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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, 1998
[DAVIS FUNDS LOGO]
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DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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Dear Fellow Shareholder:
MARKET OVERVIEW
1998 was a year when no one, including ourselves, seemed capable of consistently
predicting the trend of the market. What lessons did we learn as managers (and
the largest investors in our funds) from the market's volatile performance last
year? The first lesson is that it pays to stay aboard for the long voyage with
stocks inspite of occasional financial hurricanes. It's like being in a sailboat
circling the globe. Most of the time you can't get off because you're in the
middle of the ocean. You've got to ride out whatever storms may come your way.
The second lesson we learned is that to stay invested during turbulent times
requires keeping within a circle of competence. Our expertise is buying growth
at a value price based on rigorous research. Research is the North Star that
guides us and gives us the conviction to hold fast even when we are bombarded
with negative information.
The third lesson is that buying on market dips worked again. This suggests that
rather than panicking and selling, it is better to keep on a steady course. One
of the easiest ways to do this is to make investing a regular habit through up
and down markets with a program of dollar cost averaging.(1)
The fourth lesson is that the Federal Reserve Board (the "Fed") really is the
investor's friend. After the market declined 20% last year, the Fed moved
aggressively to reduce interest rates.(2) With inflation low, the Fed appears to
prefer nurturing slow, continuous growth through attempts to moderate the
business cycle rather than driving the economy into recession. This reduces the
risk that corporate earnings might collapse and may help avoid a big collapse in
the stock market. Still, we have to keep in mind that the Fed was prepared to
have a 20% market drop before it acted last year, and it might be willing to let
the market drop 20% again.
Looking ahead, we are neither totally bearish nor euphorically bullish in the
short run. Stock valuations are currently high but, at the same time, nothing
succeeds like success. Financial assets have been successful for investors and
are still benefiting from that momentum. In addition, huge money flows are being
created by baby boomers saving for their retirement and by central banks around
the world stimulating money-supply growth. A good bit of this money is spilling
into the financial markets and marking prices up.
At the end of the day, we believe the strength and direction of earnings are
likely to determine the market outlook in 1999. But the crosscurrents and
variables that could affect earnings are numerous. What will happen to the U.S.
dollar? Will the Euro be strong or weak? Will China devalue? Will Japan turn
around? Will the Asian nations find the legal and political resolve to deal with
their huge overhang of debt? Will the Fed raise interest rates or lower them
further? What will happen on the American political scene? What about the
potential for year 2000 computer disruptions?
While the market does face a number of potentially troublesome problems, there
are few attractive alternatives to equities. Moreover, it is still possible to
find good stocks to put on our shopping list because we live in a dynamic,
constantly changing economy and the American business model still works. U.S.
companies are undergoing another round of restructuring, consolidation and
cost-cutting in order to concentrate on core businesses, improve bottom-line
earnings and raise returns on capital.
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DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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We approach the job of investing shareholders' money and our own pragmatically
with the long-term in mind. We intend to remain fairly fully invested--trying
every day to make sensible decisions, rather than getting carried away with an
overly bullish or bearish stance. We emphasize firsthand research and meeting
with company managements so we are prepared to act when opportunities arise. And
we seek to buy stocks at pressure points when their prices have dipped
temporarily.
If you take a 30-year view of the market, assume a starting level of 9,000 for
the Dow and compound that figure at 7% annually, the Dow would be at 72,000 in
three decades. Even if the Dow dropped to 6,000 and you compound that amount at
7% a year, the Dow would reach 48,000 in 30 years. Given those possibilities, we
are not going to make market calls, we are just going to stay aboard for the
long voyage.
Sincerely,
/s/ Shelby M.C. Davis
Shelby M.C. Davis
Chief Investment Officer
February 19, 1999
2
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DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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MANAGEMENT'S DISCUSSION AND ANALYSIS
DAVIS FINANCIAL FUND
PERFORMANCE OVERVIEW
+ The Davis Financial Fund outperformed its peer group, with the Class A
shares generating a total return on net asset value of 14.17% for the
one-year period and 25.53% for the five-year period ended December 31,
1998.(4) By way of comparison, the funds included in Lipper Analytical
Services' financial services funds category provided average returns of
6.85% and 23.28% for the latest one-year and five-year periods,
respectively.(5)
+ Morningstar has awarded the Fund's Class A shares its highest *****
(five-star) rating overall and for the latest three- and five-year
periods.(6) According to Morningstar, "The fund's five-year record is now
among the category's best....the fund remains a compelling option."(7)
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS
Q. Could you recap the performance of financial stocks during 1998?
A. The first half of the year progressed favorably with financial stocks
generally performing well and benefiting from benign trends in interest rates
and inflation. The economy was healthy enough to keep consumer confidence and
spending high but not too strong to overly worry investors about a significant
Federal Reserve tightening. This "Goldilocks" economy combined with outstanding
credit trends in corporate America and stable credit trends on the consumer side
produced favorable earnings comparisons for most financial companies,
particularly relative to the sluggish growth of the S&P 500. As a result,
price/earnings multiples for financial stocks improved and relative multiples
for banks approached 80% of the overall market--a level not achieved since the
mid-1970s.
However, the investment climate changed dramatically in August due to very real
concerns regarding the health of the worldwide economy and whether the United
States would be pushed into recession. Among the negatives confronting investors
were: serious recessions in several Southeast Asian countries; a banking crisis
and weakened political leadership that were preventing Japan from helping its
neighbors' economies recover; political instability in Indonesia; currency
devaluations in many countries as well as the fear that these would lead to
devaluations in China and Brazil, potentially triggering a new round of
devaluations; and the threat that deflation would spread worldwide.
The final straw was Russia's devaluation and default on its debt, which shocked
financial markets around the world and set off a flight to quality by nervous
investors not seen in decades. Liquidity dried up dramatically and yield spreads
on fixed-income securities widened significantly versus U.S. Treasuries. This
created huge losses at many hedge funds and at the banks and investment banks
that had either financed those hedge funds or traded in fixed-income securities.
The necessary bailout of hedge fund Long-Term Capital Management, and the
realization that such problems could jeopardize the health of the U.S. financial
system made many investors reluctant to own financial stocks. As often happens
during market panics, financial stocks were sold off almost indiscriminately,
regardless of the actual risk exposures of individual companies.
3
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DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS - CONTINUED
Q. Why were financial stocks affected worse than the overall market?
A. The financial hurricane of 1998 reminded investors of the potential risk that
accompanies leveraged institutions. The average bank has assets that are 12 to
14 times shareholders' equity, while the average investment bank can have
leverage up to 30 times shareholders' equity. As a result, a meaningful decrease
in asset values arising from lower prices on fixed-income securities or eroding
loan quality can have a dramatically magnified impact on equity values. This
leverage in the financial system is what unnerves investors during market
reversals.
Q. How did the Fund react during this volatile period?
A. Clearly, we were concerned about the tremendous uncertainty created by
deteriorating economies and declining markets around the world. However, we felt
that the Federal Reserve would do what it could to prevent a U.S. recession
because inflation was no longer its primary near-term concern. We recognized
that U.S. consumers were actually quite well off, with unemployment low and
wages rising. Consumers were also benefiting from the ability to refinance
mortgages at lower interest rates, from falling energy prices, and from the
greater purchasing power associated with a strong dollar, which reduces the
price of imports. So we used this period of volatility to build up our positions
in consumer-oriented companies such as American Express, Progressive, Wells
Fargo and Philip Morris.(8)
We also took advantage of a broad sell-off in consumer finance stocks that began
when a crucial form of financing--loan securitization--dried up for subprime
mortgage lenders. Many aggressive subprime lenders with overstated earnings and
weak balance sheets would indeed be permanently damaged by losing this source of
funding. Their shares prices rightfully plummeted. But share prices of ALL
companies that use loan securitization as even a partial funding source were
punished, regardless of the quality of their loan portfolios, balance sheets and
funding alternatives. This created some outstanding buying
opportunities--enabling us to add to our holdings of Household International and
Providian Financial and establish positions in Capital One and MBNA at very
advantageous prices.(8) It's an example of how being a research-intensive firm
and knowing our companies intimately can allow us to capitalize on brief windows
of opportunity when markets overreact to short-term issues.
Q. What is your outlook for financial stocks?
A. Because financial stocks had steadily outperformed the overall market this
past decade, we view their relative underperformance in 1998 as an inevitable
natural occurrence. We remain excited that many of our favorite world-class
financial companies with established franchises and talented managements can be
purchased at 30% to 40% discounts to the S&P 500 despite what we believe is
faster long-term growth potential. We continue to believe that financial stocks
offer one of the most attractive investment opportunities over the next 20 years
for several reasons. These reasons include:
+ Powerful demographic trends that should lead to higher savings rates and
growing demand for financial products worldwide;
4
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DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS - CONTINUED
+ The deregulation of huge markets in Europe and Asia that should open up
great growth opportunities for U.S. companies;
+ Tremendous consolidation within financial services industries that should
lead to improving profit margins at surviving companies;
+ The continuing emergence of brand-name companies that should increasingly
gain market share from weaker competitors and receive higher
price/earnings multiples going forward; and
+ Strong free cash flow that can be used to increase shareholder value
through share repurchases, acquisitions and higher dividends.
MANAGEMENT'S DISCUSSION AND ANALYSIS
DAVIS REAL ESTATE FUND
PERFORMANCE OVERVIEW
+ The Davis Real Estate Fund (Class A shares at net asset value) declined
15.56% for the one-year period ended December 31, 1998.(4) By way of
comparison, the Morgan Stanley REIT (Real Estate Investment Trust) Index
declined 16.90% during the same time period.(9)
+ Over the three-year period ended December 31, 1998, the Fund's Class A
shares generated an average annual total return on net asset value of
13.12% versus a return of 10.19% for the Morgan Stanley REIT Index.
+ In November 1998, Business Week selected the Davis Real Estate Fund as one
of five "standout" REIT funds.(10)
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER
Q. Could you provide some perspective on the recent performance of the real
estate industry?
A. Real estate stocks were one of the worst-performing market sectors last year.
Yet by almost every measure other than stock prices, the real estate industry
looks terrific. The earnings of real estate companies are outstanding. The new
supply of real estate has slowed dramatically. The availability of financing for
developers has decreased significantly, which lessens the chance for
overbuilding. Dividend growth is strong, at about 5% a year, and yields on real
estate stocks are at an unprecedented high level relative to U.S. Treasuries and
utilities.(11) Moreover, we believe those yields appear safe except under a
worst-case scenario, which we think is unlikely to happen.
5
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DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER - CONTINUED
But while we see this long string of positives, the market doesn't. Instead, the
market is seeing what happened last time, in the mid 1980s, when a huge amount
of tax-oriented development came on-stream in all product categories nationwide
just as the economy was collapsing. As the economy moved into recession in the
late 1980s and early 1990s, demand for real estate plummeted, creating a
supply-driven depression in real estate.
We see a very different environment today. We have an economy that looks like it
is heading for a soft landing. While we have new supply of real estate coming,
it is nowhere near the amounts of 10 or 15 years ago. Furthermore, with the
economy growing pretty consistently for a decade, it's only natural that we need
some selective development and new construction. However, investors appear to be
walking into the future with their eyes on the past. And until that psychology
turns, real estate stocks are likely to be in the doldrums.
Q. Do you see any potential clouds on the horizon for the industry?
A. There are two possible concerns, but we are not overly worried about either
of them. One is that if we have a protracted recession, particularly one that
leads to a period of deflation, real estate would perform poorly, but we do not
believe any worse than the rest of the stock market. The other is what could
happen if the funding cycle is not truly under control and capital becomes
overly plentiful again, resulting in another round of overbuilding and marginal
development. We've seen no evidence of such easy-money conditions or
freewheeling spending since the rebirth of the REIT industry in 1992, but it is
something we always monitor.
Q. How have you positioned the Fund to take advantage of what you believe is
this temporary drop in REIT valuations?
A. In this environment, we have concentrated the Fund's investments on
high-quality REITs in diverse areas. Among our favorite holdings now are Home
Properties, in the apartment arena; Centerpoint Properties, in the industrial
sector; Vornado, a diversified REIT; Alexandria, in the medical office space
sector; and JDN Realty, a shopping-center REIT.(8)
Q. What is your outlook for the year ahead?
A. Looking at the companies we own, we see a very similar picture to last year.
The primary difference between then and now is that last year the stocks were
trading at 12 times earnings and today they're trading at nine times earnings--
the lowest level they've been in the past four years. We expect these companies
to show earnings growth in the neighborhood of 8% in 1999 plus dividend yields
of around 7%. These means total returns of 10% to 15% are possible, assuming
multiples hold at their current level or better.(11)
If these companies generate earnings growth of 10% over the next year and the
stocks don't advance, then they would be trading at six times earnings and
probably yielding 9%, which wouldn't make any sense. At nine times earnings, we
believe the case for owning these stocks is compelling, not only in dedicated
real estate funds but in equity funds across the board--that is, unless you
think the stock market overall will continue to return 20% to 25% a year
forever, which we don't.
