
304,325 8.50%, 08/01/01............................................................. 312,409
55,491 9.00%, 08/01/02............................................................. 57,589
14,938 8.50%, 12/01/02............................................................. 15,191
17,904 9.00%, 06/01/03............................................................. 18,227
1,094,730 6.50%, 01/01/04............................................................. 1,099,525
108,343 9.25%, 01/01/04............................................................. 112,253
5,638 9.25%, 11/01/07............................................................. 5,785
79,893 9.25%, 09/01/08............................................................. 84,824
83,783 10.00%, 07/01/09............................................................. 90,355
1,125,632 6.50%, 07/01/11............................................................. 1,128,098
39,794 9.00%, 07/01/16............................................................. 42,953
213,168 9.00%, 08/01/16............................................................. 228,689
224,826 9.00%, 01/01/17............................................................. 242,672
132,840 9.00%, 03/01/17............................................................. 142,139
60,148 9.00%, 08/01/17............................................................. 64,715
34,411 9.50%, 12/01/19............................................................. 37,211
113,506 9.50%, 02/01/20............................................................. 122,018
-------------
Total FHLMC - (identified cost $3,800,221).......................... 3,836,721
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - MORTGAGE POOLS - (5.78%)
3,600 12.00%, 12/01/00........................................................... 3,726
47,313 9.75%, 02/01/04........................................................... 49,391
161,118 10.25%, 10/01/09............................................................. 176,321
65,592 10.75%, 07/01/13............................................................. 73,760
238,941 9.25%, 10/01/16............................................................. 257,796
93,304 7.742%, 09/01/19*........................................................... 97,596
40,257 7.721%, 03/01/24*........................................................... 41,998
1,038,813 7.50%, 01/01/27............................................................. 1,064,139
-------------
Total FNMA - (identified cost $1,712,488)........................... 1,764,727
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - MORTGAGE POOLS - (14.83%)
47,390 6.00% with various maturities to 2024....................................... 48,458
36,529 6.50% with various maturities to 2023....................................... 37,576
1,150,936 7.00% with various maturities to 2026....................................... 1,154,895
1,110,573 8.50% with various maturities to 2005....................................... 1,166,457
630,675 9.00% with various maturities to 2017....................................... 686,370
156,076 10.00% with various maturities to 2020....................................... 167,901
27,311 10.25% with various maturities to 2016....................................... 30,029
135,163 10.50% with various maturities to 2016....................................... 151,089
294,500 11.25% with various maturities to 2011....................................... 322,387
467,888 11.50% with various maturities to 2015....................................... 536,497
83,031 13.00% with various maturities to 2014....................................... 98,259
</TABLE>
41
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS GOVERNMENT BOND FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
==============================================================================================================
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - MORTGAGE POOLS - CONTINUED
$ 81,270 14.25% with various maturities to 2014....................................... $ 94,782
27,638 14.75% with various maturities to 2001....................................... 27,906
-------------
Total GNMA - (identified cost $4,418,047)........................... 4,522,606
-------------
MEDIUM TERM NOTES - (42.69%)
1,000,000 Federal Home Loan Bank, 5.745%, 12/29/99..................................... 998,750
800,000 Federal Home Loan Bank, 7.24%, 11/09/10...................................... 799,488
1,215,000 Federal Home Loan Mortgage Corporation, 6.615%, 03/03/04..................... 1,213,214
1,000,000 Federal Home Loan Mortgage Corporation, 7.225%, 05/17/05..................... 1,019,340
1,000,000 Federal Home Loan Mortgage Corporation, 6.66%, 12/05/05...................... 1,003,010
1,000,000 Federal Home Loan Mortgage Corporation, 6.63%, 01/12/09...................... 988,290
900,000 Federal Home Loan Mortgage Corporation, 8.00%, 06/20/11...................... 950,535
1,000,000 Federal National Mortgage Association, 5.72%, 03/13/01....................... 996,140
1,000,000 Federal National Mortgage Association, 6.23%, 07/18/02....................... 1,011,280
1,000,000 Federal National Mortgage Association, 6.85%, 09/12/05....................... 1,009,420
1,000,000 Federal National Mortgage Association, 6.39%, 09/24/07....................... 1,023,500
1,000,000 Federal National Mortgage Association, 7.15%, 11/03/10....................... 1,007,710
1,000,000 Federal National Mortgage Association, 5.91%, 08/07/20....................... 1,002,400
-------------
Total Medium Term Notes - (identified cost $12,858,059)............. 13,023,077
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS & REAL ESTATE MORTGAGE
INVESTMENT CONDUITS - (18.83%)
7,553 Federal Home Loan Mortgage Corporation, 122 F, 8.75%, 10/15/05............... 7,589
134,198 Federal Home Loan Mortgage Corporation, 1606 LC, 7.492%, 05/15/08*........... 134,326
1,000,000 Federal Home Loan Mortgage Corporation, 1534 F, 6.00%, 04/15/20 ............. 993,140
1,000,000 Federal Home Loan Mortgage Corporation, 1552 HB, 6.50%, 11/15/22............. 998,750
1,000,000 Federal National Mortgage Association, 1993-30 PL, 7.00%, 07/25/20........... 1,013,190
13,553 Federal National Mortgage Association, 1991-115ZZ, 8.50%, 10/25/20........... 13,565
300,000 Federal National Mortgage Association, 1992-174H, 7.25%, 09/25/21............ 306,000
1,000,000 Federal National Mortgage Association, 1993-155TC, 7.00%, 03/25/23........... 1,021,780
1,250,000 Federal National Mortgage Association, 1993-120N, 7.00%, 07/25/23............ 1,255,713
-------------
Total CMOs & REMICs - (identified cost $5,622,096).................. 5,744,053
-------------
</TABLE>
42
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS GOVERNMENT BOND FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
==============================================================================================================
<S> <C> <C>
SHORT TERM - (4.39%)
$ 980,000 Federal Home Loan Bank Discount Note, 4.90%, 01/02/98........................ $ 979,867
360,000 Federal Home Loan Bank Discount Note, 5.70%, 01/02/98........................ 359,943
-------------
Total Short Term - (identified cost $1,339,810) .................... 1,339,810
-------------
TOTAL INVESTMENTS - (99.10%) - (identified cost $29,750,721) (a)............. 30,230,994
OTHER ASSETS LESS LIABILITIES - (0.90%)................................... 275,553
-------------
NET ASSETS - (100%) ............................................... $ 30,506,547
=============
(a) Aggregate cost for Federal Income Tax purposes is $29,750,721. At December
31, 1997 unrealized appreciation (depreciation) of securities for Federal
Income Tax purposes is as follows:
Unrealized appreciation...................................................... $ 627,314
Unrealized depreciation...................................................... (147,041)
-------------
Net unrealized appreciation......................................... $ 480,273
=============
</TABLE>
* The interest rates on floating rate securities, shown as of December 31,
1997, may change monthly or less frequently and are based on indices of market
interest rates.
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
==============================================================================================================
<S> <C> <C>
FEDERAL FARM CREDIT BANK - (3.02%)
$ 14,070,000 5.55%, 01/07/98 Discount Note - (identified cost $14,056,985 )............... $ 14,056,985
--------------
FEDERAL HOME LOAN BANK - (9.61%)
3,940,000 4.90%, 01/02/98 Discount Note................................................ 3,939,464
14,310,000 5.475%, 01/09/98 Discount Note............................................... 14,292,590
19,120,000 5.43%, 01/30/98 Discount Note................................................ 19,036,366
7,455,000 5.56%, 02/27/98 Discount Note................................................ 7,389,371
--------------
Total Federal Home Loan Bank - (identified cost $44,657,791)........ 44,657,791
--------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - (36.23%)
8,000,000 5.70%, 01/02/98 Discount Note................................................ 7,998,733
20,740,000 5.48%, 01/05/98 Discount Note................................................ 20,727,372
10,685,000 5.75%, 01/08/98 Discount Note................................................ 10,673,054
5,067,000 5.73%, 01/12/98 Discount Note................................................ 5,058,129
6,270,000 5.55%, 01/14/98 Discount Note................................................ 6,257,434
24,795,000 5.565%, 01/14/98 Discount Note............................................... 24,745,172
20,090,000 5.51%, 01/21/98 Discount Note................................................ 20,028,502
8,675,000 5.71%, 01/22/98 Discount Note................................................ 8,646,105
10,060,000 5.69%, 01/26/98 Discount Note................................................ 10,020,249
10,750,000 5.75%, 01/26/98 Discount Note................................................ 10,707,075
11,340,000 5.59%, 02/09/98 Discount Note................................................ 11,271,327
4,725,000 5.50%, 02/12/98 Discount Note................................................ 4,694,681
5,635,000 5.64%, 02/13/98 Discount Note................................................ 5,597,039
7,000,000 5.65%, 02/13/98 Discount Note................................................ 6,952,760
8,625,000 5.52%, 02/17/98 Discount Note................................................ 8,562,843
6,555,000 5.65%, 02/19/98 Discount Note................................................ 6,504,590
--------------
Total Federal Home Loan Mortgage Corporation -
(identified cost $168,445,065)................................... 168,445,065
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - (49.46%)
10,303,000 5.55%, 01/06/98 Discount Note................................................ 10,295,058
2,525,000 5.49%, 01/13/98 Discount Note................................................ 2,520,379
9,175,000 5.43%, 01/15/98 Discount Note................................................ 9,155,625
22,855,000 5.41%, 01/16/98 Discount Note................................................ 22,803,481
7,255,000 5.49%, 01/20/98 Discount Note................................................ 7,233,978
7,385,000 5.47%, 01/23/98 Discount Note............................................... 7,360,314
7,780,000 5.74%, 01/27/98 Discount Note................................................ 7,747,748
12,385,000 5.75%, 01/29/98 Discount Note................................................ 12,329,612
14,955,000 5.475%, 02/04/98 Discount Note............................................... 14,877,670
17,870,000 5.50%, 02/05/98 Discount Note................................................ 17,774,445
730,000 5.48%, 02/06/98 Discount Note................................................ 726,000
5,510,000 5.64%, 02/10/98 Discount Note................................................ 5,475,471
3,955,000 5.66%, 02/18/98 Discount Note................................................ 3,925,153
8,350,000 5.525%, 02/20/98 Discount Note............................................... 8,285,925
</TABLE>
44
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS GOVERNMENT MONEY MARKET FUND-CONTINUED
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
==============================================================================================================
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION - CONTINUED
$ 8,900,000 5.53%, 02/25/98 Discount Note................................................ $ 8,824,807
12,455,000 5.57%, 03/03/98 Discount Note................................................ 12,337,449
10,795,000 5.60%, 03/17/98 Discount Note................................................ 10,669,058
36,117,000 5.43%, 03/20/98 Discount Note................................................ 35,692,083
10,115,000 5.43%, 03/26/98 Discount Note................................................ 9,986,843
22,225,000 5.47%, 03/27/98 Discount Note................................................ 21,937,957
--------------
Total Federal National Mortgage Association -
(identified cost $229,959,056).................................... 229,959,056
--------------
TOTAL INVESTMENTS - (98.32%) - (identified cost $457,118,897) - (a).......... 457,118,897
OTHER ASSETS LESS LIABILITIES - (1.68%)...................................... 7,826,391
--------------
NET ASSETS - (100%)................................................. $ 464,945,288
==============
</TABLE>
(a) Aggregate cost for Federal income tax purposes is $457,118,897.
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS FINANCIAL FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
==============================================================================================================
<S> <C> <C>
COMMON STOCK - (91.15%)
AGRICULTURE - (0.40%)
94,500 Archer-Daniels-Midland Co.................................................... $ 2,049,469
--------------
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (21.54%)
335,000 BankAmerica Corp............................................................. 24,455,000
259,745 Bank of East Asia Ltd........................................................ 608,390
335,000 Bank of New York Co., Inc.................................................... 19,367,188
125,000 Citicorp..................................................................... 15,804,688
24,000 Golden West Financial Corp................................................... 2,347,500
25,000 Greenpoint Financial Corp.................................................... 1,814,063
313,901 Lloyds TSB Group PLC......................................................... 4,083,722
18,000 J.P. Morgan & Co., Inc....................................................... 2,031,750
58,000 Norwest Corp................................................................. 2,240,250
90,000 State Street Corporation..................................................... 5,236,875
120,000 TCF Financial Corp........................................................... 4,072,500
105,000 U.S. Bancorp ................................................................ 11,753,438
46,333 Wells Fargo & Co............................................................. 15,727,158
-------------
109,542,522
-------------
BUILDING MATERIALS - (4.33%)
150,000 Martin Marietta Materials, Inc............................................... 5,484,375
325,400 Masco Corporation............................................................ 16,554,725
-------------
22,039,100
-------------
CONSUMER PRODUCTS - (7.27%)
270,000 Mattel, Inc. ................................................................ 10,057,500
64,000 Nestle S.A. (Sponsored ADR for Reg. Shrs.)................................... 4,788,037
440,000 Philip Morris Cos., Inc...................................................... 19,937,500
94,800 Ticketmaster Group, Inc. .................................................... 2,192,250
-------------
36,975,287
-------------
ENERGY - (1.98%)
105,000 Bayard Drilling Technologies, Inc. .......................................... 1,706,250
47,000 Burlington Resources, Inc.................................................... 2,106,188
30,000 Cooper Cameron Corporation*.................................................. 1,830,000
56,000 Halliburton Co............................................................... 2,908,500
25,000 Smith International, Inc.*................................................... 1,534,375
-------------
10,085,313
-------------
FINANCIAL SERVICES - (42.89%)
INSURANCE - (26.06%)
2,250 Alleghany Corp.*............................................................. 640,688
87,075 Allied Group, Inc............................................................ 2,492,522
40,000 The Allstate Corp............................................................ 3,635,000
23,062 American International Group, Inc............................................ 2,507,993
28,500 Aon Corporation.............................................................. 1,670,813
20,900 Argonaut Group, Inc.......................................................... 719,744
48,000 W.R. Berkley Corp............................................................ 2,133,000
</TABLE>
46
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS FINANCIAL FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
==============================================================================================================
COMMON STOCK - CONTINUED
<S> <C> <C>
FINANCIAL SERVICES - CONTINUED
INSURANCE - CONTINUED
20,000 Chubb Corp................................................................... $ 1,512,500
172,500 Cincinnati Financial Corp.................................................... 24,257,813
150,000 ESG Re Limited............................................................... 3,506,250
20,000 Executive Risk Inc........................................................... 1,396,250
25,000 EXEL Limited ............................................................... 1,584,375
67,500 FPIC Insurance Group, Inc.*.................................................. 1,936,406
84,809 General Re Corp.............................................................. 17,979,508
80,000 Harleysville Group, Inc...................................................... 1,935,000
185,000 Leucadia National Corp.*..................................................... 6,382,500
60,000 Mercury General Corp......................................................... 3,315,000
1,509 Nuernberger Beteil AGAKT LITA*............................................... 1,551,834
72,000 Orion Capital Corp........................................................... 3,343,500
71,000 Progressive Corp. (Ohio)..................................................... 8,511,125
100,000 Risk Capital Holdings, Inc.*................................................. 2,281,250
31,500 State Auto Financial Corp.................................................... 1,019,813
15,000 Stirling Cooke Brown Holdings Limited........................................ 372,188
171,500 SunAmerica, Inc.............................................................. 7,331,625
267,300 Transatlantic Holdings Inc................................................... 19,111,950
150,000 Travelers Property Casualty Corp............................................. 6,600,000
14,250 Trenwick Group, Inc.......................................................... 525,469
69,000 20th Century Industries...................................................... 1,794,000
42,000 Vesta Insurance Group, Inc................................................... 2,493,750
-------------
132,541,866
-------------
OTHER FINANCIAL SERVICES - (16.83%)
229,000 American Express Co.......................................................... 20,438,250
75,000 Charles Schwab Corp.......................................................... 3,145,313
73,200 Donaldson, Lufkin & Jenrette Inc............................................. 5,819,400
151,500 Household International, Inc................................................. 19,325,719
68,800 Jefferies Group, Inc......................................................... 2,816,500
143,950 Morgan Stanley, Dean Witter, Discover & Co................................... 8,511,044
300,000 Providian Financial Corporation.............................................. 13,556,250
222,000 Travelers Group Inc.......................................................... 11,960,250
-------------
85,572,726
-------------
FOOTWARE - (1.21%)
157,000 Nike, Inc.................................................................... 6,162,250
-------------
PHARMACEUTICALS - (2.53%)
38,000 Novartis - ADR............................................................... 3,085,125
190,000 SmithKline Beecham PLC - ADR................................................. 9,773,125
-------------
12,858,250
-------------
</TABLE>
47
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS FINANCIAL FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL (NOTE 1)
==============================================================================================================
<S> <C> <C>
COMMON STOCK - CONTINUED
RAILROAD - (0.98%)
20,000 Burlington Northern Santa Fe................................................. $ 1,858,750
50,000 Union Pacific Corp........................................................... 3,121,875
-------------
4,980,625
-------------
RESTAURANT & FOOD - (2.58%)
275,000 McDonald's Corp.............................................................. 13,131,250
-------------
RETAIL - (0.91%)
85,000 Harcourt General, Inc........................................................ 4,653,750
-------------
TECHNOLOGY - (4.04%)........................................................................
70,000 Hewlett-Packard Company...................................................... 4,375,000
72,000 Intel Corp................................................................... 5,055,750
90,000 International Business Machines Corporation.................................. 9,410,625
50,000 Komag Inc.*.................................................................. 740,625
30,000 Novellus Systems, Inc.*...................................................... 970,313
------------
20,552,313
-------------
TELECOMMUNICATIONS - (0.49%)
60,000 AirTouch Communications, Inc.*............................................... 2,493,750
-------------
Total Common Stock - (identified cost $339,021,451)................. 463,638,471
-------------
CONVERTIBLE BOND - (0.46%)
$ 750,000 Cincinnati Financial Corp., Sr. Deb., Conv., 5.50%, 05/01/02
- (identified cost $980,625)........................................ 2,335,313
-------------
SHORT TERM - (6.25%)
7,195,000 Federal Home Loan Bank Discount Note, 5.72%, 01/05/98........................ 7,190,427
4,875,000 Federal Home Loan Bank Discount Note, 4.90%, 01/08/98....................... 4,870,355
11,385,000 Federal Home Loan Mortgage Discount Note, 5.72%, 01/02/98.................... 11,383,191
8,345,000 Federal National Mortgage Association Discount Note, 5.75%, 01/06/98......... 8,338,336
-------------
Total Short Term - (identified cost $31,782,309) ................... 31,782,309
-------------
TOTAL INVESTMENTS - (97.86%) - (identified cost $371,784,385) - (a).......... 497,756,093
OTHER ASSETS LESS LIABILITIES - (2.14%)...................................... 10,880,270
-------------
NET ASSETS - (100%) ................................................ $ 508,636,363
=============
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $371,784,385. At December
31, 1997 unrealized appreciation (depreciation) of securities for Federal
Income Tax purposes is as follows:
Unrealized appreciation...................................................... $ 131,236,929
Unrealized depreciation...................................................... (5,265,221)
-------------
Net unrealized appreciation......................................... $ 125,971,708
=============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
48
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS CONVERTIBLE SECURITIES FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
==============================================================================================================
CONVERTIBLE PREFERRED STOCK - (37.22%)
<S> <C> <C>
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (4.97%)
24,300 Banc One Corp., $3.50, Ser. C Conv. Pfd...................................... $ 2,556,056
52,800 Morgan Stanley Group Inc. - Citicorp, 5.50%, Ser. CCI Conv. Pfd ............. 5,808,000
-------------
8,364,056
-------------
COMMUNICATIONS - (3.43%)
45,500 AirTouch Communications, Inc., 4.25%, Ser. C Conv. Pfd....................... 2,835,219
47,800 Loral Space & Communications, Inc., 6.00%, 144A Conv. Pfd.................... 2,933,725
-------------
5,768,944
-------------
DIVERSIFIED (REIT) - (0.78%)
20,000 Vornado Realty Trust, 6.50%, Ser. A Conv. Pfd................................ 1,320,000
-------------
ENERGY - (10.01%)
54,500 CalEnergy Capital Trust II, 6.25%, Conv. Pfd................................. 2,486,563
30,000 Devon Financing Trust, $3.25, Ser. 144A Conv. Pfd............................ 2,175,000
24,200 Devon Financing Trust, $3.25, Conv. Pfd...................................... 1,754,500
70,000 EVI, Inc., 5.00%, Ser. 144A Conv. Pfd........................................ 3,237,500
27,000 Tosco Financing Trust, 5.75%, Ser. 144A Conv. Pfd............................ 1,748,250
39,100 Tosco Financing Trust, 5.75%, Conv. Pfd...................................... 2,531,725
52,520 Unocal Capital Trust., 6.25%, Conv. Pfd...................................... 2,934,555
-------------
16,868,093
-------------
FINANCIAL SERVICES - (4.31%)
44,100 M.L.-SunAmerica Inc., 7.25%, Conv. Pfd....................................... 3,109,050
32,000 SunAmerica Inc., Depository Shares, $2.78, Ser. D Conv. Pfd.................. 4,144,000
-------------
7,253,050
-------------
HOTELS - (2.18%)
69,000 Felcor Suite Hotels, Inc., $1.95, Ser. A Conv. Pfd........................... 1,975,125
27,900 Host Marriott Financial Trust, 6.75%, Ser. 144A Conv. Pfd.................... 1,701,900
-------------
3,677,025
-------------
INDUSTRIAL (REIT) - (0.38%)
20,000 Security Capital Industrial Trust, 7.00%, Ser. B Cum. Conv. Pfd............. 637,500
-------------
MARINE SUPPORT - (0.99%)
29,200 Hvide Capital Trust, 6.50%, Ser. 144A Conv. Pfd.*............................ 1,671,700
-------------
MULTI-FAMILY HOUSING (REITS) - (3.45%)
33,400 Equity Residential Properties Trust, 7.25%, Ser. G Conv. Pfd................. 855,875
118,900 Equity Residential Properties Trust, 7.00%, Ser. E Conv. Pfd................. 3,418,375
28,300 Oasis Residential, Inc., $2.25, Ser. A Cum. Conv. Pfd........................ 725,188
25,000 Security Capital Pacific Trust Ser. A Conv. Pfd.............................. 818,750
-------------
5,818,188
-------------
REAL ESTATE DEVELOPMENT - (2.94%)
98,000 Rouse Company, $3.00, Ser. B Conv. Pfd....................................... 4.949,000
-------------
RESTAURANT - (0.98%)
65,000 U.S. Restaurant Properties, 7.72%, Ser. A Conv. Pfd.......................... 1,657,500
-------------
</TABLE>
49
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS CONVERTIBLE SECURITIES FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL (NOTE 1)
==============================================================================================================
CONVERTIBLE PREFERRED STOCK-CONTINUED
<S> <C> <C>
SELF STORAGE (REIT) - (2.80%)
96,300 Public Storage, Inc., 8.25%, Conv. Pfd....................................... $ 4,718,700
-------------
Total Convertible Preferred Stock - (identified cost $54,066,001 ) 62,703,756
-------------
CONVERTIBLE BONDS - (25.02%)
BUILDING & HOME PRODUCTS - (1.42%)
$ 2,000,000 Masco Corp., Conv. Sub. Deb., 5.25%, 02/15/12 ............................. 2,390,000
-------------
DRILLING SERVICES - (1.28%)
2,010,000 Parker Drilling Corp., Conv. Sub. Notes, 5.50%, 08/01/04..................... 2,160,750
-------------
ENERGY - (4.03%)
3,120,000 Baker Hughes Inc., Sr. Liquid Yield Option Notes, Zero Cpn., 05/05/08*....... 2,683,200
6,715,000 Valhi Inc., Conv. Sub. Deb., Zero Cpn., 10/20/07*............................ 4,104,544
-------------
6,787,744
-------------
ENGINEERING - (0.37%)
500,000 Thermo Electron Corp., 144A Conv. Sub. Deb., 4.25%, 01/01/03................. 623,125
-------------
FINANCIAL SERVICES - (1.59%)
500,000 Alex Brown, Inc., Conv. Sub. Deb., 5.75%, 06/12/01........................... 2,688,750
-------------
GOLF - (0.63%)
1,000,000 Family Golf Centers, Inc., Conv. Senior Notes, 5.75%, 10/15/04............... 1,061,250
-------------
HOTELS - (3.15%)
3,000,000 CapStar Hotel Corp., Conv. Sub. Notes, 4.75%, 10/15/04....................... 3,003,750
2,100,000 Hilton Hotels Corp., Conv. Sub. Notes, 5.00%, 05/15/06....................... 2,299,500
-------------
5,303,250
-------------
INSURANCE - (4.83%)
2,000,000 American International Group, Inc., Conv. Notes, 2.25%, 07/30/04............. 1,965,000
900,000 American Travellers Corp., Conv. Sub. Deb., 6.50%, 10/01/05.................. 3,061,125
1,000,000 Cincinnati Financial Corp. Conv. Sub. Deb., 5.50%, 05/01/02.................. 3,113,750
-------------
8,139,875
-------------
MEDICAL SERVICES - (1.55%)