6
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DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER - CONTINUED
We believe all the evidence is solidly in favor of real estate making a
significant upward move. While we cannot predict when this might occur, we are
extremely comfortable adding to our holdings of well-run companies that are
capable of generating steadily increasing rental income and solid returns on
capital. We think these quality companies will ultimately be accorded premium
valuations in the market as other investors recognize their true worth.
MANAGEMENT'S DISCUSSION AND ANALYSIS
DAVIS CONVERTIBLE SECURITIES FUND
PERFORMANCE OVERVIEW
+ The Davis Convertible Securities Fund (Class A shares at net asset value)
declined 1.79% for the one-year period ended December 31, 1998.(4) In
comparison, the 59 funds included in Lipper Analytical Services'
convertible securities funds category provided an average return of 4.40%
during the same time period.(5)
+ The Fund delivered average annual total returns of 17.83% for the
three-year period, 14.09% for the five-year period, and 15.14% since its
inception on May 1, 1992 through December 31, 1998.(4) This ranked the
Fund seventh among the 37 funds in the Lipper convertible securities funds
category for the latest three years, fourth among 25 such funds for the
latest five years and third among 18 such funds in existence since the
Fund's inception date.(5)
+ In November 1998, Ticker magazine selected the Davis Convertible
Securities Fund as one of three convertible funds "that over the long term
have offered solid returns with relatively low volatility."(12)
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER
Q. What is the Fund's overriding investment approach?
A. Convertible bonds can be exchanged for common stock of the issuing company
and, therefore, share features of both stocks and bonds. Our goal is to use
convertibles to provide investors with the opportunity to participate in
equity-market total returns with a degree of downside protection.
Convertible securities are well-suited for a variety of market conditions. If
the issuing company's common stock increases in price, the convertible security
will generally appreciate in value. If the underlying share price falls, the
income received as a bond provides some protection against declining stock
prices. The Davis Convertible Securities Fund targets convertibles that we
expect will participate in at least 80% of the underlying common stock's
appreciation but that have only 50% of the downside risk if the price of the
common stock falls.(13)
Q. How would you sum up the performance of the convertible market in 1998 and
the outlook for the year ahead?
7
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DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER - CONTINUED
A. We have been saying for the past year that convertibles looked pricey. As it
turned out, we were not entirely correct. Convertibles weren't just pricey, they
were very pricey. Convertibles didn't rally nearly as much as the S&P 500 Index
in 1998 because, relative to the S&P 500, they were expensive. Historically,
investors buy convertibles with an "I get paid to wait" mentality. But investors
get paid to wait only if convertibles offer attractive yields and if they can
buy them without paying a huge premium to the underlying common stock price.
Last year, convertible yields were relatively low while premiums were too high,
a poor combination.
Looking ahead, the picture is brighter for 1999 because, after the poor
performance of convertibles in 1998, the convertible market as a whole looks
like a better value relative to the S&P 500 Index. In particular, the
yield-to-premium relationship is more attractive now, which is a real positive.
In other words, investors are getting more yield and paying smaller premiums
than they did in 1998.
Q. What's your strategy given the current market environment?
A. Part of the reason the Fund's performance lagged in 1998 was because two of
our favorite groups, energy and real estate, were weak. We intend to maintain
our focus on these two areas even though they are currently out of favor, and we
have continued to upgrade the quality of our holdings in each of these groups in
anticipation that they will perform quite well over the long term.
We have not, and will not, chase the sort of speculative companies that have
performed well over the past year. While that has hurt our performance in the
short run, we are confident that sticking with the long-term Davis investment
discipline of buying growth companies at value prices is a proven method of
building wealth over time.
Q. What are some convertible issues you favor now?
A. Among recent purchases we've made for the portfolio are convertible issues of
Sealed Air Corporation and IMAX Corporation. Sealed Air manufactures many types
of protective and specialty packaging materials, as well as packaging systems.
IMAX manufactures and designs projection and sound systems for large-screen
theaters. Other significant Fund holdings include American Express, a global
financial services provider, and Devon Energy, an international independent oil
exploration and production company.(8)
As an asset class, we believe that convertibles can play an important role in
any portfolio. They combine the benefits of equity ownership with the benefits
of owning bonds.
MANAGEMENT'S DISCUSSION AND ANALYSIS
DAVIS GROWTH OPPORTUNITY FUND
PERFORMANCE OVERVIEW
The year 1998 was another difficult year for smaller company stocks relative to
larger company shares and that was reflected in the performance of the Davis
Growth Opportunity Fund. The Fund's Class A shares provided a total return on
net asset value of 2.32% for the 12 months ended December 31, 1998(4) compared
with a total return of 28.58% for the S&P 500 Index.(9) This is a disappointing
result on both an absolute and relative basis.
8
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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
COMMENTARY BY CHRISTOPHER C. DAVIS
As of January 1, 1999, the management of the Davis Growth Opportunity Fund has
been changed. The Fund will now be managed directly by Davis Selected Advisers
instead of sub-advised by Tanaka Capital Management. Tanaka Capital diligently
acted as the Fund's sub-adviser since 1987. We'd like to take this opportunity
to thank Graham Tanaka for his many years of service in managing the portfolio.
We wish him well.
Going forward, the Fund will be managed by a team made up of all our equity
portfolio managers and research analysts, including myself, Andrew Davis and Ken
Charles Feinberg, as well as our international manager, Jeffery Singer; our
technology analyst, Dwight Blazin; and generalists, such as Bob Coleman.
This team will apply our Davis investment discipline--buying growth at value
prices and holding for the long-term--to small and mid-sized companies. By and
large, most future purchases will focus on companies with a market
capitalization between $1 billion and $10 billion and, over time, we expect the
fund to become a true mid-cap fund. However, the Fund continues to own
significant positions in larger companies that Graham Tanaka was astute enough
to purchase when they were much smaller than they are today, including Pfizer,
Intel, Philip Morris and Fannie Mae.(8) We do not intend to sell any companies
that are currently in the portfolio simply based on their size, but only based
on investment considerations.
Given the Fund's focus on smaller companies and its greater concentration in
fewer holdings, we expect these shares could be somewhat more volatile. But even
in this high market, the entire research team is very excited about the price
and growth of the companies that we are buying for the Fund.
MANAGEMENT'S DISCUSSION AND ANALYSIS
DAVIS GOVERNMENT BOND FUND
PERFORMANCE OVERVIEW
+ The Davis Government Bond Fund seeks to provide stable yet competitive
current income consistent with capital preservation by investing in debt
securities guaranteed or issued by the U.S. government.(14) Specifically,
by emphasizing investments in the intermediate range of the bond maturity
spectrum, the Fund seeks to smooth out performance and provide stability
in a variety of market climates.(15)
+ The Fund's Class A shares generated a total return on net asset value of
6.31% for the one-year period ended December 31, 1998(4) versus an average
return of 7.68% for the funds included in Lipper Analytical Services'
Intermediate U.S. Government Funds category.(5)
AN INTERVIEW WITH CAROLYN H. SPOLIDORO, PORTFOLIO MANAGER
Q. What is the Davis Government Bond Fund's general strategy?
A. Our strategy is to create a well-diversified portfolio in terms of types of
government securities, maturity lengths and call provisions--providing
opportunities to capitalize on different interest-rate environments. Currently,
the Fund's portfolio is divided roughly equally between mortgage-backed
securities, including pass-through securities and collateralized mortgage
obligations (CMOs), and U.S. government agency notes, including some issues that
can be called by the issuer before maturity and some that cannot. Currently, the
portfolio's duration is 4.8 years and its average life is 6.5 years.
9
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DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CAROLYN H. SPOLIDORO, PORTFOLIO MANAGER- CONTINUED
The Fund's cautious approach offers downside protection in declining bond
markets but may underperform in rising bond markets. In other words, the
portfolio tends to hold up a bit better when interest rates back up or are
variable. But the price we pay for this stability is that the Fund does not
rally as well when rates go down as they did last year.(14)
Q. Could you recap the bond market's performance in 1998?
A. If you just look at the year-over-year numbers, total returns were good on
most types of securities last year, including U.S. government securities.
However, that overlooks the volatility the markets experienced starting at the
end of the summer when a liquidity crisis erupted because of concerns about the
health of the global economy. This triggered a massive flight to quality and
yield spreads on fixed-income securities widened dramatically relative to U.S.
Treasury securities. While the liquidity crisis subsequently eased and yield
spreads narrowed, spreads are still not as narrow as they were at the beginning
of 1998.
This environment made long-term U.S. Treasury securities one of the best
fixed-income investment to own last year. Long-term Treasuries did much better
than government agency securities, which, in turn, did much better than
mortgages--even though the quality differences among these various types of
securities are fairly small. The Fund's performance generally lagged other
intermediate U.S. government fund peers because its portfolio is a blend of
intermediate-term government agency securities and mortgage securities.
Performance was also affected by the timing of cash inflows. The Fund's assets
enjoyed good growth during the year, with cash inflows tending to be much
stronger after market rallies when investment opportunities were, therefore,
relatively less attractive.
Q. How are you positioning the Fund in 1999?
A. We have been positioning the Fund to take advantage of market rallies if
interest rates drop further as we anticipate. Specifically, we have been buying
a variety of different securities, always with an eye toward lengthening
maturity and always carefully weighing the trade-off between increasing call
protection versus increasing yield. As an example, we recently purchased some
relatively long, well-structured CMOs that offer call protection while also
providing the yield advantage of mortgage-backed securities.(15) At the same
time, we recognize the importance of continuing to maintain a disciplined
approach with a diversified, all-weather portfolio so that the Fund is
structured to benefit from various market conditions.
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 plan. 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.
10
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DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
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 that contains more information about fees and expenses. Please read
the prospectus carefully before investing or sending money.
(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) There can be no assurance that the Federal Reserve Board will act to support
stock prices or that the Federal Reserve Board's actions in the future might not
hurt stock prices.
(3) This example illustrates the power of compounding over a 30-year period, and
is not intended to be indicative of future investment results which may be
higher or lower than the assumed rate.
(4) Total return assumes reinvestment of dividends and capital gain
distributions. Past performance is not a guarantee of future results. Investment
return and principal value will vary so that, when redeemed, an investor's
shares may be worth more or less than when purchased. The following table lists
the average annual total returns for Class A shares for periods ended December
31, 1998.
* (WITHOUT a 4.75% Sales Charge taken into consideration for the period ended
December 31, 1998)
FUND NAME 1 YEAR 3 YEARS 5 YEARS LIFE OF FUND
--------- ------ ------- ------- ------------
Davis Financial Fund A 14.17% 29.46% 25.53% 25.90% - 05/01/91
Davis Real Estate Fund A (15.56%) 13.12% NA 13.02% - 01/03/94
Davis Convertible Securities A (1.79%) 17.83% 14.09% 15.14% - 05/01/92
Davis Growth Opportunity A 2.32% 15.76% NA 21.45% - 12/01/94
Davis Government Bond Fund A 6.31% 5.86% NA 7.21% - 12/01/94
** (WITH a 4.75% Sales Charge taken into consideration for the period ended
December 31, 1998)
FUND NAME 1 YEAR 3 YEARS 5 YEARS LIFE OF FUND
--------- ------ ------- ------- ------------
Davis Financial Fund A 8.75% 27.39% 24.32% 25.09% - 05/01/91
Davis Real Estate Fund A (19.58%) 11.30% NA 11.93% - 01/03/94
Davis Convertible Securities A (6.46%) 15.93% 12.99% 14.31% - 05/01/92
Davis Growth Opportunity A (2.53)% 13.90% NA 20.01% - 12/01/94
Davis Government Bond Fund A 1.30% 4.15% NA 5.93% - 12/01/94
(5) Lipper Analytical Services' rankings and comparisons are based on total
returns unadjusted for commissions.
11
<PAGE>
DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
(6) Morningstar proprietary ratings reflect historical risk-adjusted performance
as of December 31, 1998. The ratings are subject to change every month.
Morningstar ratings are calculated from a fund's 3, 5 and 10-year average annual
returns (based on available track records) in excess of 90-day Treasury bill
(T-bill) returns, with appropriate fee adjustments and a risk factor that
reflects fund performance below 90-day T-bill returns. Ten percent of the funds
in an investment category receive five stars; the next 22.5% receive four stars;
the next 35% receive three stars; the next 22.5% receive two stars; and the last
10% receive one star. The Class A shares of the Davis Financial Fund were rated
against 2,802 and 1,702 domestic equity funds for the three- and five-year
periods, respectively. Past performance is not a guarantee of future results.
(7) Source: Morningstar Mutual Funds, October 21, 1998.
(8) Portfolio holdings and portfolio manager opinions cited in this material are
current at the time of printing but are subject to change. See each Fund's
Schedule of Investments for a detailed list of portfolio holdings.
(9) The definitions of indexes quoted in this annual report appear below.
Investments cannot be made directly in any of these indexes.
I. The Morgan Stanley REIT (Real Estate Investment Trust) 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.
II. 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.
(10) Source: Business Week, November 23, 1998.
(11) We believe these returns to be reasonable estimates. There can be no
guarantee of future performance.
(12) TICKER Magazine surveyed the universe of convertible funds to come up with
three solid load funds that over the long term have offered solid returns with
relatively low volatility.
(13) While we seek convertible securities meeting the 80%/50% rule, there can be
no assurance that the convertible securities which the fund purchases will
actually perform in line with our expectations.
(14) Prices of shares will vary, so that when redeemed, an investors shares
could be worth more or less than their original cost.
(15) There can be no assurance that the Fund will be successful managing risk or
achieve its investment objectives. Bonds must be tailored to each investor's
individual needs.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
12
<PAGE>
DAVIS SERIES, INC.
DAVIS GROWTH OPPORTUNITY FUND
PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1998
================================================================================
(The following two tables were depicted as pie charts in the printed material.)
PORTFOLIO MAKEUP SECTOR WEIGHTINGS
(% OF FUND NET ASSETS) (% OF STOCK HOLDINGS)
---------------------- ---------------------
Cash & Cash Equivalents, Energy 4.9%
Other Assets & Liabilities 5.5% Retail 8.9%
Common Stocks 97.9% Other 2.6%
Electronics 10.9%
Software 9.8%
Consumer Products 6.2%
Financial Services 7.8%
Restaurants 3.3%
Pharmaceuticals 21.2%
Insurance 10.2%
Capital Equipment 11.1%
% OF FUND
TOP 10 HOLDINGS SECTOR NET ASSETS
- --------------- ------ ----------
AFLAC Inc. Insurance 9.94%
Intel Corp. Electronics 8.50%
Novellus Systems, Inc. Capital Equipment 6.73%
Pfizer, Inc. Pharmaceuticals 6.14%
Philip Morris Cos., Inc. Consumer Products 6.12%
Staples, Inc. Retail 5.83%
Business Objects S.A. - ADR Software 5.38%
KV Pharmaceutical Company Pharmaceuticals 4.52%
The Learning Company, Inc. Software 4.17%
Schering-Plough Corporation Pharmaceuticals 3.81%
13
<PAGE>
DAVIS SERIES, INC.
DAVIS GROWTH OPPORTUNITY FUND
PORTFOLIO ACTIVITY JANUARY 1, 1998 THROUGH DECEMBER 31, 1998
================================================================================
NEW POSITIONS ADDED (1/1/98-12/31/98)
(Highlighted positions are those greater than 0.99% of 12/31/98 total net
assets)
DATE OF 1ST % OF 12/31/98
SECURITY SECTOR PURCHASE FUND NET ASSETS
- -------- ------ -------- ---------------
Dell Computer Corporation Electronics 03/09/98 --
FLIR SYSTEMS, INC. ELECTRONICS 06/30/98 1.41%
THE LEARNING COMPANY, INC. SOFTWARE 10/12/98 4.17%
The Money Store, Inc. Financial Services 02/04/98 --
PAINE WEBBER GROUP, INC. FINANCIAL SERVICES 12/03/98 1.92%
Three-Five Systems, Inc. Electronics 02/03/98 0.72%
POSITIONS CLOSED (1/1/98-12/31/98)
(Gains and losses greater than $500,000 are highlighted)
DATE OF FINAL
SECURITY SECTOR SALE GAIN/(LOSS)
- -------- ------ ---- -----------
ADAPTEC, INC. ELECTRONICS 07/02/98 1,042,809
CENDANT CORP. COMMERCIAL 10/05/98 (3,601,499)
DELL COMPUTER CORPORATION ELECTRONICS 08/28/98 2,231,614
FIRST UNION CORPORATION FINANCIAL SERVICES 08/24/98 614,347
Unique Casual Restaurants, Inc. Restaurants 11/12/98 (344,222)
14
<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
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS A SHARES
(This calculation includes an initial sales charge of 4 3/4%.)
One Year ................................ (2.53%)
Life of Class (December 1, 1994
through December 31, 1998)........... 20.01%
$10,000 INVESTED AT INCEPTION. 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, 1998 the value of your investment would have grown to $21,064 - a
110.64% increase on your initial investment. For comparison, the Standard and
Poor's 500 Stock Index is also presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DGOF-A
--------- ------
12/1/94 $10,000 $ 9,525
12/31/94 $10,305 $ 9,259
12/31/95 $14,164 $13,578
12/31/96 $17,407 $16,121
12/31/97 $23,206 $20,587
12/31/98 $29,825 $21,064
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.
15
<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
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS B SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year ................................ (2.26%)
Five Years............................... 14.90%
Ten Years................................ 15.16%
$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,
1988. As the chart shows, by December 31, 1998 the value of your investment
would have grown to $41,054 - a 310.54% increase on your initial investment. For
comparison, the Standard and Poor's 500 Stock Index is also presented on the
chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DGOF-B
--------- ------
12/31/88 10,000.00 $10,000
12/31/89 13,164.00 $13,998
12/31/90 12,756.00 $13,337
12/31/91 16,635.00 $18,796
12/31/92 17,901.00 $18,256
12/31/93 19,702.00 $20,293
12/31/94 19,962.00 $18,585
12/31/95 27,457.00 $27,030
12/31/96 33,758.00 $31,858
12/31/97 45,017.00 $40,403
12/31/98 57,845.00 $41,054
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.
16
<PAGE>
DAVIS SERIES, INC.
DAVIS GROWTH OPPORTUNITY FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS GROWTH OPPORTUNITY FUND CLASS C SHARES
AND STANDARD & POOR'S 500 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS C SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year ................................ 0.51%
Life of Class (August 15, 1997
through December 31, 1998)........... (3.11%)
$10,000 INVESTED AT INCEPTION. Let's say you invested $10,000 in Davis Series,
Inc., Class C shares of Davis Growth Opportunity Fund ("DGOF-C") on August 15,
1997 (inception of class). As the chart shows, by December 31, 1998 the value of
your investment would have been $9,574 - a 4.26% decrease on your initial
investment. For comparison, the Standard and Poor's 500 Stock Index is also
presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DGOF-C
--------- ------
8/15/97 $10,000 $10,000
12/31/97 $10,863 $9,434
12/31/98 $13,961 $9,574
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 Y SHARES
AND STANDARD & POOR'S 500 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS Y SHARES
(There is no sales charge applicable to this calculation.)
One Year ............................... 2.18%
Life of Class (September 18, 1997
through December 31, 1998)........... (7.11%)
$10,000 INVESTED AT INCEPTION. Let's say you invested $10,000 in Davis Series,
Inc., Class Y shares of Davis Growth Opportunity Fund ("DGOF-Y") on September
18, 1997 (inception of class). As the chart shows, by December 31, 1998 the
value of your investment would have been $9,096 - a 9.04% decrease on your
initial investment. For comparison, the Standard and Poor's 500 Stock Index is
also presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DGOF-Y
--------- ------
9/18/97 $10,000 $10,000
12/31/97 $10,330 $8,902
12/31/98 $13,276 $9,096
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, 1998
================================================================================
(The following two tables were depicted as pie charts in the printed material.)
PORTFOLIO MAKEUP SECTOR WEIGHTINGS
(% OF FUND NET ASSETS) (% OF STOCK HOLDINGS)
---------------------- ---------------------
Bonds 0.2% Restaurants 4.5%
Common Stocks & Other Insurance 29.9%
Assets & Liabilities 99.8% Technology 3.3%
Consumer Products 7.5%
Building Materials 6.0%
Banking 15.7%
Diversified 6.4%
Other 1.7%
Financial Services 25.0%
% OF FUND
TOP 10 HOLDINGS SECTOR NET ASSETS
- --------------- ------ ----------
American Express Co. Financial Services 7.00%
Transatlantic Holdings Inc. Insurance 5.86%
Philip Morris Cos., Inc. Consumer Products 5.66%
Wells Fargo & Co. Banks and Saving &
Loan Associations 5.39%
Household International, Inc. Financial Services 5.00%
McDonald's Corp. Restaurant & Food 4.54%
Berkshire Hathaway, Inc. (Class A) Diversified 4.25%
Providian Financial Corporation Financial Services 4.18%
Citigroup Financial Services 3.90%
Martin Marietta Materials, Inc. Building Materials 3.79%
19
<PAGE>
DAVIS SERIES, INC.
DAVIS FINANCIAL FUND
PORTFOLIO ACTIVITY JANUARY 1, 1998 THROUGH DECEMBER 31, 1998
================================================================================
NEW POSITIONS ADDED (1/1/98-12/31/98)
(Highlighted positions are those greater than 0.99%
of 12/31/98 total net assets)
<TABLE>
<CAPTION>
DATE OF 1ST % OF 12/31/98
SECURITY SECTOR PURCHASE FUND NET ASSETS
- -------- ------ -------- ---------------
<S> <C> <C> <C>
ACE, LTD. INSURANCE 04/22/98 1.09%
Annuity and Life Re
(Holdings), Ltd. Insurance 04/08/98 0.21%
The Boeing Company Aerospace/Defense 04/16/98 --
CAPITAL ONE FINANCIAL CORP. FINANCIAL SERVICES 10/14/98 1.17%
Chartwell Re Corp. Insurance 02/24/98 --
Dover Corp. Diversified Manufacturing 01/14/98 0.62%
Fifth Third Bancorp Banks and Savings
& Loan Associations 05/06/98 0.44%
HASBRO, INC. CONSUMER PRODUCTS 03/20/98 1.47%
HORACE MANN EDUCATORS CORP. INSURANCE 06/19/98 1.26%
HSB Group, Inc. Insurance 01/26/98 0.56%
Markel Corporation Insurance 05/13/98 0.14%
MBNA CORPORATION FINANCIAL SERVICES 10/06/98 1.27%
The MONY Group Inc. Insurance 11/10/98 --
RELIASTAR FINANCIAL CORP. INSURANCE 02/12/98 2.61%
RLI CORP. INSURANCE 04/16/98 1.74%
Texas Instruments Inc. Technology 02/20/98 --
TYCO INTERNATIONAL LTD. DIVERSIFIED MANUFACTURING 12/24/98 1.53%
United Dominion Industries Limited Building Materials 02/25/98 --
</TABLE>
POSITIONS CLOSED
(1/1/98-12/31/98)
(Gains and losses greater than $500,000 are highlighted)
<TABLE>
<CAPTION>
DATE OF FINAL
SECURITY SECTOR SALE GAIN/(LOSS)
- -------- ------ ---- -----------
<S> <C> <C> <C>
AIRTOUCH COMMUNICATIONS, INC. TELECOMMUNICATIONS 10/13/98 1,379,603
ALLIED GROUP, INC. INSURANCE 10/02/98 2,642,234
AON CORPORATION INSURANCE 11/05/98 767,366
Archer-Daniels-Midland Co. Agriculture 06/26/98 78,588
Argonaut Group, Inc. Insurance 11/17/98 (177,570)
BAYARD DRILLING TECHNOLOGIES, INC. ENERGY 06/26/98 (1,490,483)
W.R. Berkley Corp. Insurance 11/06/98 210,885
THE BOEING COMPANY AEROSPACE/DEFENSE 09/02/98 (1,758,174)
Burlington Northern Santa Fe Railroad 08/11/98 245,967
Burlington Resources, Inc. Energy 07/10/98 209,223
Chartwell Re Corp. Insurance 10/14/98 (419,406)
Chicago Title Corp. Insurance 08/18/98 202,382
Cooper Cameron Corporation Energy 10/13/98 (216,884)
GREENPOINT FINANCIAL CORP. BANKS AND SAVINGS
& LOAN ASSOCIATIONS 08/18/98 1,001,318
</TABLE>
20
<PAGE>
DAVIS SERIES, INC.