830,000 Phycor Inc., Conv. Sub. Deb., 4.50%, 02/15/03................................ 805,100
1,818,000 RNB-Merck, Conv. Sub. Deb., 1.875%, 08/12/02................................. 1,802,093
-------------
2,607,193
-------------
MULTI-FAMILY HOUSING (REIT) - (0.38%)
500,000Camden Property Trust, Conv. Sub. Deb., 7.33%, 04/01/01........................... 636,250
-------------
OFFICE SUPPLIES - (0.52%)
750,000 U.S. Office Products Co., Conv. Sub. Notes, 5.50%, 02/01/01.................. 880,313
-------------
POLLUTION CONTROL/WASTE MANAGEMENT - (0.97%)
1,500,000 USA Waste Services Inc., Conv. Sub. Notes, 4.00%, 02/01/02................... 1,642,500
-------------
</TABLE>
50
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS CONVERTIBLE SECURITIES FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
PRINCIPAL/SHARES (NOTE 1)
==============================================================================================================
CONVERTIBLE BONDS-CONTINUED
<S> <C> <C>
RETAIL (REIT) - (0.29%)
$ 350,000 Mid-Atlantic Realty Trust, Conv. Sub. Deb., 7.625%, 09/15/03................. $ 488,688
-------------
TECHNOLOGY - (3.98%)
7,512,000 Hewlett-Packard Co., Series 144A Conv. Sub. Notes, 5.43%, 10/14/17........... 3,943,800
3,620,000 Motorola, Inc., Conv. Sub. Deb., Zero Cpn., 09/27/13*........................ 2,755,725
-------------
6,699,525
-------------
TRANSPORTATION - (0.03%)
500,000 Florida West Airlines, Inc., 8.00%, 03/25/99+................................ 50,000
-------------
Total Convertible Bonds - (identified cost $35,808,956)............. 42,159,213
-------------
COMMON STOCK - (23.82%)
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (4.22%)
41,774 Bank of New York Co., Inc.................................................... 2,415,059
42,012 Norwest Corp................................................................. 1,622,714
27,453 U.S. Bancorp................................................................. 3,073,020
-------------
7,110,793
-------------
CONSUMER PRODUCTS - (1.71%)
77,000 RJR Nabisco Holdings Corp.................................................... 2,887,500
-------------
DIVERSIFIED (REITS) - (4.01%)
48,600 Glenborough Realty Trust, Inc. .............................................. 1,439,775
113,200 Vornado Realty Trust......................................................... 5,313,325
-------------
6,753,100
-------------
ENERGY - (1.28%)
30,706 Noble Affiliates, Inc........................................................ 1,082,387
35,213 Noble Drilling Corp.*........................................................ 1,078,398
-------------
2,160,785
-------------
HOTELS (REIT) - (0.37%)
21,399 Patriot American Hospitality Inc............................................. 616,559
-------------
INDUSTRIAL - (0.59%)
35,000 Liberty Property Trust....................................................... 999,688
-------------
INSURANCE - (3.42%)
48,695 Leucadia National Corp.*..................................................... 1,679,978
75,811 Travelers Group Inc.......................................................... 4,084,318
-------------
5,764,296
-------------
MULTI-FAMILY HOUSING (REITS) - (2.07%)
55,200 Avalon Properties, Inc....................................................... 1,707,750
45,400 Bay Apartment Communities, Inc............................................... 1,770,600
-------------
3,478,350
-------------
</TABLE>
51
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS CONVERTIBLE SECURITIES FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES/UNITS/PRINCIPAL (NOTE 1)
==============================================================================================================
COMMON STOCK-CONTINUED
<S> <C> <C>
OFFICE /INDUSTRIAL (REITS/REOCS) - (4.43%)
58,156 Centerpoint Properties Corp................................................. $ 2,042,730
8,460 Crescent Operating, Inc.*................................................... 206,741
84,600 Crescent Real Estate Equities Company....................................... 3,331,120
37,970 Equity Office Properties Trust.............................................. 1,198,428
16,700 Mack-Cali Realty Corporation................................................ 684,700
-------------
7,463,719
-------------
RETAIL (REIT) - (0.48%)
22,750 Kimco Realty Corp........................................................... 801,938
-------------
TECHNOLOGY - (0.77%)
28,958 Texas Instruments, Inc...................................................... 1,303,110
-------------
TRANSPORTATION/RAIL - (0.47%)
8,574 Burlington Northern Santa Fe Corp........................................... 796,846
-------------
Total Common Stock - (identified cost $22,805,549)................. 40,136,684
-------------
WARRANTS - (0.85%)
29,000 Intel Corp., Expiring 03/14/98 - (identified cost $1,530,956)............... 1,440,031
-------------
SHORT TERM - (10.48%)
$ 9,660,000 Federal Home Loan Bank Discount Note, 4.90%, 01/08/98....................... 9,650,796
8,000,000 Federal Home Loan Mortgage Discount Note, 5.72%, 01/02/98................... 7,998,729
-------------
Total Short Term - (identified cost $17,649,525)................... 17,649,525
-------------
TOTAL INVESTMENTS - (97.39%) - (identified cost $131,860,987) - (a)......... $ 164,089,209
OTHER ASSETS LESS LIABILITIES - (2.61%)..................................... 4,393,061
-------------
NET ASSETS - (100%) ............................................... $ 168,482,270
=============
*Non-Income Producing Security.
+This security is in default and is not currently paying interest.
(a) Aggregate cost for Federal Income Tax purposes is $131,860,987. At December
31, 1997 unrealized appreciation (depreciation) of securities for Federal
Income Tax purposes is as follows:
Unrealized appreciation...................................................... $ 33,853,714
Unrealized depreciation...................................................... (1,625,492)
--------------
Net unrealized appreciation......................................... $ 32,228,222
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS REAL ESTATE FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
==============================================================================================================
COMMON STOCK - (82.10%)
<S> <C> <C>
APARTMENTS (REITS) - (12.14%)
170,400 Ambassador Apartments Inc.................................................... $ 3,503,850
54,000 Apartment Investment & Management Company.................................... 1,984,500
60,600 Avalon Properties, Inc....................................................... 1,874,813
94,000 Bay Apartment Communities, Inc............................................... 3,666,000
92,533 Camden Property Trust........................................................ 2,868,523
10,000 Equity Residential Properties Trust.......................................... 505,625
168,200 Essex Property Trust......................................................... 5,887,000
77,000 Gables Residential Trust..................................................... 2,127,125
62,000 Home Properties of New York, Inc. ........................................... 1,685,625
90,300 Irvine Apartment Communities, Inc............................................ 2,872,669
22,000 Oasis Residential, Inc....................................................... 490,875
80,000 Pennsylvania Real Estate Investment Trust.................................... 1,965,000
110,000 Post Properties, Inc......................................................... 4,468,750
90,171 Security Capital Pacific Trust............................................... 2,186,647
-------------
36,087,002
-------------
DIVERSIFIED (REITS) - (7.09%)
53,500 CCA Prison Realty Trust...................................................... 2,387,438
55,000 Duke Realty Investments, Inc................................................. 1,333,750
100,000 First Union Real Estate Investments.......................................... 1,625,000
201,400 Glenborough Realty Trust, Inc................................................ 5,966,472
40,000 Pacific Gulf Properties, Inc................................................. 950,000
187,500 Vornado Realty Trust......................................................... 8,800,781
-------------
21,063,441
-------------
GOLF (REITS) - (1.74%)
132,000 Golf Trust of America, Inc................................................... 3,828,000
41,000 National Golf Properties, Inc................................................ 1,345,313
-------------
5,173,313
-------------
HOTELS & LODGING - (15.72%)
65,000 Boykin Lodging Company (REIT)................................................. 1,718,438
67,500 Bristol Hotel Co.*............................................................ 1,961,719
235,500 CapStar Hotel Company*........................................................ 8,080,594
167,500 FelCor Suite Hotels, Inc. (REIT).............................................. 5,946,250
77,000 Host Marriott Corp.*.......................................................... 1,511,125
233,600 Patriot American Hospitality, Inc. (REIT)..................................... 6,730,600
365,000 Servico, Inc.*................................................................ 6,159,375
275,000 Sunstone Hotel Investors, Inc. (REIT)......................................... 4,743,750
151,300 Starwood Lodging Trust (REIT)................................................. 8,756,488
50,000 WHG Resorts & Casinos Inc. ................................................... 1,112,500
-------------
46,720,839
-------------
INDUSTRIAL (REITS) - (8.20%)
166,600 Centerpoint Properties Corp................................................... 5,851,825
165,000 First Industrial Realty Trust................................................. 5,960,625
</TABLE>
53
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS REAL ESTATE FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
==============================================================================================================
COMMON STOCK - CONTINUED
<S> <C> <C>
INDUSTRIAL (REITS) - CONTINUED
266,500 Liberty Property Trust........................................................ $ 7,611,906
194,800 Reckson Associates Realty Corp................................................ 4,943,050
-------------
24,367,406
-------------
OFFICE SPACE (REITS) - (18.66%)
130,000 Alexandria Real Estate Equities, Inc.......................................... 4,103,125
40,000 Arden Realty, Inc. ........................................................... 1,230,000
241,500 Boston Properties, Inc........................................................ 7,984,594
30,000 CarrAmerica Realty Corp....................................................... 950,625
21,740 Crescent Operating, Inc.*..................................................... 531,271
234,000 Crescent Real Estate Equities Company......................................... 9,213,750
242,819 Equity Office Properties Trust................................................ 7,663,975
67,700 Kilroy Realty Corporation..................................................... 1,946,375
200,400 Mack-Cali Realty Corporation.................................................. 8,216,400
202,000 Parkway Properties Inc........................................................ 6,931,125
103,000 Prentiss Properties Trust..................................................... 2,877,563
90,000 SL Green Realty Corp.......................................................... 2,334,375
60,000 Tower Realty Trust, Inc. ..................................................... 1,477,500
-------------
55,460,678
-------------
REAL ESTATE DEVELOPMENT - (7.15%)
340,000 Boardwalk Equities, Inc. ..................................................... 4,282,565
451,000 Catellus Development Corporation*............................................. 9,020,000
30,000 Rouse Company................................................................. 982,500
72,200 Security Capital Group Incorporated........................................... 2,346,500
200,000 Trizec Hahn Corporation....................................................... 4,637,500
-------------
21,269,065
-------------
RESORTS/THEME PARKS - (1.57%)
115,000 Premier Parks Inc.*........................................................... 4,657,500
-------------
RESTAURANTS - (0.72%)
90,000 U.S. Restaurant Properties, Inc............................................... 2,154,375
-------------
RETAIL (REITS) - (6.17%)
26,800 Chelsea GCA Realty Inc........................................................ 1,023,422
100,000 IRT Property Company.......................................................... 1,181,250
158,200 JDN Realty Corp............................................................... 5,121,725
50,650 Kimco Realty Corp............................................................. 1,785,413
66,800 The Macerich Co............................................................... 1,903,800
166,964 Simon De Bartolo Group Inc.................................................... 5,457,636
30,000 Urban Shopping Centers Inc.................................................... 1,046,250
18,000 Weingarten Realty Investors................................................... 806,625
-------------
18,326,121
-------------
</TABLE>
54
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1997
DAVIS REAL ESTATE FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL (NOTE 1)
==============================================================================================================
COMMON STOCK - CONTINUED
<S> <C> <C>
STORAGE (REITS) - (2.94%)
223,300 Public Storage, Inc........................................................... $ 6,559,438
55,000 Storage USA Inc............................................................... 2,196,563
-------------
8,756,001
-------------
Total Common Stock - (identified cost $198,289,260)................. 244,035,741
-------------
CONVERTIBLE PREFERRED STOCK - (3.71%)
REAL ESTATE - (3.71%)
223,900 Equity Residential Properties Trust, 7.00%, Ser. E Conv. Pfd. ................ 6,437,125
16,700 Oasis Residential, Inc., $2.25, Ser. A Cum. Conv. Pfd......................... 427,938
50,000 Rouse Company, $3.00, Ser. B Conv. Pfd........................................ 2,525,000
10,000 Security Capital Pacific Trust, $1.75, Ser. A Conv. Pfd...................... 327,500
20,000 Vornado Realty Trust, 6.50%, Ser. A Conv. Pfd................................. 1,320,000
-------------
Total Preferred Stock - (identified cost $10,688,655)............... 11,037,563
-------------
SHORT TERM - (12.56%)
$ 17,035,000 Federal Home Loan Bank Discount Note, 4.90%, 01/08/98........................... 17,018,770
17,180,000 Federal Home Loan Mortgage Discount Note, 5.72%, 01/02/98....................... 17,177,270
3,130,000 Federal National Mortgage Association Discount Note, 5.75%, 01/06/98............ 3,127,500
---------------
Total Short Term - (identified cost $37,323,540) ................. 37,323,540
---------------
TOTAL INVESTMENTS - (98.37%) - (identified cost $246,301,455) - (a)........... 292,396,844
OTHER ASSETS LESS LIABILITIES - (1.63%)....................................... 4,843,658
---------------
NET ASSETS - (100%)................................................. $297,240,502
===============
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $246,301,455. At December
31, 1997 unrealized appreciation (depreciation) of securities for Federal
Income Tax purposes is as follows:
Unrealized appreciation...................................................... $ 46,805,890
Unrealized depreciation..................................................... (710,501)
------------
Net unrealized appreciation ........................................ $ 46,095,389
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
DAVIS SERIES, INC.
STATEMENT OF ASSETS AND LIABILITIES At December 31, 1997
===============================================================================
<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 schedules of
investments)...........$111,724,634 $30,230,994 $457,118,897 $497,756,093 $164,089,209 $292,396,844
Cash...................... 20,191 37,289 47,956 36,358 229,352 24,666
Receivables:
Dividends and interest. 53,280 306,408 2,324 571,051 617,378 1,254,805
Capital stock sold..... 936,160 5 8,795,231 11,874,381 3,746,830 7,680,537
Note receivable
(Note 7).............. - - - 999,975 - -
----------- ---------- ----------- ----------- ------------ -----------
Total assets... 112,734,265 30,574,696 465,964,408 511,237,858 168,682,769 301,356,852
----------- ----------- ----------- ----------- ------------ -----------
LIABILITIES:
Payables:
Investment securities
purchased............ - - - 1,574,000 - -
Capital stock
reacquired........... 65,410 22,722 732,236 279,958 8,048 3,609,675
Accrued expenses.......... 115,614 20,459 278,786 410,106 120,729 306,708
Commissions payable to
distributor (Note 3)... 105,322 24,968 - 68,923 199,967
Distributions payable..... - - 8,098 - 2,799 -
----------- ------------ ----------- ----------- ------------ -----------
Total
liabilities... 286,346 68,149 1,019,120 2,601,495 200,499 4,116,350
----------- ------------ ----------- ---------- ------------ -----------
NET ASSETS (NOTE 5).......$112,447,919 $30,506,547 $464,945,288 $508,636,363 $168,482,270 $297,240,502
============ ============= ============ ============ ============ ============
CLASS A SHARES
Net assets............. $48,386,115 $17,588,847 $452,304,587 $292,059,179 $ 90,107,393 $147,487,754
Shares outstanding..... 2,151,024 2,994,372 452,304,587 11,374,892 3,567,257 5,805,329
Net asset value and
redemption price per
share (net assets/
shares outstanding).. $ 22.49 $ 5.87 $ 1.00 $ 25.68 $ 25.26 $ 25.41
======= ======= ======= ======= ======== ========
Maximum offering price
per share (100/95.25
of net asset value).. $ 23.61 $ 6.16 $ 1.00 $ 26.96 $ 26.52 $ 26.68
======= ======= ======= ======= ======== ========
CLASS B SHARES
Net assets............. $61,382,956 $12,702,904 $10,922,053 $193,257,315 $ 35,535,595 $114,283,155
Shares outstanding..... 2,805,975 2,167,858 10,922,053 7,619,690 1,419,723 4,513,649
Net asset value,
offering and
redemption price per
share (net assets/
shares outstanding)
(Note 3)............. $ 21.88 $ 5.86 $ 1.00 $ 25.36 $ 25.03 $ 25.32
======= ======= ======= ======= ======== =======
CLASS C SHARES
Net assets............. $2,584,584 $ 214,796 $ 1,718,648 $ 19,515,345 $ 6,296,000 $ 8,322,475
Shares outstanding..... 115,252 36,499 1,718,648 758,961 248,301 326,510
Net asset value,
offering and
redemption price per
share (net assets/
shares outstanding).. $ 22.43 $ 5.88 $ 1.00 $ 25.71 $ 25.36 $ 25.49
======= ======= ======= ======= ======== =======
<PAGE>
CLASS Y SHARES
Net assets............. $ 94,264 $ 3,804,524 $ 36,543,282 $ 27,147,118
Shares outstanding..... 4,186 148,245 1,442,020 1,062,198
Net asset value,
offering and
redemption price per
share (net assets/
shares outstanding).. $ 22.52 $ 25.66 $ 25.34 $ 25.56
======= ======= ======== =======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE>
DAVIS SERIES, INC.
STATEMENT OF OPERATIONS Year ended December 31, 1997
===============================================================================
<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 $143,
$34,901, $869 & $5,700
for Growth Opportunity
Fund, Financial Fund,
Convertible Securities
Fund and Davis Real Estate
Fund, respectively)............ $ 396,750 $ - $ - $ 3,051,244 $3,010,422 $6,643,665
Interest........................ 205,686 2,044,872 23,904,052 1,843,461 1,343,403 824,334
---------- ---------- ---------- --------- ---------- ----------
Total income........... 602,436 2,044,872 23,904,052 4,894,705 4,353,825 7,467,999
---------- ---------- ---------- ---------- ---------- ----------
Expenses:
Management fees (Note 2)....... 660,606 144,614 2,085,736 1,930,789 800,976 1,217,004
Custodian fees.................. 46,384 45,187 60,248 87,092 61,744 76,175
Transfer agent fees
Class A................. 45,887 24,022 105,962 151,955 36,211 88,810
Class B................. 70,192 15,659 14,539 111,228 19,712 85,828
Class C................. 1,333 50 4,244 4,293 2,087 2,128
Class Y................. 15 - - 125 156 240
Audit fees...................... 14,181 16,915 7,657 14,181 9,562 10,591
Legal fees...................... 8,619 2,812 51,701 26,468 10,477 13,957
Accounting fees (Note 2)........ 17,835 11,665 27,086 18,543 20,414 21,418
Reports to shareholders......... 15,716 5,864 16,776 13,329 3,953 15,446
Directors' fees and expenses... 14,738 5,803 37,432 26,489 18,315 22,036
Registration and filing fees.... 42,726 21,180 68,531 42,309 37,040 49,198
Miscellaneous................... 11,157 1,480 7,496 13,182 6,607 9,856
Distribution plan payments
(Note 3)
Class A................. 81,099 41,409 - 305,509 86,098 189,473
Class B................. 486,624 118,362 - 778,923 117,261 554,450
Class C................. 5,131 460 - 34,931 11,296 13,033
---------- ---------- ---------- --------- ---------- -----------
Total expenses.......... 1,522,243 455,482 2,487,408 3,559,346 1,241,909 2,369,643
Fee Reduction (Note 6).......... (4,701) (2,960) (1,065) (1,373) (7,604) (2,329)
----------- ---------- ---------- --------- ---------- -----------
Net expenses.................... 1,517,542 452,522 2,486,343 3,557,973 1,234,305 2,367,314
---------- ---------- ---------- --------- ---------- ----------
Net investment
income (loss)........ (915,106) 1,592,350 21,417,709 1,336,732 3,119,520 5,100,685
---------- ---------- ---------- --------- ---------- ----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
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
during the period............... 7,600,470 311,113 - 83,019,001 14,659,595 30,924,654
---------- --------- ---------- ---------- ----------- ----------
Net realized and unrealized
gain on investments....... 15,842,337 491,890 - 88,578,642 22,105,967 34,024,808
----------- --------- ---------- ---------- ----------- ----------
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
========== ========== =========== ========== =========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
57
<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.
58
<PAGE>
DAVIS SERIES, INC.
STATEMENT OF CHANGES IN NET ASSETS Year ended December 31, 1996
===============================================================================
<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)..................... $ (752,215) $ 1,892,804 $ 17,866,321 $ 826,707 $ 2,179,172 $ 1,500,187
Net realized gain from
investment transactions . 5,082,446 170,808 -- 5,277,490 5,214,600 733,835
Net increase (decrease) in
unrealized appreciation/
depreciation of
investments ............. 5,946,731 (1,062,065) -- 20,747,872 10,270,464 12,119,634
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations 10,276,962 1,001,547 17,866,321 26,852,069 17,664,236 14,353,656
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A ................. -- (1,178,705) (17,525,480) (835,471) (2,094,357) (1,269,681)
Class B ................. -- (714,099) (266,131) (2,523) (33,281) (146,572)
Class C ................. -- -- (74,710) -- -- --
Class Y ................. -- -- -- -- (92,432) (105,733)
Realized gains from
investment transactions
Class A ................. (2,051,127) -- -- (4,907,119) (2,972,683) (385,179)
Class B ................. (3,031,319) -- -- (370,371) (142,573) (123,445)
Class Y ................. -- -- -- (2,229,742) (209,063)
Paid-in capital
Class A ................. (18,603) (322,082) -- (21,227) (24,207) (319,474)
Class B ................. (27,494) (223,986) -- (721) (437) (26,294)
Class Y ................. -- -- -- -- (1,614) (21,298)
CAPITAL SHARE
TRANSACTIONS (NOTE 5) ..... 3,136,657 (4,936,341) 51,126,506 13,441,577 7,714,677 20,110,368
------------- ------------- ------------- ------------- ------------- -------------
Total increase
(decrease) in
net assets .......... 8,285,076 (6,373,666) 51,126,506 34,156,214 17,787,587 31,857,285
NET ASSETS:
Beginning of period ....... 58,215,886 37,461,120 360,289,788 81,636,516 60,134,492 29,733,792
------------- ------------- ------------- ------------- ------------- -------------
End of period ............. $ 66,500,962 $ 31,087,454 $ 411,416,294 $115,792,730 $ 77,922,079 $ 61,591,077
============= ============= ============= ============= ============= =============
NET ASSETS CONSIST OF:
Paid-in capital ........... $ 33,914,723 $ 35,423,700 $ 411,416,294 $72,840,023 $ 60,452,976 $ 46,420,341
Accumulated net realized
gain (loss)................ -- (4,505,407) -- -- (99,523) --
Unrealized appreciation
on investments .......... 32,586,239 169,161 -- 42,952,707 17,568,626 15,170,736
------------- ------------- ------------- ------------- ------------- -------------
$ 66,500,962 $ 31,087,454 $ 411,416,294 $115,792,730 $77,922,079 $ 61,591,077
============= ============= ============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
===============================================================================
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 shares are sold at net asset value and may
be subject to a contingent deferred sales charge upon redemption and the Class
C Shares are sold at net asset value and may be subject to a contingent
deferred sales charge upon redemption. Class Y shares are sold at net asset
value and are not subject to any contingent deferred sales charge. Class Y
shares are only available to certain qualified investors. All classes have
identical rights with respect to voting (exclusive of each Class distribution
arrangement), liquidation and distributions. The following is a summary of
significant accounting policies followed by the Company in the preparation of
its financial statements.