DAVIS FINANCIAL FUND
PORTFOLIO ACTIVITY JANUARY 1, 1998 THROUGH DECEMBER 31, 1998-CONTINUED
================================================================================
POSITIONS CLOSED (1/1/98-12/31/98)-CONTINUED
(Gains and losses greater than $500,000 are highlighted)
<TABLE>
<CAPTION>
DATE OF FINAL
SECURITY SECTOR SALE GAIN/(LOSS)
- -------- ------ ---- -----------
<S> <C> <C> <C>
HALLIBURTON CO. ENERGY 09/09/98 (652,808)
JEFFERIES GROUP, INC. FINANCIAL SERVICES 09/09/98 1,238,385
KOMAG INC. TECHNOLOGY 06/26/98 (921,259)
The MONY Group Inc. Insurance 11/11/98 25,008
J.P. MORGAN & CO., INC. BANKS AND SAVINGS
& LOAN ASSOCIATIONS 08/31/98 682,234
NESTLE S.A. (SPONSORED
ADR FOR REG. SHRS.) CONSUMER PRODUCTS 10/08/98 1,765,966
NIKE, INC. FOOTWARE 08/17/98 (3,558,462)
Novartis - ADR Pharmaceuticals 10/09/98 (167,250)
NOVELLUS SYSTEMS, INC. TECHNOLOGY 08/19/98 895,070
SMITH INTERNATIONAL, INC. ENERGY 10/13/98 (1,304,687)
TCF FINANCIAL CORP. BANKS AND SAVINGS 11/05/98 1,744,393
& LOAN ASSOCIATIONS
TEXAS INSTRUMENTS INC. TECHNOLOGY 10/09/98 (718,798)
Trenwick Group, Inc. Insurance 11/23/98 (19,839)
UNION PACIFIC CORP. RAILROAD 08/11/98 (1,275,072)
United Dominion Industries Limited Building Materials 08/12/98 (13,309)
USA Networks, Inc. Consumer Products 08/11/98 529,717
</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
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS A SHARES
(This calculation includes an initial sales charge of 4 3/4%.)
One Year ................................ 8.75%
Five Year ............................... 24.32%
Life of Class (May 1, 1991
through December 31, 1998)........... 25.09%
$10,000 INVESTED AT INCEPTION. 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,
1998 the value of your investment would have grown to $55,742 - a 457.42%
increase on your initial investment. For comparison, the Standard and Poor's 500
Stock Index is also presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DFF-A
--------- -----
5/1/91 $10,000 $9,525
12/31/91 $11,234 $11,733
12/31/92 $12,089 $15,567
12/31/93 $13,302 $17,882
12/31/94 $13,482 $17,068
12/31/95 $18,531 $25,689
12/31/96 $22,774 $33,780
12/31/97 $30,361 $48,822
12/31/98 $39,021 $55,742
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
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS B SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year ............................... 9.21%
Life of Class (December 27, 1994
through December 31, 1998)........... 32.56%
$10,000 INVESTED AT INCEPTION. 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, 1998 the value of your
investment (less applicable contingent deferred sales charges) would have grown
to $30,999 - a 209.99% increase on your initial investment. For comparison, the
Standard and Poor's 500 Stock Index is also presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DFF-B
--------- -----
12/27/94 $10,000 $10,000
12/31/94 $10,003 $9,910
12/31/95 $13,749 $14,766
12/31/96 $16,897 $19,238
12/31/97 $22,526 $27,559
12/31/98 $28,951 $30,999
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 FINANCIAL FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS FINANCIAL FUND CLASS C SHARES AND
STANDARD & POOR'S 500 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS C SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year ............................... 12.26%
Life of Class (August 12, 1997
through December 31, 1998)........... 16.77%
$10,000 INVESTED AT INCEPTION. Let's say you invested $10,000 in Davis Series,
Inc., Class C shares of Davis Financial Fund ("DFF-C") on August 12, 1997
(inception of class). As the chart shows, by December 31, 1998 the value of your
investment would have grown to $12,397 - a 23.97% increase on your initial
investment. For comparison, the Standard and Poor's 500 Stock Index is also
presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DFF-C
--------- -----
8/12/97 $10,000 $10,000
12/31/97 $10,562 $10,945
12/31/98 $13,574 $12,397
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.
24
<PAGE>
DAVIS SERIES, INC.
DAVIS FINANCIAL FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS FINANCIAL FUND CLASS Y SHARES AND
STANDARD & POOR'S 500 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS Y SHARES
(There is no sales charge applicable to this calculation.)
One Year ............................... 14.58%
Life of Class (March 10, 1997
through December 31, 1998)........... 23.90%
$10,000 INVESTED AT INCEPTION. Let's say you invested $10,000 in Davis Series,
Inc., Class Y shares of Davis Financial Fund ("DFF-Y") on March 10, 1997
(inception of class). As the chart shows, by December 31, 1998 the value of your
investment would have grown to $14,741 - a 47.41% increase on your initial
investment. For comparison, the Standard and Poor's 500 Stock Index is also
presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DFF-Y
--------- -----
3/10/97 $10,000 $10,000
12/31/97 $12,137 $12,866
12/31/98 $15,598 $14,741
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.
25
<PAGE>
DAVIS SERIES, INC.
DAVIS CONVERTIBLE SECURITIES FUND
PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1998
================================================================================
(The following two tables were depicted as pie charts in the printed material.)
PORTFOLIO MAKEUP SECTOR WEIGHTINGS
(% OF FUND NET ASSETS) (% OF STOCK HOLDINGS)
---------------------- ---------------------
Other Assets & Liabilities 1.9% Insurance 3.1%
Common Stocks 30.7% Energy 15.2%
Preferred Stocks 39.4% Financial Services 17.8%
Bonds 28.0% Banks and Savings & Loan
Associations 4.7%
Other 12.7%
Technology 9.3%
Real Estate 27.5%
Industrial 9.7%
% OF FUND
TOP 10 HOLDINGS SECTOR NET ASSETS
- --------------- ------ ----------
Sealed Air Corp., $2.00, Ser. A Cum. Conv. Pfd. Industrial 5.41%
SunAmerica, Inc. Financial Services 4.20%
American Express Credit, Conv. Notes,
1.125%, 02/19/03 Financial Services 3.84%
Vornado Realty Trust Diversified (REIT) 3.67%
General Growth Properties, 7.25%, Cum. Conv. Pfd. Diversified (REIT) 3.67%
Republic National Bank NY, Conv. Sr. Notes,
1.875%, 08/12/02 Financial Services 3.29%
Hewlett-Packard Company Technology 3.23%
Devon Financing Trust, $3.25, Conv. Pfd. Energy 2.83%
CalEnergy Capital Trust II, 6.25%, Conv. Pfd. Energy 2.75%
Banc One Corporation Banks and Savings
& Loan Associations 2.39%
26
<PAGE>
DAVIS SERIES, INC.
DAVIS CONVERTIBLE SECURITIES FUND
PORTFOLIO ACTIVITY JANUARY 1, 1998 THROUGH DECEMBER 31, 1998
================================================================================
NEW POSITIONS ADDED (1/1/98-12/31/98)
(Highlighted Positions are those greater than 0.99% of
12/31/98 total net assets)
<TABLE>
<CAPTION>
DATE OF 1ST % OF 12/31/98
SECURITY SECTOR PURCHASE FUND NET ASSETS
- -------- ------ -------- ---------------
<S> <C> <C> <C>
AIRTOUCH COMMUNICATIONS, INC., 6.00%,
SER. B CONV. PFD. COMMUNICATIONS 07/02/98 1.65%
AMERICAN EXPRESS COMPANY FINANCIAL SERVICES 08/12/98 1.64%
AMERICAN EXPRESS CREDIT, CONV. NOTES,
1.125%, 02/19/03 FINANCIAL SERVICES 02/13/98 3.84%
BELL ATLANTIC FINANCIAL SERVICES, SERIES 144A,
5.75%, 04/01/03 FINANCIAL SERVICES 02/12/98 1.22%
CalEnergy Company, Inc. Energy 12/15/98 0.37%
Conseco Finance Trust IV, 7.00%,
Ser. F Cum. Conv. Pfd. Financial Services 03/20/98 0.60%
Crescent Real Estate Equities, 6.75%,
Ser. A Conv. Pfd. Office/Industrial (REIT) 02/13/98 0.93%
Devon Energy Corp. Energy 08/19/98 0.90%
EQUITY OFFICE PROPERTIES TRUST, 5.25%,
CUM. CONV. PFD. OFFICE/INDUSTRIAL (REIT) 02/13/98 2.08%
Family Golf Centers, Inc., Conv. Sub. Notes,
5.75%, 10/15/04 Golf 03/18/98 0.55%
GENERAL GROWTH PROPERTIES, 7.25%,
CUM. CONV. PFD. DIVERSIFIED (REIT) 06/05/98 3.67%
GLENBOROUGH REALTY TRUST, 7.75%,
SER. A CONV. PFD. DIVERSIFIED (REIT) 01/29/98 1.46%
HEWLETT-PACKARD COMPANY TECHNOLOGY 08/19/98 3.23%
IMAX CORP., CONV. SUB. DEB.,
5.75%, 04/01/03 INDUSTRIAL 08/13/98 1.67%
INTEL CORP. TECHNOLOGY 03/13/98 1.22%
Motorola, Inc. Technology 04/15/98 0.44%
NEWS AMERICA HOLDINGS, CONV. SUB. DEB.,
ZERO CPN., 03/11/13 MULTIMEDIA 03/17/98 2.21%
Premier Parks, Inc., 7.50%, Cum. Conv. Pfd. Theme Parks 03/26/98 0.63%
RECKSON ASSOC. REALTY, 7.625%, SER. A
CUM. CONV. PFD. OFFICE/INDUSTRIAL (REIT) 04/17/98 1.66%
SEALED AIR CORP., $2.00, SER. A
CUM. CONV. PFD. INDUSTRIAL 08/13/98 5.41%
SL GREEN REALTY CORP., 8.00%,
CUM. CONV. PFD. OFFICE/INDUSTRIAL (REIT) 05/12/98 1.99%
SunAmerica, Inc., Depository Shares
$2.78, Ser. D Conv. Pfd. Financial Services 08/20/98 --
UNION PACIFIC CAP. TRUST, 6.25%, SER. 144A
CUM. CONV. PFD. TRANSPORTATION 03/27/98 1.16%
XEROX CORP., 144A CONV. SUB. NOTES,
ZERO CPN., 04/12/18 INDUSTRIAL 04/16/98 2.10%
</TABLE>
27
<PAGE>
DAVIS SERIES, INC.
DAVIS CONVERTIBLE SECURITIES FUND
PORTFOLIO ACTIVITY JANUARY 1, 1998 THROUGH DECEMBER 31, 1998 - CONTINUED
================================================================================
POSITIONS CLOSED (1/1/98-12/31/98)
(Gains and losses greater than $500,000 are highlighted)
<TABLE>
<CAPTION>
SECURITY SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- -------- ------ ------------------ -----------
<S> <C> <C> <C>
AIRTOUCH COMMUNICATIONS, INC., 4.25%,
SER. C CONV. PFD COMMUNICATIONS 07/02/98 1,753,534
Archstone Communities Tr Ser. A. Conv. Pfd. Multi-Family Housing (REITS) 10/08/98 (57,395)
Burlington Northern Santa Fe Corp. Transportation/Rail 12/14/98 433,868
Crescent Operating, Inc. Office/Industrial
(REITS/REOCS) 12/14/98 (113,153)
CRESCENT REAL ESTATE EQUITIES COMPANY OFFICE/INDUSTRIAL
(REITS/REOCS) 02/13/98 1,355,878
FELCOR SUITE HOTELS, INC., $1.95, SER. A
CONV. PFD. HOTELS 12/15/98 (633,620)
HVIDE CAPITAL TRUST, 6.50%, SER. 144A
CONV. PFD. MARINE SUPPORT 12/14/98 (1,120,314)
Leucadia National Corp. Insurance 12/14/98 30,832
M.L.-SunAmerica Inc., 7.25%, Conv. Pfd. Financial Services 08/21/98 133,360
Noble Drilling Corp. Energy 12/14/98 (29,441)
PHYCOR INC., CONV. SUB. DEB., 4.50%, 02/15/03 MEDICAL SERVICES 10/09/98 (586,150)
Prologis Trust, 7.00%, Ser. B Conv. Pfd. Financial Services 10/08/98 29,688
Thermo Electron Corp., 144A Conv. Sub
Deb., 4.25%, 01/01/03 Engineering 10/08/98 (85,000)
U.S. Office Products Co., Conv. Sub. Notes,
5.50%, 02/01/01 Office Supplies 05/26/98 (149,375)
Waste Management Inc., Conv. Sub. Notes, Pollution Control/ Waste
4.00%, 02/01/02 Management 12/14/98 232,500
</TABLE>
28
<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, 1998.