60
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
===============================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
A. VALUATION OF SECURITIES - Securities listed on national securities exchanges
are valued at the last reported sales price on the day of valuation. Securities
traded in the over the counter market and listed securities for which no sale
was reported on that date are stated at the average of closing bid and asked
prices. Securities for which market quotations are not readily available are
valued at fair value as determined by the Board of Directors. The Davis
Government Money Market Fund uses the amortized cost method of valuing
investment securities which represents fair value as determined by the Board of
Directors.
B. CURRENCY TRANSLATION - The market values of all assets and liabilities
denominated in foreign currencies are recorded in the financial statements
after translation to the U.S. dollar based upon the mean between the bid and
offered quotations of the currencies against U.S. dollars on the date of
valuation. The cost basis of such assets and liabilities is determined based
upon historical exchange rates. Income and expenses are translated at average
exchange rates in effect as accrued or incurred.
C. FORWARD CURRENCY CONTRACTS - The Company may enter into forward purchases or
sales of foreign currencies to hedge certain foreign currency denominated
assets and liabilities against declines in market value relative to the U.S.
dollar. Forward currency contracts are marked-to-market daily and the change in
market value is recorded by the Company as an unrealized gain or loss. When the
forward currency contract is closed, the Company records a realized gain or
loss equal to the difference between the value of the forward currency contract
at the time it was opened and value at the time it was closed. Investments in
forward currency contracts may expose the Company to risks resulting from
unanticipated movements in foreign currency exchange rates or failure of the
counterparty to the agreement to perform in accordance with the terms of the
contract.
D. FEDERAL INCOME TAXES - It is the Company's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its income to shareholders.
Therefore, no provision for federal income tax is required. At December 31,
1997, the 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 at the date of the financial statements, as well as the reported
amounts of income and expenses during the reporting period. Actual results may
differ from these estimates.
F. OTHER - Securities transactions are accounted for on the trade date (date
the order to buy or sell is executed) with gain or loss on the sale of
securities being determined based upon identified cost. Interest income is
recorded on the accrual basis. Discounts on debt securities are amortized in
accordance with the requirements of the Internal Revenue Code. Dividends and
distributions to shareholders are recorded on the ex-dividend date.
61
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
===============================================================================
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATE
Advisory fees are paid monthly to Davis Selected Advisers, L.P., the Funds'
investment adviser (the "Adviser"). The fee for the Davis Government Money
Market Fund is .50 of 1% of the first $250 million of average daily net assets,
.45 of 1% of the next $250 million of average daily net assets and .40 of 1% of
average daily net assets in excess of $500 million. The fee for the Davis
Government Bond Fund is .50 of 1% average daily net assets. The rate for the
Davis Growth Opportunity Fund, Davis Financial Fund, Davis Convertible
Securities Fund and Davis Real Estate Fund is .75 of 1% of the average daily
net assets for the first $250 million, .65 of 1% of the average net assets on
the next $250 million, and .55 of 1% of the average daily net assets in excess
of $500 million.
The Adviser is paid for registering Fund shares for sale in various states.
The fee for the year ended December 31, 1997 for the Davis Growth Opportunity
Fund, Davis Government Bond Fund, Davis Government Money Market Fund, Davis
Financial Fund, Davis Convertible Securities Fund and Davis Real Estate Fund,
amounted to $9,996 for each fund. The Adviser is also paid for certain transfer
agent services. The fee for the year ended December 31, 1997 for the Davis
Growth Opportunity Fund, Davis Government Bond Fund, Davis Government Money
Market Fund, Davis Financial Fund, Davis Convertible Securities Fund and Davis
Real Estate Fund amounted to $5,963, $14,364, $19,072, $22,076, $6,557 and
$15,130, respectively. The Adviser is also paid for certain accounting
services. The fee for the year ended December 31, 1997 for the Davis Growth
Opportunity Fund, Davis Government Bond Fund, Davis Government Money Market
Fund, Davis Financial Fund, Davis Convertible Securities Fund and Davis Real
Estate Fund amounted to $17,835, $11,665, $27,086, $18,543, $20,414 and
$21,418, respectively. Certain directors and officers of the Company are also
directors and officers of the general partner of Davis Selected Advisers, L.P.
Effective June 1, 1997, Davis Distributors, LLC (the "Distributor"), a
subsidiary of the Adviser, became the Underwriter and Distributor of the Funds.
Until June 1, 1997, the Adviser also acted as Underwriter and Distributor.
Tanaka Capital Management, Inc. ("Tanaka"), acts as the sub-adviser of the
Davis Growth Opportunity Fund. Tanaka manages the day to day investment
operations for the Davis Growth Opportunity Fund. Tanaka also provides
investment advisory services to employee benefit plans, institutions, trusts
and individuals. Graham Y. Tanaka is the owner of Tanaka. The Company pays no
fees directly to Tanaka. Tanaka receives from the Adviser a reallowed portion
of its advisory fee equal to .30% of the first $100 million of the Davis Growth
Opportunity Fund's annual average net assets and .25% of such Fund assets over
$100 million with a minimum annual fee of $100,000. However, Tanaka's fees on
Fund assets over $100 million may not exceed one-third of the fees paid to the
Adviser from the Davis Growth Opportunity Fund.
Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of
the Adviser, also acts as sub-adviser to the Funds. DSA-NY performs research
and portfolio management services for the Funds under a Sub-Advisory Agreement
with the Adviser. The Company pays no fees directly to DSA-NY.
The Company has adopted procedures to treat Shelby Cullom Davis & Co.
("SCD") as an affiliate of the Adviser. During the year ended December 31,
1997, SCD received $154,224 in commission on the purchases and sales of
portfolio securities in Davis Financial Fund.
62
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31,1997
===============================================================================
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 year ended December 31, 1997, Davis Distributors, LLC (or its
predecessor, Davis Selected Advisers, L.P.), the Company's Underwriter (the
"Underwriter") received $442,713, $39,183, $3,657,273, $691,313 and $2,339,674
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 $65,945, $6,089, $575,496, $107,584 and $366,560 was retained by the
Underwriter and the remaining $376,768, $33,094, $3,081,777, $583,729 and
$1,973,114 was reallowed to investment dealers. The Underwriter paid the costs
of prospectuses in excess of those required to be filed as part of the
Company's registration statement, sales literature and other expenses assumed
or incurred by it in connection with such sales.
The Underwriter is reimbursed for amounts paid to dealers as a maintenance
fee with respect to Class A shares sold by dealers and remaining outstanding
during the period. The maintenance fee is paid at the annual rate of 1/4 of 1%
of the average net assets maintained by the responsible dealers. The
Underwriter is not reimbursed for accounts in which the Underwriter pays no
service fees to other firms. The maintenance fee for Class A shares of Davis
Growth Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund,
Davis Convertible Securities Fund and Davis Real Estate Fund for the year ended
December 31, 1997 was $81,099, $41,409, $305,509, $86,098 and $189,473,
respectively.
CLASS B SHARES OF DAVIS GROWTH OPPORTUNITY FUND, DAVIS GOVERNMENT BOND FUND,
DAVIS FINANCIAL FUND, DAVIS CONVERTIBLE SECURITIES FUND AND DAVIS REAL ESTATE
FUND
Class B shares of the Funds are sold at net asset value and are redeemed at
net asset value. A contingent deferred sales charge my be assessed on shares
redeemed within six years of purchase.
Each of the Class B shares of the Funds (other than Davis Government Money
Market Fund) have entered into a Distribution Plan with Davis Distributors, LLC
(the "Distributor") pursuant to Rule 12b-1 of the Investment Company Act of
1940. The Distribution Plans provide that the Funds will pay the Distributor a
4% commission on the proceeds from the sale of each Fund's Class B shares and
the Distributor reallows 4% to the qualified dealer responsible for the sale of
the shares. Pursuant to rules implemented by the National Association of
Securities Dealers Inc. (the "NASD"), distribution plan payments are limited to
1% of each Fund's annual average net assets attributable to Class B shares, of
which 0.75% may be used to pay distribution expenses and 0.25% may be used to
pay shareholder service fees. The NASD rules also limit the aggregate amount
the Funds may pay for distribution to 6.25% of gross Funds sales since
inception of the Distribution Plans plus interest at 1% over the prime rate on
unpaid amounts. The Distributor intends to seek full payment
63
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
===============================================================================
NOTE 3 - DISTRIBUTION AND UNDERWRITING FEES - (CONTINUED)
(plus interest at prime plus 1%) of distribution charges that exceed the 1%
annual limit in some future period or periods when the plan limits have not
been reached.
During the year ended December 31, 1997, Class B shares of the Davis Growth
Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis
Convertible Securities Fund and Davis Real Estate Fund made distribution plan
payments which included commissions of $368,796, $89,889, $580,951, $87,537 and
$415,127, respectively and maintenance fees of $117,828, $28,473, $197,972,
$29,724 and $139,323, respectively.
Commissions earned by the Distributor during the year ended December 31,
1997 on the sale of Class B shares of the Davis Growth Opportunity Fund, Davis
Government Bond Fund, Davis Financial Fund, Davis Convertible Securities Fund
and Davis Real Estate Fund amounted to $782,778, $75,542, $6,451,397,
$1,242,693 and $3,647,478 of which $759,851, $70,777, $6,332,223, $1,184,792
and $3,507,056 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
$585,849, $416,424, $6,274,938, $1,233,089 and $3,704,502, respectively,
representing the cumulative commissions earned by the Distributor on the sale
of the Funds' Class B shares reduced by cumulative commissions paid by the
Funds and cumulative contingent deferred sales charges paid by redeeming
shareholders. The Funds have no contractual obligation to pay any such
distribution charges and the amounts, if any, timing and condition of such
payments are solely within the discretion of the Directors who are not
interested persons of the Funds or the Distributor.
A contingent deferred sales charge is imposed upon redemption of certain
Class B shares of the Funds within six years of the original purchase. The
charge is a declining percentage starting at 4% of the lesser of net asset
value of the shares redeemed or the total cost of such shares. During the year
ended December 31, 1997 the Distributor received contingent deferred sales
charges from Class B shares of the Davis Growth Opportunity Fund, Davis
Government Bond Fund, Davis Financial Fund, Davis Convertible Securities Fund
and Davis Real Estate Fund of $39,106, $17,294, $86,917, $4,715 and $47,264,
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 Fund pays the Distributor 1% of the Fund's
annual average net assets attributable to Class C shares, of which 0.75% may be
used to pay distribution expenses and 0.25% may be used to pay shareholder
service fees.
During the year ended December 31, 1997, 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 distribution payments of
$5,131, $460, $34,931, $11,296 and $13,033, respectively. During the year ended
December 31, 1997, the Distributor received $52, $2,468 and $160, respectively,
in contingent deferred sales charges from Class C shares of Davis Growth
Opportunity Fund, Davis Financial Fund and Davis Convertible Securities,
respectively.
64
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
===============================================================================
NOTE 3 - DISTRIBUTION AND UNDERWRITING FEES - (CONTINUED)
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 year ended December 31, 1997 for the Davis Growth
Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis
Convertible Securities Fund and Real Estate Fund were as follows:
<TABLE>
<CAPTION>
DAVIS DAVIS DAVIS
GROWTH GOVERNMENT DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND
----------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cost of purchases..... $ 41,596,067 $ 8,060,487 $282,196,655 $ 72,696,450 $183,206,345
Proceeds of sales..... $ 16,114,066 $ 6,446,219 $ 14,776,400 $ 23,866,860 $ 18,559,545
</TABLE>
NOTE 5 - CAPITAL STOCK
At December 31, 1997, 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:
65
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
===============================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<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 43,749,270 135,229,594 175,513,307
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 $38,746,358 $ 99,123,691
=========== ========== ============ =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
CLASS A DECEMBER 31, 1996
-----------------------------------------------------------------------------
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................. 255,172 272,374 169,910,817 449,739 622,121 790,297
Shares issued in reinvestment
of distributions....... 104,897 177,540 3,536,913 301,467 233,729 82,413
------------ ---------- ----------- --------- ----------- ---------
360,069 449,914 173,447,730 751,206 855,850 872,710
Shares redeemed............. (252,296) (887,124) (124,018,542) (303,617) (2,116,170) (1,126,180)
------------ ---------- ----------- --------- ----------- ---------
Net increase (decrease).. 107,773 (437,210) 49,429,188 447,589 (1,260,320) (253,470)
============ ========== =========== ========= =========== =========
Proceeds from shares sold... $4,701,372 $1,589,302 $169,910,817 $7,228,963 $13,045,489 $14,629,230
Proceeds from shares issued
in reinvestment of
distributions............... 1,996,999 1,025,599 3,536,913 5,513,629 4,826,570 1,500,218
------------ ---------- ----------- --------- ----------- ---------
6,698,371 2,614,901 173,447,730 12,742,592 17,872,059 16,129,448
Cost of shares redeemed..... (4,586,515) (5,123,786) (124,018,542) (4,793,945) (44,862,290) (21,662,936)
------------ ---------- ----------- --------- ----------- ---------
Net increase (decrease).. $2,111,856 $(2,508,885) $49,429,188 $7,948,647 $(26,990,231) $(5,533,488)
============ ========== =========== ========= =========== =========
</TABLE>
66
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
==============================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<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) $6,767,446 $162,764,821 $33,073,977 $93,108,376
============= ========== ========== ============ =========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
CLASS B DECEMBER 31, 1996
-------------------------------------------------------------------------------
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.................. 343,025 349,690 15,481,272 357,639 70,295 490,136
Shares issued in reinvestment
of distributions........ 152,295 99,849 234,340 14,071 8,070 10,505
------------- ---------- ---------- --------- ----------- ----------
495,320 449,539 15,715,612 371,710 78,365 500,641
Shares redeemed.............. (446,289) (866,250) (14,257,584) (35,443) (602) (10,556)
------------- ---------- ---------- --------- ----------- ----------
Net increase (decrease). 49,031 (416,711) 1,458,028 336,267 77,763 490,085
============= ========== ========== ========= =========== ==========
Proceeds from shares sold.... $6,179,416 $2,015,748 $15,481,272 $5,811,595 $1,391,416 $9,158,900
Proceeds from shares issued in
reinvestment of
distributions........... 2,852,206 576,412 234,340 255,253 168,855 213,141
------------- ---------- ---------- --------- ----------- ----------
9,031,622 2,592,160 15,715,612 6,066,848 1,560,271 9,372,041
Cost of shares redeemed...... (8,006,821) (5,019,616) (14,257,584) (573,918) (12,027) (180,773)
------------- ---------- ---------- --------- ----------- ----------
Net increase (decrease). $1,024,801 $(2,427,456) $1,458,028 $5,492,930 $1,548,244 $9,191,268
============= ========== ========== ========= =========== ==========
</TABLE>
67
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
===============================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<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 1,004,170 758,961 326,510 248,301
============ ============ ============ ============ ============ ============
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>
CLASS C - DAVIS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
-------------
<S> <C>
Shares sold ...................... 4,821,807
Shares issued in reinvestment
of distributions ............ 69,986
-----------
4,891,793
Shares redeemed .................. (4,652,503)
-----------
Net increase ................ 239,290
===========
Proceeds from shares sold ........ $ 4,821,807
Proceeds from shares issued in
reinvestment of distributions 69,986
-----------
4,891,793
Cost of shares redeemed .......... (4,652,503)
-----------
Net increase ................ $ 239,290
===========
</TABLE>
68
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
===============================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<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>
CLASS Y
<TABLE>
<CAPTION>
DAVIS DAVIS
CONVERTIBLE REAL
SECURITIES ESTATE
FUND FUND
NOVEMBER 13, 1996 NOVEMBER 8, 1996
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) THROUGH OF OPERATIONS) THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1996
------------------------- -------------------
<S> <C> <C>
Shares sold .................................. 1,462,032 833,978
Shares issued in reinvestment of distributions 108,436 15,891
------------ ------------
1,570,468 849,869
Shares redeemed .............................. (19,849) --
------------ ------------
Net increase ............................ 1,550,619 849,869
============ ============
Proceeds from shares sold .................... $ 31,272,873 $ 16,116,495
Proceeds from shares issued in
reinvestment of distributions ........... 2,323,787 336,093
------------ ------------
33,596,660 16,452,588
Cost of shares redeemed ...................... (439,996) --
------------ ------------
Net increase ............................ $ 33,156,664 $ 16,452,588
============ ============
</TABLE>
69
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
===============================================================================
NOTE 6 - CUSTODY FEES
Under an agreement with the custodian bank, custody fees are reduced by
credits for cash balances. Such reductions amounted to $4,701, $2,960, $1,065,
$1,373, $7,604 and $2,329 for Davis Growth Opportunity Fund, Davis Government
Bond Fund, Davis Government Money Market Fund, Davis Financial Fund, Davis
Convertible Securities Fund and Davis Real Estate Fund, respectively.
NOTE 7 - NOTE RECEIVABLE
At December 31, 1997, Davis Financial Fund owned a note receivable from the
Robert Plan Corporation in the amount of $999,975. Principal plus accrued
interest at 5% over the prime rate of The Chase Manhattan Bank is payable in
eight equal installments on January 31, 1997, April 30, 1997, July 31, 1997,
October 31, 1997, January 30, 1998, April 30, 1998, July 31, 1998 and October
30, 1998.
NOTE 8 - MATTERS SUBMITTED TO A VOTE OF SHAREHOLDERS
A special meeting of shareholders was held on March 25, 1997. Matters submitted
for approval included consideration of a Sub-Advisory Agreement between Davis
Selected Advisers, L.P., the Investment Adviser of the Company, and Davis
Selected Advisers-NY, Inc., an affiliate of the Adviser and election of Mr.
Christian R. Sonne, Mr. LeRoy E. Hoffberger, Mr. Eugene M. Feinblatt and Mr.
Jeremy H. Biggs as directors of the Company. Results of the meeting were as
follows:
DAVIS GROWTH OPPORTUNITY FUND - With respect to consideration of the
Sub-Advisory Agreement, 1,907,022 votes were cast in favor, 36,057 votes were
cast against and 80,765 votes abstained. With respect to the election of Mr.
Sonne, 1,972,636 votes were cast in favor and 51,209 votes were withheld. With
respect to the election of Mr. Hoffberger, 1,973,262 votes were cast in favor
and 50,584 votes were withheld. With respect to the election of Mr. Feinblatt,
1,972,520 votes were cast in favor and 51,326 votes were withheld. With respect
to the election of Mr. Biggs, 1,974,240 votes were cast in favor and 49,606
votes were withheld.
DAVIS GOVERNMENT BOND FUND - With respect to consideration of the Sub-Advisory
Agreement, 2,708,937 votes were cast in favor, 31,867 votes were cast against
and 395,760 votes abstained. With respect to the election of Mr. Sonne,
2,744,367 votes were cast in favor and 392,198 votes were withheld. With
respect to the election of Mr. Hoffberger, 2,789,372 votes were cast in favor
and 347,193 votes were withheld. With respect to the election of Mr. Feinblatt,
2,789,372 votes were cast in favor and 347,193 votes were withheld. With
respect to the election of Mr. Biggs, 2,796,886 votes were cast in favor and
339,679 votes were withheld.
DAVIS GOVERNMENT MONEY MARKET FUND - With respect to consideration of the
Sub-Advisory Agreement, 368,055,334 votes were cast in favor, 420,212 votes
were cast against and 1,204,427 votes abstained. With respect to the election
of Mr. Sonne, 367,212,550 votes were cast in favor and 467,423 votes were
withheld. With respect to the election of Mr. Hoffberger, 367,184,990 votes
were cast in favor and 494,983 votes were withheld. With respect to the
election of Mr. Feinblatt, 367,072,791 votes were cast in favor and 607,182
votes were withheld. With respect to the election of Mr. Biggs, 367,187,677
votes were cast in favor and 492,296 votes were withheld.
70
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
===============================================================================
NOTE 5 - MATTERS SUBMITTED TO A VOTE OF SHAREHOLDERS - (CONTINUED)
DAVIS FINANCIAL FUND - With respect to consideration of the Sub-Advisory
Agreement, 4,981,802 votes were cast in favor, 21,302 votes were cast against
and 42,112 votes abstained. With respect to the election of Mr. Sonne,
5,003,348 votes were cast in favor and 41,869 votes were withheld. With respect
to the election of Mr. Hoffberger, 5,005,265 votes were cast in favor and
39,952 votes were withheld. With respect to the election of Mr. Feinblatt,
5,005,134 votes were cast in favor and 40,084 votes were withheld. With respect
to the election of Mr. Biggs, 5,005,265 votes were cast in favor and 39,952
votes were withheld.
DAVIS CONVERTIBLE SECURITIES FUND - With respect to consideration of the
Sub-Advisory Agreement, 3,319,960 votes were cast in favor, 10,837 votes were
cast against and 16,295 votes abstained. With respect to the election of Mr.
Sonne, 3,320,477 votes were cast in favor and 26,637 votes were withheld. With
respect to the election of Mr. Hoffberger, 3,320,477 votes were cast in favor
and 26,637 votes were withheld. With respect to the election of Mr. Feinblatt,
3,320,477 votes were cast in favor and 26,637 votes were withheld. With respect
to the election of Mr. Biggs, 3,320,477 votes were cast in favor and 26,637
votes were withheld.
DAVIS REAL ESTATE FUND - With respect to consideration of the Sub-Advisory
Agreement, 2,815,494 votes were cast in favor, 7,912 votes were cast against
and 18,125 votes abstained. With respect to the election of Mr. Sonne,
2,836,092 votes were cast in favor and 5,442 votes were withheld. With respect
to the election of Mr. Hoffberger, 2,834,126 votes were cast in favor and 7,408
votes were withheld. With respect to the election of Mr. Feinblatt, 2,834,665
votes were cast in favor and 6,869 votes were withheld. With respect to the
election of Mr. Biggs, 2,835,330 votes were cast in favor and 6,204 votes were
withheld.