CLASS A SHARES
(This calculation includes an initial sales charge of 4 3/4%.)
One Year ............................... (6.46%)
Five Year .............................. 12.99%
Life of Class (May 1, 1992
through December 31, 1998)........... 14.31%
$10,000 INVESTED AT INCEPTION. 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, 1998 the value of your investment would have grown to $24,400 - a
144.00% increase on your initial investment. For comparison, the Standard and
Poor's 500 Stock Index is also presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DCSF-A
--------- ------
5/1/92 $10,000 $9,525
12/31/92 $10,802 $10,764
12/31/93 $11,886 $12,621
12/31/94 $12,047 $11,773
12/31/95 $16,558 $14,914
12/31/96 $20,350 $19,308
12/31/97 $27,130 $24,846
12/31/98 $34,867 $24,400
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 B
SHARES AND STANDARD & POOR'S 500 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS B SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year .................................. (6.39%)
Life of Class (February 3, 1995
through December 31, 1998)............. 18.23%
$10,000 INVESTED AT INCEPTION. 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, 1998 the value
of your investment (less applicable contingent deferred sales charges) would
have grown to $19,249 - a 92.49% increase on your initial investment. For
comparison, the Standard and Poor's 500 Stock Index is also presented on the
chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DCSF-B
--------- ------
2/3/95 $10,000 $10,000
12/31/95 $13,188 $12,233
12/31/96 $16,208 $15,684
12/31/97 $21,608 $19,973
12/31/98 $27,771 $19,249
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 CONVERTIBLE SECURITIES FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS CONVERTIBLE SECURITIES FUND CLASS C
SHARES AND STANDARD & POOR'S 500 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS C SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year .................................. (3.55%)
Life of Class (August 12, 1997
through December 31, 1998)............. 3.28%
$10,000 INVESTED AT INCEPTION. Let's say you invested $10,000 in Davis Series,
Inc., Class C shares of Davis Convertible Securities Fund ("DCSF-C") on August
12, 1997 (inception of class). As the chart shows, by December 31, 1998 the
value of your investment would have grown to $10,457 - a 4.57% increase on your
initial investment. For comparison, the Standard and Poor's 500 Stock Index is
also presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DCSF-C
--------- ------
8/12/97 $10,000 $10,000
12/31/97 $10,562 $10,738
12/31/98 $13,574 $10,457
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.
31
<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
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS Y SHARES
(There is no sales charge applicable to this calculation.)
One Year .................................(1.46%)
Life of Class (November 13, 1996
through December 31, 1998)..............15.44%
$10,000 INVESTED AT INCEPTION. 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, 1998 the
value of your investment would have grown to $13,581 - a 35.81% increase on your
initial investment. For comparison, the Standard and Poor's 500 Stock Index is
also presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DCSF-Y
--------- ------
11/13/96 $10,000 $10,000
12/31/96 $10,183 $10,701
12/31/97 $13,576 $13,782
12/31/98 $17,448 $13,581
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 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.
32
<PAGE>
DAVIS SERIES, INC.
DAVIS REAL ESTATE FUND
PORTFOLIO HOLDINGS AS OF DECEMBER 31, 1998
================================================================================
(The following two tables were depicted as pie charts in the printed material.)
PORTFOLIO MAKEUP SECTOR WEIGHTINGS
(% OF FUND NET ASSETS) (% OF STOCK HOLDINGS)
---------------------- ---------------------
Preferred Stocks 6.3% Malls 3.1%
Convertible Bonds 0.5% Diversified 4.5%
Common Stocks 90.9% Resorts/Theme Parks 4.9%
Cash, Short-term Bonds Real Estate 84.3%
& Other Assets 2.3% Other 3.0%
% OF FUND
TOP 10 HOLDINGS SECTOR NET ASSETS
- --------------- ------ ----------
Home Properties of New York, Inc. Apartments (REITS) 4.70%
Vornado Realty Trust Diversified (REITS) 4.11%
Boardwalk Equities, Inc. Apartments (REITS) 3.92%
Alexandria Real Estate Equities, Inc. Office Space (REITS) 3.72%
JDN Realty Corp. Shopping Centers (REITS) 3.27%
General Growth Properties, 7.25%,
Conv. Pfd. Malls 3.24%
Premier Parks Inc. Resorts/Theme Parks 3.14%
Rouse Company Diversified (REITS) 3.09%
Boston Properties, Inc. Office Space (REITS) 3.07%
Public Storage, Inc. Storage (REITS) 2.78%
33
<PAGE>
DAVIS SERIES, INC.
DAVIS REAL ESTATE FUND
PORTFOLIO ACTIVITY - JANUARY 1, 1998 THROUGH DECEMBER 31, 1998
================================================================================
NEW POSITIONS ADDED (1/1/98-12/31/98)
(Highlighted Positions are those greater than 0.99% of 12/31/98
total net assets)
<TABLE>
<CAPTION>
DATE OF 1ST % OF 12/31/98
SECURITY SECTOR PURCHASE FUND NET ASSETS
- -------- ------ -------- ---------------
<S> <C> <C> <C>
AMB PROPERTY CORPORATION DIVERSIFIED (REITS) 03/17/98 1.60%
BRANDYWINE REALTY TRUST OFFICE SPACE (REITS) 01/29/98 1.08%
CENTERPOINT PROPERTIES CORP. PRIVATE INDUSTRIAL (REITS) 04/02/98 2.33%
Cornerstone Properties, Inc. Office Space (REITS) 02/03/98 --
General Growth Properties, Inc. Malls (REITS) 08/07/98 0.46%
GENERAL GROWTH PROPERTIES, 7.25%, CONV. PFD. MALLS 06/05/98 3.24%
MEDITRUST COMPANIES HEALTH CARE (REITS) 11/25/98 2.74%
OMNIAMERICA, INC. WIRELESS EQUIPMENT/
REAL ESTATE 09/15/98 1.96%
PS Business Parks, Inc. Office Space (REITS) 05/21/98 --
Rouse Company, Conv. Sub. Dev.,
5.75%, 07/23/02 Diversified 05/28/98 0.49%
SL Green Realty Corp., 8.00%,
Cum. Conv. Pfd Office 05/12/98 0.90%
Specialty Teleconstructors, Inc. Wireless Equipment/
Real Estate 07/17/98 --
THE ST. JOE COMPANY DIVERSIFIED 04/15/98 1.13%
Vail Resorts, Inc. Resorts/Theme Parks 03/18/98 1.68%
</TABLE>
POSITIONS CLOSED (1/1/98-12/31/98)
(Gains and losses greater than $500,000 are highlighted)
<TABLE>
<CAPTION>
SECURITY SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- -------- ------ ------------------ -----------
<S> <C> <C> <C>
Archstone Communities Trust, Inc. Multi-Family Housing 08/10/98 (371,386)
(REITS)
Archstone Communities Tr Ser. A. Multi-Family Housing 08/07/98 79,204
Conv. Pfd. (REITS)
Arden Realty, Inc. Office Space (REITS) 06/08/98 37,564
Boykin Lodging Company Hotels & Lodging (REITS) 06/11/98 (218,673)
Bristol Hotel Co. Hotels & Lodging 06/29/98 371,224
CarrAmerica Realty Corp. Office Space (REITS) 06/25/98 168,211
CCA Prison Realty Trust Diversified (REITS) 06/25/98 (310,123)
Chelsea GCA Realty Inc. Retail (REITS) 06/17/98 370,936
CORNERSTONE PROPERTIES, INC. OFFICE SPACE (REITS) 09/22/98 (1,073,664)
Duke Realty Investments, Inc. Diversified (REITS) 06/25/98 444,840
FELCOR SUITE HOTELS, INC. HOTELS & LODGING (REITS) 09/16/98 (3,043,752)
FIRST INDUSTRIAL REALTY TRUST INDUSTRIAL (REITS) 08/11/98 (669,585)
First Union Real Estate Investments Diversified (REITS) 06/16/98 (365,405)
Host Marriott Corp. Hotels & Lodging 06/08/98 397,410
IRT Property Company Retail (REITS) 06/09/98 (101,971)
</TABLE>
34
<PAGE>
DAVIS SERIES, INC.
DAVIS REAL ESTATE FUND
PORTFOLIO ACTIVITY - JANUARY 1, 1998 THROUGH DECEMBER 31, 1998 - CONTINUED
================================================================================
POSITIONS CLOSED (1/1/98-12/31/98) - CONTINUED
<TABLE>
<CAPTION>
SECURITY SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- -------- ------ ------------------ -----------
<S> <C> <C> <C>
IRVINE APARTMENT COMMUNITIES, INC. APARTMENTS (REITS) 07/02/98 753,844
Kilroy Realty Corporation Office Space (REITS) 06/08/98 98,824
KIMCO REALTY CORP. RETAIL (REITS) 09/03/98 501,416
Liberty Property Trust Industrial (REITS) 09/23/98 (435,599)
The Macerich Co. Retail (REITS) 06/12/98 453,069
Meristar Hospitality Corp.Rights Hotels & Lodging 08/31/98 (1,665)
National Golf Properties, Inc. Golf (REITS) 06/25/98 (112,448)
Pacific Gulf Properties, Inc. Diversified (REITS) 07/06/98 (144,352)
Pennsylvania Real Estate Investment Trust Apartments (REITS) 06/24/98 (6,027)
Prentiss Properties Trust Office Space (REITS) 07/02/98 (36,798)
PS BUSINESS PARKS, INC. OFFICE SPACE (REITS) 09/23/98 (894,618)
SERVICO, INC. HOTELS & LODGING 08/18/98 (1,636,129)
SUNSTONE HOTEL INVESTORS, INC. HOTELS & LODGING (REITS) 07/08/98 (550,668)
Tower Realty Trust, Inc. Office Space (REITS) 06/16/98 (256,274)
Urban Shopping Centers Inc. Retail (REITS) 06/08/98 238,598
Weingarten Realty Investors Retail (REITS) 06/12/98 74,999
</TABLE>
35
<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, 1998.
CLASS A SHARES
(This calculation includes an initial sales charge of 4 3/4%.)
One Year ...............................(19.58%)
Life of Class (January 3, 1994
through December 31, 1998)...........11.93%
$10,000 INVESTED AT INCEPTION. 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, 1998 the value of your investment would have grown to $17,559 - a
75.59% increase on your initial investment. For comparison, the Standard and
Poor's 500 Stock Index is also presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DREF-A
--------- ------
1/3/94 $10,000 $ 9,525
12/31/94 $10,158 $10,306
12/31/95 $13,961 $12,131
12/31/96 $17,158 $16,625
12/31/97 $22,875 $20,794
12/31/98 $29,399 $17,559
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 REAL ESTATE FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS REAL ESTATE FUND CLASS B SHARES AND
STANDARD & POOR'S 500 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS B SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year ................................. (19.48%)
Life of Class (December 27, 1994
through December 31, 1998)............ 13.07%
$10,000 INVESTED AT INCEPTION. 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, 1998 the value of your
investment (less applicable contingent deferred sales charges) would have grown
to $16,375 - a 63.75% increase on your initial investment. For comparison, the
Standard and Poor's 500 Stock Index is also presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DREF-B
--------- ------
12/27/94 $10,000 $10,000
12/31/94 $10,003 $10,089
12/31/95 $13,749 $11,741
12/31/96 $16,897 $15,968
12/31/97 $22,526 $19,781
12/31/98 $28,951 $16,375
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.
37
<PAGE>
DAVIS SERIES, INC.
DAVIS REAL ESTATE FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS REAL ESTATE FUND CLASS C SHARES AND
STANDARD & POOR'S 500 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS C SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year ................................. (17.01%)
Life of Class (August 13, 1997
through December 31, 1998)............ (5.02%)
$10,000 INVESTED AT INCEPTION. Let's say you invested $10,000 in Davis Series,
Inc., Class C shares of Davis Real Estate Fund ("DREF-C") on August 13, 1997
(inception of class). As the chart shows, by December 31, 1998 the value of your
investment would have been $9,312 - a 6.88% decrease on your initial investment.
For comparison, the Standard and Poor's 500 Stock Index is also presented on the
chart below.
The following table was depicted as a line chart in the printed material.)
S & P 500 DREF-C
--------- ------
8/13/97 $10,000 $10,000
12/31/97 $10,613 $11,112
12/31/98 $13,640 $9,312
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.
38
<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
================================================================================
Average Annual Total Return For the Period ended December 31, 1998.