The terms of office of Mr. Wesley E. Bass, Jr., Mr. Marc P. Blum, Mr. Shelby
M.C. Davis, Mr. Jerry D. Geist, Mr. D. James Guzy, Mr. G. Bernard Hamilton, Mr.
Laurence W. Levine and Mr. Edwin R. Werner also continued after the meeting.
71
<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 A
ONE MONTH
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...... $ 18.93 $ 17.25 $ 12.83 $ 13.70
--------------- --------------- ------------- -------------
Income (Loss) From Investment Operations
Net Investment Loss .................... (0.10) (0.13) (0.11) (0.01)
Net Gains or Losses on Securities
(both realized and unrealized) ..... 5.34 3.37 6.08 (0.29)
--------------- --------------- ------------- -------------
Total From Investment Operations .. 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) ... -- -- -- --
--------------- --------------- ------------- -------------
Total Distributions ................ (1.68) (0.01) (1.56) (0.57)
--------------- --------------- ------------- -------------
(1.55)
Net Asset Value, End of Period ............ $ 22.49 $ 18.93 $ 17.25 $ 12.83
=============== =============== ============= =============
Total Return(1) ........................... 27.70% 18.73% 46.65% (2.21)%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $48,386 $ 27,158 $ 22,890 $ 12,455
Ratio of Expenses to Average Net Assets 1.27% 1.49%(2) 1.51% 1.42%*
Ratio of Net Loss to Average Net Assets (0.58)% (0.76)% (0.71)% (0.08)%*
Portfolio Turnover Rate ................ 19.33% 30.55% 30.07% 37.31%
Average Commission Rate per share ...... $ 0.0600 $ 0.0454 -- --
</TABLE>
(1) Sales charges are not reflected in calculation.
(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.
* Annualized
72
<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
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993(1)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 18.58 $ 17.08 $ 12.82 $ 14.67 $ 13.25
---------- ---------- ------- -------- --------
Income (Loss) From Investment Operations
Net Investment Loss........... (0.25) (0.27) (0.26) (0.12) (0.07)
Net Gains or Losses on Securities
(both realized and unrealized) 5.23 3.33 6.07 (1.11) 1.54
---------- ---------- ------- -------- --------
Total From Investment
Operations............ 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... $ 21.88 $ 18.58 $ 17.08 $ 12.82 $ 14.67
========== ========== ======= ======== ========
Total Return(2) ................. 26.82% 17.86% 45.44% (8.45)% 11.16%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted)............... $61,383 $39,343 $35,326 $36,087 $51,762
Ratio of Expenses to
Average Net Assets.......... 2.09%(3) 2.25%(3) 2.30% 2.15% 2.39%
Ratio of Net Loss to
Average Net Assets......... (1.40)% (1.52)% (1.50)% (0.81)% (0.55)%
Portfolio Turnover Rate....... 19.33% 30.55% 30.07% 37.31% 38.93%
Average Commission Rate per share $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) Sales charges are not reflected in calculation.
(3) Ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement were 2.08% and 2.24% for
1997 and 1996, respectively. Prior to 1996, such reductions were
reflected in the expenses ratios.
73
<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
OF OPERATIONS) OF OPERATIONS)
THROUGH THROUGH
DECEMBER 31, DECEMBER 31,
1997 1997
---- ----
<S> <C> <C>
Net Asset Value, Beginning of Period.... $ 25.56 $ 27.19
---------- --------
Income (Loss) From Investment Operations
Net Investment Loss.................. (0.04) -
Net Gains or Losses on Securities
(both realized and unrealized)... (1.41) (2.99)
---------- --------
Total From Investment
Operations................... (1.45) (2.99)
---------- --------
Less Distributions
Distributions (from capital gains)... (1.68) (1.68)
Distributions (from paid-in capital). - -
--------- ------
Total Distributions.............. (1.68) (1.68)
--------- --------
Net Asset Value, End of Period.......... $ 22.43 $ 22.52
========== ========
Total Return(1) ........................ (5.66)% (10.98)%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted)...................... $2,585 $94
Ratio of Expenses to
Average Net Assets................. 2.19%* 1.01%*
Ratio of Net Loss to
Average Net Assets................ (1.51)%* (0.33)%*
Portfolio Turnover Rate.............. 19.33% 19.33%
Average Commission Rate per share.... $0.0600 $0.0600
</TABLE>
(1) Sales charges are not reflected in calculation.
* Annualized
74
<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
YEAR ENDED ONE MONTH
DECEMBER 31, ENDED
----------------------------- DECEMBER 31,
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................ $ 5.76 $ 6.00 $ 5.79 $ 5.78
-------- -------- -------- --------
Income (Loss) From Investment Operations
Net Investment Income........................... 0.33 0.33 0.39 0.02
Net Gains on Securities
(both realized and unrealized)................. 0.11 (0.14) 0.27 (0.01)
-------- -------- -------- --------
Total From Investment Operations............ 0.44 0.19 0.66 0.01
-------- -------- -------- --------
Less Distributions
Dividends (from net investment income)........... (0.33) (0.33) (0.36) -
Distributions (from paid-in capital)............. - (0.10) (0.09) -
-------- -------- -------- --------
Total Distributions.......................... (0.33) (0.43) (0.45) -
-------- -------- -------- --------
Net Asset Value, End of Period...................... $ 5.87 $ 5.76 $ 6.00 $ 5.79
======= ======= ======= ========
Total Return(2)..................................... 7.92% 3.40% 11.82% (0.97)%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)......... $17,589 $18,129 $21,485 $20,035
Ratio of Expenses to Average Net Assets.......... 1.27%(2) 1.77% 1.74% 1.64%*
Ratio of Net Income to Average Net Assets........ 5.82% 5.88% 6.54% 6.22%*
Portfolio Turnover Rate.......................... 24.35% 45.50% 41.04% 62.17%
</TABLE>
(1) Sales charges are not reflected in calculation.
(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.
* Annualized
75
<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
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995 1994 1993(1)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $ 5.75 $ 5.98 $ 5.79 $ 6.33 $ 6.61
-------- -------- -------- -------- --------
Income (Loss) From Investment Operations
Net Investment Income.................... 0.29 0.29 0.34 0.31 0.36
Net Gains on Securities
(both realized and unrealized)..... 0.11 (0.13) 0.26 (0.37) (0.12)
-------- -------- -------- -------- --------
Total From Investment Operations..... 0.40 0.16 0.60 (0.06) 0.24
-------- -------- -------- -------- --------
Less Distributions
Dividends (from net investment
income)............................. (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................... (0.29) (0.39) (0.41) (0.48) (0.52)
-------- -------- -------- -------- --------
Net Asset Value, End of Period............... $ 5.86 $ 5.75 $ 5.98 $ 5.79 $ 6.33
========= ========= ======== ======== ========
Total Return(1).............................. 7.12% 2.78% 10.62% (0.97)% 3.69%
-------- -------- -------- -------- --------
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted)........................... $12,703 $12,959 $15,976 $19,241 $50,080
Ratio of Expenses to
Average Net Assets...................... 2.01%(3) 2.53%(3) 2.51% 2.38% 2.37%
Ratio of Net Income to
Average Net Assets...................... 5.07% 5.13% 5.77% 5.48% 5.52%
Portfolio Turnover Rate................... 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) Sales charges are not reflected in calculation.
(3) Ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement were 2.00% and 2.52% for
1997 and 1996, respectively. Prior to 1996, such reductions were
reflected in the expenses ratios.
76
<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
OF OPERATIONS)
THROUGH
DECEMBER 31,
1997
----
<S> <C>
Net Asset Value, Beginning of Period.................. $ 5.79
--------
Income (Loss) From Investment Operations
Net Investment Income............................. 0.08
Net Gains on Securities
(both realized and unrealized).............. 0.09
--------
Total From Investment Operations.............. 0.17
--------
Less Distributions
Dividends (from net investment
income)...................................... (0.08)
Distributions (from paid-in capital)............... -
--------
Total Distributions............................ (0.08)
--------
Net Asset Value, End of Period........................ $ 5.88
========
Total Return(1)....................................... 2.97%
--------
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted).................................... $215
Ratio of Expenses to
Average Net Assets............................... 1.97%*(2)
Ratio of Net Income to
Average Net Assets............................... 5.11%*
Portfolio Turnover Rate............................ 24.35%
</TABLE>
(1) Sales charges are not reflected in calculation.
(2) Ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement was 1.96% for 1997.
* Annualized
77
<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
YEAR ENDED
DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income..................... .049 .047 .051 .034 .020
Less Distributions
Dividends (from net investment
income)............................... (.049) (.047) (.051) (.034) (.020)
------- ------- ------- ------- -------
Net Asset Value, End of Period................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return .................................. 5.02% 4.80% 5.25% 3.48% 2.01%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted)......................... $464,945 $411,416 $360,290 $240,727 $39,531
Ratio of Expenses to Average
Net Assets........................... 0.57% 0.66% 0.73% 0.64% 1.15%
Ratio of Net Income to Average
Net Assets............................ 4.92% 4.72% 5.13% 3.43% 1.98%
</TABLE>
78
<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
YEAR ENDED
DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993(2)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $ 18.06 $ 14.50 $ 10.68 $ 11.70 $ 11.20
--------- --------- -------- -------- --------
Income (Loss) From Investment Operations
Net Investment Income........................ 0.13 0.14 0.07 0.08 0.07
Net Gains or Losses on Securities
(both realized and unrealized).......... 7.92 4.44 5.32 (0.61) 1.59
--------- --------- -------- -------- --------
Total From
Investment Operations.................. 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.................. $ 25.68 $ 18.06 $ 14.50 $ 10.68 $ 11.70
========= ========= ======== ======== ========
Total Return (1)................................ 44.53% 31.50% 50.51% (4.55)% 14.87%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)..... $292,059 $107,579 $79,874 $57,670 $50,778
Ratio of Expenses to Average Net Assets...... 1.07% 1.15% 1.18% 1.24% 1.32%
Ratio of Net Income to Average Net Assets... 0.77% 0.92% 0.53% 0.67% 0.57%
Portfolio Turnover Rate...................... 6.23% 25.78% 41.89% 43.95% 70.33%
Average Commission Rate per share............ $0.0600 $0.0518 - - -
</TABLE>
(1) Sales charges are not reflected in calculation.
(2) Per shares date 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.
79
<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
YEAR ENDED OF OPERATIONS)
DECEMBER 31, THROUGH
----------------------------- DECEMBER 31,
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $ 17.91 $ 14.41 $ 10.68 $ 11.22
-------- -------- -------- --------
Income (Loss) From Investment Operations
Net Investment Income (Loss)...................... (0.01) 0.01 0.01 0.03
Net Gains or Losses on Securities
(both realized and unrealized)................ 7.76 4.37 5.22 (0.13)
-------- -------- -------- --------
Total From Investment Operations............. 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....................... $ 25.36 $ 17.91 $ 14.41 $ 10.68
======== ======== ======== ========
Total Return (1)..................................... 43.25% 30.29% 49.00% (0.90)%
Ratios/Supplemental Data
Net Assets, End of Period(000 omitted)........... $193,257 $8,213 $1,762 $28
Ratio of Expenses to Average Net Assets........... 1.97% 2.04% 2.09% 2.04%*
Ratio of Net Income to Average Net Assets........ (0.12)% 0.19% (0.38)% (0.13)%*
Portfolio Turnover Rate.......................... 6.23% 25.78% 41.89% 43.95%
Average Commission Rate per share................. $0.0600 $0.0518 - -
</TABLE>
(1) Sales charges are not reflected in calculation.