CLASS Y SHARES
(There is no sales charge applicable to this calculation.)
One Year ................................(15.20%)
Life of Class (November 8, 1996
through December 31, 1998)............. 8.85%
$10,000 INVESTED AT INCEPTION. 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, 1998 the value of your
investment would have grown to $11,994 - a 19.94% increase on your initial
investment. For comparison, the Standard and Poor's 500 Stock Index is also
presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 DREF-Y
--------- ------
11/8/96 $10,000 $10,000
12/31/96 $10,188 $11,289
12/31/97 $13,582 $14,145
12/31/98 $17,455 $11,994
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.
39
<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
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS A SHARES
(This calculation includes an initial sales charge of 4 3/4%.)
One Year .................................. 1.30%
Life of Class (December 1, 1994
through December 31, 1998)............. 5.93%
$10,000 INVESTED AT INCEPTION. 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, 1998 the value of your investment would have grown to $12,653 - a
26.53% 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 following table was depicted as a line chart in the printed material.)
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 $12,856 $11,902
12/31/98 $13,967 $12,653
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.
40
<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
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS B SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year ................................ 1.38%
Five Years............................... 4.60%
Ten Years................................ 6.00%
$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,
1988. As the chart shows, by December 31, 1998 the value of your investment
would have grown to $17,911 - a 79.11% 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 following table was depicted as a line chart in the printed material.)
Lehman Index DGBF-B
------------ ------
12/31/88 $10,000 $10,000
12/31/89 $11,268 $10,945
12/31/90 $12,345 $11,614
12/31/91 $14,091 $13,050
12/31/92 $15,074 $13,591
12/31/93 $16,318 $14,093
12/31/94 $15,984 $13,956
12/31/95 $18,299 $15,438
12/31/96 $19,025 $15,867
12/31/97 $20,483 $16,997
12/31/98 $22,254 $17,911
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 the shares may be worth more or less than their original cost
when redeemed.
41
<PAGE>
DAVIS SERIES, INC.
DAVIS GOVERNMENT BOND FUND
COMPARISON OF DAVIS SERIES, INC. - DAVIS GOVERNMENT BOND FUND CLASS C SHARES AND
THE LEHMAN BROTHERS INTERMEDIATE TERM U.S. TREASURY SECURITIES INDEX
================================================================================
Average Annual Total Return for the Periods ended December 31, 1998.
CLASS C SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year ...................................4.42%
Life of Class (August 19, 1997
through December 31, 1998)..............6.19%
$10,000 INVESTED AT INCEPTION. Let's say you invested $10,000 in Davis Series,
Inc., Class C shares of Davis Government Bond Fund ("DGBF-C") on August 19, 1997
(inception of class). As the chart shows, by December 31, 1998 the value of your
investment would have grown to $10,855 - an 8.55% 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 following table was depicted as a line chart in the printed material.)
Lehman Index DGBF-C
------------ ------
8/19/97 $10,000 $10,000
12/31/97 $10,319 $10,297
12/31/98 $11,211 $10,855
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 the shares may be worth more or less than their original cost
when redeemed.
42
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS GROWTH OPPORTUNITY FUND
================================================================================
VALUE
SHARES SECURITY (NOTE 1)
------ -------- --------
COMMON STOCK - (97.85%)
BUSINESS SERVICES - (1.00%)
115,500 Thomas Group, Inc.* ............................ $1,169,438
----------
CAPITAL EQUIPMENT - (10.84%)
117,800 ASM Lithography Holding N.V.* ................. 3,600,263
110,000 Integrated Process Equipment Corp.* ............ 1,189,375
158,675 Novellus Systems, Inc.* ........................ 7,839,537
----------
12,629,175
----------
COMMERCIAL - (0.80%)
81,650 NFO Worldwide, Inc.* ........................... 938,975
----------
CONSUMER PRODUCTS - (6.12%)
133,200 Philip Morris Cos., Inc. ....................... 7,126,200
----------
ELECTRONICS - (10.63%)
69,828 Flir Systems, Inc. ............................. 1,640,958
83,600 Intel Corp. .................................... 9,909,213
61,500 Three-Five Systems, Inc.* ...................... 841,781
----------
12,391,952
----------
ENERGY - (7.84%)
111,600 Anadarko Petroleum Corp. ....................... 3,445,650
160,000 Brigham Exploration Company* ................... 840,000
42,275 Forcenergy, Inc.* .............................. 110,972
188,032 Ocean Energy, Inc.* ............................ 1,186,952
282,600 Seitel, Inc.* .................................. 3,514,838
84,000 Venture Seismic Ltd.* .......................... 40,688
----------
9,139,100
----------
FINANCIAL SERVICES - (7.63%)
4,000 Associates First Capital Corp. ................. 169,500
42,700 Fannie Mae ..................................... 3,159,800
254,100 FIRSTPLUS Financial Group, Inc.*. .............. 698,775
281,550 IMC Mortgage Co.*. ............................. 83,585
275,775 MFC Bancorp Ltd. ............................... 2,533,683
58,000 Paine Webber Group, Inc. ....................... 2,240,250
----------
8,885,593
----------
INSURANCE - (9.94%)
263,350 AFLAC Inc. ..................................... 11,587,400
----------
MANUFACTURING - (0.83%)
93,600 Deswell Industries, Inc. ....................... 962,325
----------
PHARMACEUTICALS - (20.76%)
18,400 Eli Lilly and Company .......................... 1,635,300
69,250 ICN Pharmaceuticals, Inc. ...................... 1,566,781
254,450 KV Pharmaceutical Company* ..................... 5,263,934
57,025 Pfizer, Inc. ................................... 7,153,073
80,400 Schering-Plough Corporation .................... 4,442,100
43
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS GROWTH OPPORTUNITY FUND - CONTINUED
================================================================================
VALUE
SHARES SECURITY (NOTE 1)
- ------ -------- --------
COMMON STOCK - CONTINUED
PHARMACEUTICALS - CONTINUED
924,000 Viragen, Inc.* .............................. $ 750,750
45,000 Warner Lambert Co. .......................... 3,383,438
------------
24,195,376
------------
RESTAURANTS - (3.24%)
94,500 IHOP Corp.* ................................. 3,774,094
------------
RETAIL - (8.67%)
364,675 Garden Ridge Corp.* ......................... 3,304,867
155,400 Staples, Inc.* .............................. 6,793,894
------------
10,098,761
SOFTWARE - (9.55%)
191,325 Business Objects S.A. - ADR* ................ 6,265,891
187,250 The Learning Company, Inc.* ................. 4,856,797
------------
11,122,688
Total Common Stock - (identified cost
$78,477,955) ............................ 114,021,077
------------
SHORT TERM - (2.60%)
$3,025,000 State Street Bank and Trust Co. Repurchase Agreement,
4.60%, 01/04/99, dated 12/31/98, repurchase value of $3,026,546
(collateralized by $3,105,000 par value Federal Home Loan Bank,
4.95%, 12/04/00, market value $3,101,119) - (identified cost
$3,025,000) ...................................................... 3,025,000
------------
Total Investments-(100.45%)-(identified cost $81,502,955)-(a)..... 117,046,077
Liabilities Less Other Assets - (0.45%) .......................... (529,845)
------------
Net Assets - (100%) .............................................. $116,516,232
============
* Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $81,502,955.
At December 31, 1998 unrealized appreciation (depreciation) of
securities for Federal Income Tax purposes is as follows:
Unrealized appreciation .......................................... $ 55,666,224
Unrealized depreciation .......................................... (20,123,102)
------------
Net unrealized appreciation ...................................... $ 35,543,122
============
See Notes to Financial Statements.
44
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS GOVERNMENT BOND FUND
================================================================================
VALUE
PRINCIPAL (NOTE 1)
- --------- --------
FANNIE MAE - MORTGAGE POOLS - (9.24%)
$ 518 12.00%, 12/01/00 ................................ $ 521
36,457 9.75%, 02/01/04 ................................ 37,835
125,469 10.25%, 10/01/09 ................................ 136,507
64,232 10.75%, 07/01/13 ................................ 71,769
192,516 9.25%, 10/01/16 ................................ 205,783
76,399 7.823%,09/01/19(b) ............................. 78,596
33,959 7.72%, 03/01/24(b) ............................. 35,585
596,586 7.50%, 01/01/27 ................................ 612,622
1,974,095 6.00%, 03/01/28 ................................ 1,948,807
2,990,339 6.00%, 09/01/28 ................................ 2,952,034
-----------
Total Fannie Mae - (identified cost $6,041,721)........... 6,080,059
-----------
FREDDIE MAC - MORTGAGE POOLS - (16.41%)
17,461 9.00%, 07/01/01 ................................ 17,826
188,663 8.50%, 08/01/01 ................................ 192,605
44,599 9.00%, 08/01/02 ................................ 46,021
9,222 8.50%, 12/01/02 ................................ 9,435
10,637 9.00%, 06/01/03 ................................ 10,804
658,472 6.50%, 01/01/04 ................................ 667,321
93,251 9.25%, 01/01/04 ................................ 96,180
1,947 9.25%, 11/01/07 ................................ 2,018
64,599 9.25%, 09/01/08 ................................ 68,243
65,761 10.00%, 07/01/09 ................................ 71,227
933,483 6.50%, 07/01/11 ................................ 947,485
2,236,132 5.50%, 09/01/13 ................................ 2,207,487
28,143 9.00%, 07/01/16 ................................ 30,008
128,903 9.00%, 08/01/16 ................................ 137,361
174,603 9.00%, 01/01/17 ................................ 186,170
129,326 9.00%, 03/01/17 ................................ 137,085
30,964 9.00%, 08/01/17 ................................ 32,996
22,989 9.50%, 12/01/19 ................................ 24,677
110,859 9.50%, 02/01/20 ................................ 117,856
1,929,571 6.00%, 06/01/26 ................................ 1,907,265
1,975,804 6.00%, 07/01/28 ................................ 1,951,719
1,965,446 6.00%, 07/01/28 ................................ 1,941,488
-----------
Total Freddie Mac - (identified cost $10,785,493) ........ 10,803,277
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - MORTGAGE POOLS - (16.85%)
2,990,044 6.00% with various maturities to 2028 .......... 2,957,333
1,500,000 6.25% with various maturities to 2013 .......... 1,513,080
3,418,537 6.50% with various maturities to 2028 .......... 3,451,663
57,923 6.875%with various maturities to 2024(b) ....... 58,676
949,310 7.00% with various maturities to 2026 .......... 968,885
801,881 8.50% with various maturities to 2022 .......... 845,779
45
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS GOVERNMENT BOND FUND - CONTINUED
================================================================================
VALUE
PRINCIPAL (NOTE 1)
- --------- --------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - MORTGAGE POOLS - CONTINUED
$ 533,971 9.00% with various maturities to 2017 ............ $ 574,385
95,039 10.00% with various maturities to 2020 ............ 101,690
6,153 10.25% with various maturities to 2016 ............ 6,702
103,790 10.50% with various maturities to 2016 ............ 115,083
208,108 11.25% with various maturities to 2011 ............ 226,253
172,654 11.50% with various maturities to 2015 ............ 196,349
43,758 13.00% with various maturities to 2014 ............ 51,289
21,580 14.75% with various maturities to 2001 ............ 21,697
-----------
Total GNMA - (identified cost $10,925,293) ................ 11,088,864
-----------
MEDIUM TERM NOTES - (46.56%)
1,000,000 Fannie Mae, 5.91%, 08/07/00 ....................... 1,015,200
1,000,000 Fannie Mae, 5.72%, 03/13/01 ....................... 1,016,710
1,000,000 Fannie Mae, 6.23%, 07/18/02 ....................... 1,038,860
1,000,000 Fannie Mae, 6.85%, 09/12/05 ....................... 1,023,980
1,650,000 Fannie Mae, 6.57%, 08/22/07 ....................... 1,788,600
1,000,000 Fannie Mae, 6.39%, 09/24/07 ....................... 1,072,240
1,400,000 Fannie Mae, 5.75%, 02/15/08 ....................... 1,446,872
1,000,000 Fannie Mae, 7.15%, 11/03/10 ....................... 1,024,310
1,000,000 Federal Farm Credit Bank, 5.90%, 02/05/08 ......... 1,038,280
2,000,000 Federal Home Loan Bank, 5.125%, 09/15/03 .......... 1,999,700
4,000,000 Federal Home Loan Bank, 6.12%, 08/26/08 ........... 4,059,280
2,000,000 Federal Home Loan Bank, 5.038%, 10/14/08 .......... 1,948,120
2,000,000 Federal Home Loan Bank, 5.54%, 10/15/08 ........... 1,965,280
1,000,000 Freddie Mac, 6.66%, 12/05/05 ...................... 1,022,910
2,000,000 Freddie Mac, 6.28%, 03/06/06 ...................... 2,118,980
2,000,000 Freddie Mac, 6.04%, 09/09/08 ...................... 2,022,560
3,000,000 Freddie Mac, 5.125%, 10/15/08 ..................... 2,952,990
900,000 Freddie Mac, 8.00%, 06/20/11 ...................... 950,004
1,120,000 Freddie Mac, 6.25%, 12/15/26 ...................... 1,138,872
-----------
Total Medium Term Notes - (identified cost $30,479,305) ... 30,643,748
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS & REAL ESTATE MORTGAGE
INVESTMENT CONDUITS - (8.51%)
1,000,000 Fannie Mae, 1993-30 PL, 7.00%, 07/25/20 ........... 1,036,650
300,000 Fannie Mae, 1992-174H, 7.25%, 09/25/21 ............ 307,347
1,000,000 Fannie Mae, 1993-155TC, 7.00%, 03/25/23 ........... 1,040,470
1,250,000 Fannie Mae, 1993-120N, 7.00%, 07/25/23 ............ 1,253,925
119,393 Freddie Mac, 1606 LC, 7.09%, 05/15/08(b) .......... 120,008
1,000,000 Freddie Mac, 1552 HB, 6.50%, 11/15/22 ............. 1,020,140
825,000 Freddie Mac, 1627 PJ, 6.00%, 03/15/23 ............. 824,810
-----------
Total CMOs & REMICs - (identified cost $5,409,849) ........ 5,603,350
-----------
46
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS GOVERNMENT BOND FUND - CONTINUED
================================================================================
VALUE
PRINCIPAL (NOTE 1)
- --------- --------
SHORT TERM - (1.67%)
$1,100,000 State Street Bank and Trust Co. Repurchase Agreement,
4.60%, 01/04/99, dated 12/31/98, repurchase value of $1,100,562
(collateralized by $1,130,000 par value Federal Home Loan Bank,
4.95%, 12/04/00, market value $1,128,588) - (identified cost
$1,100,000) ........................................................ $1,100,000
----------
Total Investments - (99.24%) - (identified cost $64,741,661) (a) .. 65,319,298
Other Assets Less Liabilities - (0.76%) ........................... 501,162
-------
Net Assets - (100%) ............................................... $65,820,460
===========
(a) Aggregate cost for Federal Income Tax purposes is $64,741,661.
At December 31,1998 unrealized appreciation (depreciation) of
securities for Federal Income Tax purposes is as follows:
Unrealized appreciation ........................................... $883,130
Unrealized depreciation ........................................... (305,493)
--------
Net unrealized appreciation ....................................... $577,637
========
(b) The interest rates on floating rate securities, shown as of
December 31, 1998, may change monthly or less frequently and are
based on indices of market interest rates.SEE NOTES TO FINANCIAL
STATEMENTS.
47
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS GOVERNMENT MONEY MARKET FUND
================================================================================
VALUE
PRINCIPAL (NOTE 1)
- --------- --------
FANNIE MAE - (18.36%)
$3,115,000 5.12%, 01/05/99 Discount Note ...................... $3,113,228
17,930,000 5.07%, 01/08/99 Discount Note ...................... 17,912,324
24,335,000 4.772%, 01/25/99 Discount Note ..................... 24,257,582
20,300,000 5.084%, 01/26/99 Discount Note ..................... 20,228,330
15,395,000 4.83%, 01/27/99 Discount Note ...................... 15,341,297
8,580,000 5.03%, 02/05/99 Discount Note ...................... 8,538,041
5,090,000 4.96%, 03/01/99 Discount Note ...................... 5,048,624
-----------
Total Fannie Mae - (identified cost $94,439,426) 94,439,426
-----------
FEDERAL HOME LOAN BANK - (13.18%)
6,945,000 4.78%, 01/13/99 Discount Note ...................... 6,933,934
35,000,000 4.78%, 01/22/99 Discount Note ...................... 34,902,408
11,615,000 4.65%, 03/02/99 Discount Note ...................... 11,524,984
14,465,000 5.56%, 03/25/99 Medium Term Note ................... 14,464,727
-----------
Total Federal Home Loan Bank - (identified cost $67,826,053) ....... 67,826,053
-----------
FREDDIE MAC - (66.70%)
1,485,000 5.03%, 01/04/99 Discount Note ...................... 1,484,377
35,865,000 5.05%, 01/06/99 Discount Note ...................... 35,839,845
9,825,000 5.05%, 01/07/99 Discount Note ...................... 9,816,731
2,025,000 5.09%, 01/11/99 Discount Note ...................... 2,022,137
38,520,000 5.02%, 01/12/99 Discount Note ...................... 38,460,915
11,575,000 4.78%, 01/14/99 Discount Note ...................... 11,555,020
4,790,000 4.95%, 01/15/99 Discount Note ...................... 4,780,779
11,345,000 5.02%, 01/15/99 Discount Note ...................... 11,322,852
8,270,000 5.07%, 01/19/99 Discount Note ...................... 8,249,035
2,995,000 4.76%, 01/20/99 Discount Note ...................... 2,987,476
15,000,000 5.10%, 01/21/99 Discount Note ...................... 14,957,500
7,250,000 5.11%, 01/22/99 Discount Note ...................... 7,228,389
10,050,000 5.12%, 01/28/99 Discount Note ...................... 10,011,408
21,290,000 5.00%, 01/29/99 Discount Note ...................... 21,207,206
5,100,000 4.838%, 02/01/99 Discount Note ..................... 5,078,753
9,350,000 5.03%, 02/08/99 Discount Note ...................... 9,300,357
17,940,000 5.013%, 02/09/99 Discount Note ..................... 17,842,572
9,235,000 5.04%, 02/10/99 Discount Note ...................... 9,183,284
5,320,000 5.08%, 02/11/99 Discount Note ...................... 5,289,221
10,320,000 5.09%, 02/12/99 Discount Note ...................... 10,258,716
23,545,000 5.03%, 02/16/99 Discount Note ...................... 23,393,671
13,085,000 4.94%, 02/18/99 Discount Note ...................... 12,998,813
6,540,000 5.08%, 02/19/99 Discount Note ...................... 6,494,780
6,430,000 4.925%, 02/22/99 Discount Note ..................... 6,384,258
2,540,000 5.02%, 02/24/99 Discount Note ...................... 2,520,874
10,483,000 5.07%, 02/25/99 Discount Note ...................... 10,401,800
5,915,000 4.90%, 02/26/99 Discount Note ...................... 5,869,915
48
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS GOVERNMENT MONEY MARKET FUND-CONTINUED
================================================================================
VALUE
PRINCIPAL (NOTE 1)
- --------- --------
FREDDIE MAC - CONTINUED
$19,870,000 5.07%, 02/26/99 Discount Note ................... $ 19,713,292
18,665,000 4.98%, 03/05/99 Discount Note ................... 18,502,335
------------
Total Freddie Mac-(identified cost $343,156,311) ................ 343,156,311
------------
Total Investments-(98.24%)-(identified cost $505,421,790)-(a).... 505,421,790
Other Assets Less Liabilites-(1.76%) ............................ 9,051,841
------------
Net Assets - (100%) ............................................. $514,473,631
============
(a) Aggregate cost for Federal Income Tax Purposes is $505,421,790.
See Notes to Financial Statements.
49
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS FINANCIAL FUND
================================================================================
VALUE
SHARES SECURITY (NOTE 1)
- ------ -------- --------
COMMON STOCK - (99.96%)
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (15.72%)
273,605 Bank of East Asia Ltd. ........................ $ 476,750
810,000 Bank of New York Co., Inc. .................... 32,602,500
543,168 BankAmerica Corp. ............................. 32,657,976
60,000 Fifth Third Bancorp ........................... 4,280,625
24,000 Golden West Financial Corp. ................... 2,200,500
321,125 Lloyds TSB Group PLC .......................... 4,572,257
90,000 State Street Corporation ...................... 6,260,625
520,000 U.S. Bancorp .................................. 18,460,000
1,326,330 Wells Fargo & Co. ............................. 52,970,304
------------
154,481,537
------------
BUILDING MATERIALS - (5.98%)
598,300 Martin Marietta Materials, Inc. ............... 37,206,781
750,800 Masco Corporation ............................. 21,585,500
------------
58,792,281
------------
CONSUMER PRODUCTS - (7.52%)
400,000 Hasbro, Inc. .................................. 14,450,000
170,000 Mattel, Inc. .................................. 3,878,125
1,040,000 Philip Morris Cos., Inc. ...................... 55,640,000
------------
73,968,125
------------
DIVERSIFIED - (4.26%)
597 Berkshire Hathaway, Inc. (Class A)* ........... 41,790,000
24 Berkshire Hathaway, Inc. (Class B)* ........... 56,400
------------
41,846,400
------------
DIVERSIFIED MANUFACTURING - (2.16%)
167,000 Dover Corp. ................................... 6,116,375
200,000 Tyco International Ltd. ....................... 15,087,500
------------
21,203,875
------------
FINANCIAL SERVICES - (54.73%)
INSURANCE - (29.92%)
310,000 Ace, Ltd. ..................................... 10,675,625
2,250 Alleghany Corp.* .............................. 422,719
180,000 The Allstate Corp. ............................ 6,952,500
34,593 American International Group, Inc. ............ 3,342,549
76,000 Annuity and Life Re (Holdings), Ltd. .......... 2,033,000
335,100 Chubb Corp. ................................... 21,739,742
517,500 Cincinnati Financial Corp. .................... 18,969,609
150,000 ESG Re Limited ................................ 3,065,625
20,000 Executive Risk Inc. ........................... 1,098,750
118,900 EXEL Limited .................................. 8,917,500
322,300 FPIC Insurance Group, Inc.* ................... 15,349,538
50
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS FINANCIAL FUND - CONTINUED
================================================================================
VALUE
SHARES SECURITY (NOTE 1)
- ------ -------- --------
COMMON STOCK - CONTINUED
FINANCIAL SERVICES - CONTINUED
INSURANCE - CONTINUED
80,000 Harleysville Group, Inc. ........................ $ 2,052,500
434,500 Horace Mann Educators Corp. ..................... 12,383,250
133,800 HSB Group, Inc. ................................. 5,494,163
185,000 Leucadia National Corp. * ....................... 5,827,500
7,500 Markel Corporation* ............................. 1,357,500
60,000 Mercury General Corp. ........................... 2,628,750
1,509 Nuernberger Beteil AGAKT LITA ................... 1,856,144
212,000 Orion Capital Corp. ............................. 8,440,250
210,000 Progressive Corp. (Ohio) ........................ 35,568,750
555,600 ReliaStar Financial Corp. ....................... 25,627,050
100,000 Risk Capital Holdings, Inc.* .................... 2,268,750
513,075 RLI Corp. ....................................... 17,059,744
20,400 State Auto Financial Corp. ...................... 253,725
15,000 Stirling Cooke Brown Holdings Limited ........... 252,188
171,500 SunAmerica, Inc. ................................ 13,912,938
761,700 Transatlantic Holdings Inc. ..................... 57,555,956
230,000 Travelers Property Casualty Corp. ............... 7,130,000
69,000 20th Century Industries ......................... 1,599,938
42,000 Vesta Insurance Group, Inc. ..................... 252,000
------------
294,088,253
------------
OTHER FINANCIAL SERVICES - (24.81%)
673,000 American Express Co. ............................ 68,814,250
100,000 Capital One Financial Corp. ..................... 11,500,000
112,500 Charles Schwab Corp. ............................ 6,321,094
775,000 Citigroup ....................................... 38,362,500
146,400 Donaldson, Lufkin & Jenrette Inc. ............... 6,002,400
1,239,500 Household International, Inc. ................... 49,115,188
500,000 MBNA Corporation ................................ 12,468,750
143,950 Morgan Stanley, Dean Witter, Discover & Co. ..... 10,220,450
547,500 Providian Financial Corporation ................. 41,062,500
------------
243,867,132
------------
PHARMACEUTICALS - (1.34%)
190,000 SmithKline Beecham PLC - ADR .................... 13,205,000
------------
PUBLISHING - (0.46%)
85,000 Harcourt General, Inc. .......................... 4,520,938
------------
RESTAURANT & FOOD - (4.54%)
582,000 McDonald's Corp. ................................ 44,595,750
------------
TECHNOLOGY - (3.25%)
100,000 Hewlett-Packard Company ......................... 6,831,250
51
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS FINANCIAL FUND - CONTINUED
================================================================================
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
- ---------------- -------- --------
COMMON STOCK - CONTINUED
TECHNOLOGY - CONTINUED
72,000 Intel Corp. ................................... $ 8,534,250
90,000 International Business Machines Corporation ... 16,627,500
------------
31,993,000
------------
Total Common Stock - (identified cost $763,368,161) ............. 982,562,291
------------
CONVERTIBLE BOND - (0.19%)
$750,000 Cincinnati Financial Corp., Sr. Deb., Conv.,
5.50%, 05/01/02 - (identified cost $980,625) .. 1,850,625
---------
Total Investments-(100.15%)-(identified cost $764,348,786)-(a) .. 984,412,916
Liabilities Less Other Assets - (0.15%) ......................... (1,502,716)
------------
Net Assets - (100%) $982,910,200
============
* Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $764,348,786.