* Annualized
80
<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
OF OPERATIONS) OF OPERATIONS)
THROUGH THROUGH
DECEMBER 31, DECEMBER 31,
1997 1997
---- ----
<S> <C> <C>
Net Asset Value, Beginning of Period.... $ 23.76 $ 20.32
-------- --------
Income (Loss) From Investment Operations
Net Investment Income................ - 0.09
Net Gains on Securities
(both realized and unrealized)... 2.25 5.74
-------- --------
Total From Investment Operations 2.25 5.83
-------- --------
Less Distributions
Dividends (from net investment income) - (0.19)
Distributions (from capital gains)... (0.30) (0.30)
Distributions (from paid-in capital). - -
------- --------
Total Distributions.............. (0.30)
--------
(0.49)
Net Asset Value, End of Period.......... $ 25.71 $ 25.66
======== ========
Total Return (1)........................ 9.45% 28.66%
Ratios/Supplemental Data
Net Assets, End of Period(000 omitted) $19,515 $3,805
Ratio of Expenses to Average Net Assets 1.93%* 0.79%*
Ratio of Net Income to Average Net Assets (0.09)%* 1.06%*
Portfolio Turnover Rate.............. 6.23% 6.23%
Average Commission Rate per share.... $0.0600 $0.0600
</TABLE>
(1) Sales charges are not reflected in calculation.
* Annualized
81
<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
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........ $ 21.22 $ 18.22 $ 15.57 $ 17.45 $ 15.73
--------- --------- -------- -------- --------
Income From Investment Operations
Net Investment Income.................... 0.67 0.71 0.67 0.67 0.67
Net Gains or Losses on Securities
(both realized and unrealized)....... 5.33 4.56 3.42 (1.83) 2.02
-------- -------- -------- -------- --------
Total From Investment
Operations....................... 6.00 5.27 4.09 (1.16) 2.69
-------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income)..................... (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.................. (1.96) (2.27) (1.44) (0.72) (0.97)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.............. $ 25.26 $ 21.22 $ 18.22 $ 15.57 $ 17.45
======== ======== ======== ======== ========
Total Return (1)............................ 28.68% 29.46% 26.68% (6.72)% 17.26%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted).......................... $90,107 $42,841 $59,757 $47,844 $44,730
Ratio of Expenses to
Average Net Assets..................... 1.08%(2) 1.05% 1.14% 1.20% 1.21%
Ratio of Net Income
to Average Net Assets................. 3.00% 3.34% 3.87% 4.06% 3.89%
Portfolio Turnover Rate.................. 23.68% 43.16% 53.58% 45.15% 62.17%
Average Commission Rate per share........ $0.0600 $0.0552 - - -
</TABLE>
(1) Sales charges are not reflected in calculation.
(2) Ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement was 1.07% for the period
ending December 31, 1997. Prior to 1996, such reductions were reflected
in the expenses ratios.
82
<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
YEAR (COMMENCEMENT (COMMENCEMENT
ENDED OF OPERATIONS) OF OPERATIONS)
DECEMBER 31 , THROUGH THROUGH
----------------------- DECEMBER 31, DECEMBER 31,
1997 1996 1995 1997
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........ $ 21.05 $ 18.14 $ 15.95 $ 24.91
-------- -------- -------- --------
Income From Investment
Operations
Net Investment Income...... 0.44 0.59 0.54 0.11
Net Gains on
Securities (both realized
and unrealized).......... 5.26 4.45 2.97 1.72
-------- -------- -------- --------
Total From
Investment
Operations........... 5.70 5.04 3.51 1.83
-------- -------- -------- --------
Less Distributions
Dividends (from net
investment income)....... (0.44) (0.56) (0.54) (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.... (1.72) (2.13) (1.32) (1.38)
-------- -------- -------- --------
Net Asset Value, End of Period $ 25.03 $ 21.05 $ 18.14 $ 25.36
======== ========= ======== ========
Total Return (1).............. 27.35% 28.21% 25.31% 7.38%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted)............ $35,536 $2,075 $378 $6,296
Ratio of Expenses to
Average Net Assets....... 2.11%(2) 2.01%(2) 2.01%* 2.08%*
Ratio of Net Income
to Average Net Assets... 2.09% 2.40% 3.00%* 2.01%*
Portfolio Turnover Rate.... 23.68% 43.16% 53.58% 23.68%
Average Commission
Rate per share........... $0.0600 $0.0552 - $0.06
</TABLE>
(1) Sales charges are not reflected in calculation.
(2) Ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement was 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.
* Annualized
83
<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
OF OPERATIONS
THROUGH
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Net Asset Value,
Beginning of Period...................... $ 21.29 $ 21.39
-------- --------
Income From Investment Operations
Net Investment Income.................... 0.69 0.07
Net Gains on Securities
(both realized and unrealized)......... 5.35 1.44
-------- --------
Total From
Investment
Operations......................... 6.04 1.51
-------- --------
Less Distributions
Dividends (from net
investment income)..................... (0.69) (0.06)
Distributions (from
capital gains)......................... (1.22) (1.54)
Distributions (from
paid-in capital)....................... (0.08) (0.01)
-------- --------
Total Distributions.................. (1.99) (1.61)
-------- --------
Net Asset Value, End of Period.............. $ 25.34 $ 21.29
======== ========
Total Return (1)............................ 28.80% 7.01%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted).......................... $36,543 $33,006
Ratio of Expenses to
Average Net Assets..................... 0.95% 0.98%*
Ratio of Net Income
to Average Net Assets................. 3.09% 3.11%*
Portfolio Turnover Rate.................. 23.68% 43.16%
Average Commission
Rate per share......................... $0.0600 $0.0552
</TABLE>
* Annualized
84
<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
YEAR ENDED OF OPERATIONS)
DECEMBER 31, THROUGH
---------------------------- DECEMBER 31,
1997 1996(1) 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $ 21.24 $ 16.44 $ 14.72 $ 14.29
-------- -------- -------- --------
Income From Investment Operations
Net Investment Income........................... 0.74 0.71 0.82 0.62
Net Gains on Securities (both realized and 4.51 5.22 1.71 0.55
--------- --------- -------- --------
unrealized)........................................
Total From Investment Operations........... 5.25 5.93 2.53 1.17
-------- -------- -------- --------
Less Distributions
Dividends (from net investment income).......... (0.74) (0.70) (0.81) (0.62)
Distributions (from capital gains).............. (0.27) (0.25) - (0.12)
Distributions (from paid-in capital)............ (0.07) (0.18) - -
-------- -------- -------- --------
Total Distributions......................... (1.08) (1.13) (0.81) (0.74)
-------- -------- -------- --------
Net Asset Value, End of Period..................... $ 25.41 $ 21.24 $ 16.44 $ 14.72
======== ======== ======== ========
Total Return (2)................................... 25.08% 37.05% 17.70% 8.25%*
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)........ $147,488 $32,507 $29,320 $25,450
Ratio of Expenses to Average Net Assets......... 1.18% 1.32%(3) 1.43% 1.86%*
Ratio of Net Income to Average Net Assets....... 3.40% 3.95% 5.44% 3.98%*
Portfolio Turnover Rate......................... 12.50% 18.60% 38.82% 35.80%
Average Commission Rate per share............... $0.0600 $0.0600 - -
</TABLE>
(1) Per share calculations other than distributions were based on average
shares outstanding during the period.
(2) Sales charges are not reflected in calculation.
(3) Ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement was 1.31% for 1996. Prior to
1996, such reductions were reflected in the expenses ratios.
* Annualized
85
<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
YEAR ENDED OF OPERATIONS)
DECEMBER 31, THROUGH
------------------------- DECEMBER 31,
1997 1996(1) 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $ 21.19 $ 16.41 $ 14.72 $ 14.73
-------- -------- -------- --------
Income From Investment Operations
Net Investment Income........................ 0.54 0.56 0.68 0.02
Net Gains on Securities (both realized and
unrealized).................................. 4.47 5.21 1.70 0.11
-------- -------- -------- --------
Total From Investment Operations........ 5.01 5.77 2.38 0.13
-------- -------- -------- --------
Less Distributions
Dividends (from net investment income)....... (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...................... (0.88) (0.99) (0.69) (0.14)
-------- -------- -------- --------
Net Asset Value, End of Period.................. $ 25.32 $ 21.19 $ 16.41 $ 14.72
======== ======== ======== ========
Total Return (2)................................ 23.88% 35.99% 16.59% 0.89%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)..... $114,283 $10,919 $414 $34
Ratio of Expenses to Average Net Assets...... 2.04% 2.22% 2.39% 2.64%*
Ratio of Net Income to Average Net Assets.... 2.60% 3.46% 4.48% 3.20%*
Portfolio Turnover Rate...................... 12.50% 18.60% 38.82% 35.80%
Average Commission Rate per share............ $0.0600 $0.0600 - -
</TABLE>
(1) Per share calculations other than distributions were based on average
shares outstanding during the period.
(2) Sales charges are not reflected in calculation.
* Annualized
86
<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 CLASS Y
--------------- ----------------------------
AUGUST 13, 1997 NOVEMBER 8,1996
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) OF OPERATIONS)
THROUGH YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period............... $ 23.41 $ 21.37 $ 19.29
-------- -------- --------
Income From Investment Operations
Net Investment Income........................... 0.18 0.79 0.13
Net Gains on Securities (both realized and
unrealized).................................. 2.42 4.54 2.35
-------- -------- --------
Total From Investment Operations........... 2.60 5.33 2.48
-------- -------- --------
Less Distributions
Dividends (from net investment income).......... (0.18) (0.79) (0.13)
Distributions (from capital gains).............. (0.27) (0.27) (0.25)
Dividends (from paid-in capital)................ (0.07) (0.08) (0.02)
-------- -------- --------
Total Distributions......................... (0.52) (1.14) (0.40)
-------- -------- --------
Net Asset Value, End of Period..................... $ 25.49 $ 25.56 $ 21.37
======== ======== ========
Total Return ...................................... 11.12% 25.29% 12.89%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)........ $8,322 $27,147 $18,165
Ratio of Expenses to Average Net Assets......... 2.03%* 1.00% 1.18%*
Ratio of Net Income to Average Net Assets....... 2.56%* 3.47% 4.22%*
Portfolio Turnover Rate......................... 12.50% 12.50% 18.60%
Average Commission Rate per share............... $0.0600 $0.0600 $0.0600
</TABLE>
* Annualized
87
<PAGE>
DAVIS SERIES, INC.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
===============================================================================
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF DAVIS SERIES, INC.
We have audited the accompanying statement of assets and liabilities of
Davis Series, Inc., (comprising, respectively, 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)
including the schedules of portfolio investments as of December 31, 1997 and
the related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated thereon. These
financial statements and financial highlights are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Davis Series, Inc. as of December 31, 1997, the results of operations for the
year then ended, the changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated thereon, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 13, 1997
88
<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
Eugene M. Feinblatt Vice President
Jerry D. Geist Eileen R. Street
D. James Guzy Vice President,
G. Bernard Hamilton Treasurer &
LeRoy E. Hoffberger Assistant Secretary
Laurence W. Levine Thomas D. Tays
Christian R. Sonne Vice President & Secretary
Christopher C. Davis
Vice President
Andrew A. Davis
Vice President
Carolyn H Spolidoro
Vice President
Sharra L. Reed
Assistant Treasurer &
Assistant Secretary
INVESTMENT ADVISER
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
Tait, Weller & Baker
Three Penn Center, Suite 800
Philadelphia, Pennsylvania 19103-2108
FOR MORE INFORMATION ABOUT DAVIS SERIES, INC. INCLUDING MANAGEMENT FEE, CHARGES
AND EXPENSES, SEE THE CURRENT PROSPECTUS WHICH MUST PRECEDE OR ACCOMPANY THIS
REPORT.
89
<PAGE>
DAVIS GROWTH OPPORTUNITY FUND
DAVIS FINANCIAL FUND
DAVIS REAL ESTATE FUND
DAVIS CONVERTIBLE SECURITIES FUND
DAVIS GOVERNMENT BOND FUND
DAVIS GOVERNMENT MONEY
MARKET FUND
ANNUAL REPORT
DECEMBER 31, 1997
[DAVIS FUNDS LOGO]