At December 31, 1998 unrealized appreciation (depreciation) of
securities for Federal Income Tax purposes is as follows:
Unrealized appreciation ......................................... $239,405,181
Unrealized depreciation ......................................... (19,341,051)
------------
Net unrealized appreciation ..................................... $220,064,130
============
See Notes to Financial Statements.
52
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS CONVERTIBLE SECURITIES FUND
================================================================================
VALUE
SHARES SECURITY (NOTE 1)
- ------ -------- --------
CONVERTIBLE PREFERRED STOCK - (39.37%)
COMMUNICATIONS - (3.08%)
78,000 AirTouch Communications, Inc., 6.00%, Ser. B Conv. Pfd. $ 4,641,000
75,400 Loral Space & Communications, Inc., 6.00%, Pfd. Conv.
Ser. C. ............................................... 4,005,625
-----------
8,646,625
-----------
DIVERSIFIED (REIT) - (7.02%)
400,000 General Growth Properties, 7.25%, Cum. Conv. Pfd. ..... 10,300,000
224,000 Glenborough Realty Trust, 7.75%, Ser. A Conv. Pfd. .... 4,088,000
98,000 Rouse Company, $3.00, Ser. B Conv. Pfd. ............... 4,250,750
21,700 Vornado Realty Trust, 6.50%, Ser. A Conv. Pfd. ........ 1,052,450
-----------
19,691,200
-----------
ENERGY - (10.71%)
152,500 CalEnergy Capital Trust II, 6.25%, Conv. Pfd. ......... 7,720,313
144,200 Devon Financing Trust, $3.25, Conv. Pfd. .............. 7,931,000
30,000 Devon Financing Trust, $3.25, Ser. 144A Conv. Pfd. (b). 1,650,000
116,000 EVI, Inc., 5.00%, Ser. 144A Conv. Pfd.(b) ............. 3,480,000
59,600 Tosco Financing Trust, 5.75%, Conv. Pfd. .............. 2,868,250
22,800 Tosco Financing Trust, 5.75%, Ser. 144A Conv. Pfd.(b) . 1,097,250
108,520 Unocal Capital Trust., 6.25%, Conv. Pfd. .............. 5,303,915
-----------
30,050,728
-----------
FINANCIAL SERVICES - (0.60%)
43,500 Conseco Finance Trust IV, 7.00%, Ser. F Cum. Conv. Pfd. 1,677,469
-----------
HOTELS - (0.40%)
27,900 Host Marriott Financial Trust, 6.75%, Ser. 144A Conv.
Pfd.(b) ............................................... 1,129,950
13,382,450
-----------
INDUSTRIAL - (5.41%)
292,900 Sealed Air Corp., $2.00, Ser. A Cum. Conv. Pfd. ....... 15,194,188
-----------
MULTI-FAMILY HOUSING (REITS) - (1.67%)
28,300 Camden Property Trust, $2.25, Ser. A Cum. Conv. Pfd.... 670,356
128,900 Equity Residential Properties Trust, 7.00%, Ser. E
Conv. Pfd. ............................................ 3,021,094
48,100 Equity Residential Properties Trust, 7.25%, Ser. G
Cum. Conv. Pfd. ....................................... 986,050
-----------
4,677,500
-----------
OFFICE/INDUSTRIAL (REIT) - (6.66%)
160,000 Crescent Real Estate Equities, 6.75%, Ser. A Conv. Pfd. 2,620,000
153,000 Equity Office Properties Trust, 5.25%, Ser. B Cum.
Conv. Pfd. ............................................ 5,833,125
221,000 Reckson Assoc. Realty, 7.625%, Ser. A Cum. Conv. Pfd. . 4,668,625
240,000 SL Green Realty Corp., 8.00%, Cum. Conv. Pfd. ......... 5,580,000
-----------
18,701,750
-----------
RESTAURANT (REITS) - (2.03%)
248,100 U.S. Restaurant Properties, 7.72%, Ser. A Cum. Conv.
Pfd. .................................................. 5,690,794
-----------
THEME PARKS - (0.63%)
30,000 Premier Parks, Inc., 7.50%, Cum. Conv. Pfd. ........... 1,777,500
-----------
53
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS CONVERTIBLE SECURITIES FUND - CONTINUED
================================================================================
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
- ---------------- -------- --------
CONVERTIBLE PREFERRED STOCK - CONTINUED
TRANSPORTATION - (1.16%)
70,000 Union Pacific Cap. Trust, 6.25%, Ser. 144A Cum.
Conv. Pfd.(b) ................................... $ 3,255,000
------------
Total Convertible Preferred Stock - (identified cost $122,543,087) 110,492,704
------------
CONVERTIBLE BONDS - (28.04%)
DRILLING SERVICES - (0.98%)
4,510,000 Parker Drilling Corp., Conv. Sub. Notes, 5.50%,
08/01/04 ........................................ 2,751,100
------------
ENERGY - (2.68%)
3,120,000 Baker Hughes Inc., Sr. Liquid Yield Option Notes,
Zero Cpn., 05/05/08 ............................. 2,051,400
11,415,000 Valhi Inc., Conv. Sub. Deb., Zero Cpn., 10/20/07 5,464,931
------------
7,516,331
------------
FINANCIAL SERVICES - (9.07%)
500,000 Alex Brown, Inc., Conv. Sub. Deb., 5.75%, 06/12/01 2,041,956
10,000,000 American Express Credit, Conv. Notes, 1.125%,
02/19/03 ........................................ 10,762,500
3,300,000 Bell Atlantic Financial Services, Series 144A,
5.75%, 04/01/03 (b) ............................. 3,423,750
7,998,000 Republic National Bank NY, Conv. Sr. Notes,
1.875%, 08/12/02 ................................ 9,227,693
------------
25,455,899
------------
GOLF - (0.76%)
1,650,000 Family Golf Centers, Inc., Conv. Sub. Notes,
5.75%, 10/15/04 ................................. 1,532,438
650,000 Family Golf Centers, Inc., 144A Conv. Sub.
Notes, 5.75%, 10/15/04 (b) ...................... 603,688
------------
2,136,126
------------
HOTELS - (1.46%)
3,000,000 CapStar Hotel Corp., Conv. Sub. Notes, 4.75%,
10/15/04 ........................................ 2,178,750
2,100,000 Hilton Hotels Corp., Conv. Sub. Notes, 5.00%,
05/15/06 ........................................ 1,926,750
------------
4,105,500
------------
INDUSTRIAL - (3.76%)
3,170,000 IMAX Corp., Conv. Sub. Deb., 5.75%, 04/01/03 .... 4,679,713
9,600,000 Xerox Corp., 144A Conv. Sub. Notes, Zero Cpn.,
04/12/18 (b) .................................... 5,880,000
------------
10,559,713
------------
INSURANCE - (2.27%)
3,000,000 American International Group, Inc., Conv. Notes,
2.25%, 07/30/04 ................................. 3,896,250
1,000,000 Cincinnati Financial Corp. Conv. Sub. Deb.,
5.50%, 05/01/02 ................................. 2,467,500
------------
6,363,750
------------
MULTI-FAMILY HOUSING (REIT) - (0.21%)
500,000 Camden Property Trust, Conv. Sub. Deb., 7.33%,
04/01/01 ........................................ 573,750
------------
MULTIMEDIA - (2.21%)
10,700,000 News America Holdings, Conv. Sub. Deb., Zero
Cpn., 03/11/13 .................................. 6,192,625
------------
REAL ESTATE DEVELOPMENT - (1.10%)
3,032,000 Rouse Company, Conv. Sub. Deb., 5.75%, 07/23/02.. 3,089,129
------------
54
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS CONVERTIBLE SECURITIES FUND - CONTINUED
================================================================================
PRINCIPAL/ VALUE
SHARES SECURITY (NOTE 1)
- ------ -------- --------
CONVERTIBLE BONDS - CONTINUED
RETAIL (REIT) - (0.16%)
350,000 Mid-Atlantic Realty Trust, Conv. Sub. Deb.,
7.625%, 09/15/03 ................................ $ 457,181
-----------
TECHNOLOGY - (3.37%)
8,199,000 Hewlett-Packard Co., 144A Conv. Sub. Notes, Zero
Cpn., 10/14/17 (b) .............................. 4,550,445
6,620,000 Motorola, Inc., Conv. Sub. Deb., Zero Cpn.,
09/27/13 ........................................ 4,898,800
9,449,245 TRANSPORTATION - (0.01%)
500,000 Florida West Airlines, Inc., 8.00%, 03/25/99+(c) 40,000
-----------
Total Convertible Bonds - (identified cost $78,360,149) ........... 78,690,349
-----------
COMMON STOCK - (30.68%)
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (4.63%)
131,361 Banc One Corporation ............................ 6,707,621
83,548 Bank of New York Co., Inc. ...................... 3,362,807
82,359 U.S. Bancorp .................................... 2,923,745
-----------
12,994,173
-----------
BUILDING MATERIALS - (0.97%)
94,606 Masco Corp. ..................................... 2,719,923
-----------
CONSUMER PRODUCTS - (0.81%)
77,000 RJR Nabisco Holdings Corp. ...................... 2,285,938
-----------
DIVERSIFIED FINANCIAL SERVICES - (1.94%)
75,811 Citigroup, Inc. ................................. 3,752,644
42,012 Wells Fargo Company ............................. 1,677,854
-----------
5,430,498
-----------
DIVERSIFIED (REITS) - (5.10%)
87,810 Avalon Bay Communities, Inc. .................... 3,007,493
48,600 Glenborough Realty Trust, Inc. .................. 990,225
305,200 Vornado Realty Trust ............................ 10,300,500
-----------
14,298,218
-----------
3,199,969
-----------
ENERGY - (1.54%)
30,000 CalEnergy Company, Inc.* ........................ 1,040,625
82,000 Devon Energy Corp. .............................. 2,516,375
30,706 Noble Affiliates, Inc. .......................... 756,135
-----------
4,313,135
-----------
FINANCIAL SERVICES - (5.85%)
45,100 American Express Company ........................ 4,611,475
145,380 SunAmerica, Inc. ................................ 11,793,953
-----------
16,405,428
-----------
HOTELS (REIT) - (0.05%)
21,399 Patriot American Hospitality Inc. ............... 128,394
-----------
55
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS CONVERTIBLE SECURITIES FUND - CONTINUED
================================================================================
VALUE
SHARES SECURITY (NOTE 1)
- ------ -------- --------
COMMON STOCK-CONTINUED
INDUSTRIAL - (0.31%)
35,000 Liberty Property Trust ........................ $ 861,875
------------
INSURANCE - (0.75%)
69,264 Conseco, Inc. ................................. 2,116,881
------------
OFFICE /INDUSTRIAL (REITS/REOCS) - (1.04%)
58,156 Centerpoint Properties Corp. .................. 1,966,400
17,770 Equity Office Properties Trust ................ 426,480
16,700 Mack-Cali Realty Corporation .................. 515,613
------------
2,908,493
------------
REAL ESTATE DEVELOPMENT (REIT) - (0.04%)
15,260 Vornado Operating, Inc. ....................... 123,034
------------
RETAIL (REIT) - (0.32%)
22,750 Kimco Realty Corp. ............................ 902,891
------------
SELF STORAGE (REIT) - (1.56%)
162,121 Public Storage, Inc. .......................... 4,387,400
------------
TECHNOLOGY - (5.77%)
132,700 Hewlett -Packard Company ...................... 9,065,069
29,000 Intel Corp. ................................... 3,437,406
20,000 Motorola, Inc. ................................ 1,221,250
28,958 Texas Instruments, Inc. ....................... 2,477,719
------------
16,201,444
------------
Total Common Stock - (identified cost $60,850,824) .............. 86,077,725
Total Investments - (98.09%) - (identified cost $261,754,060)
- - (a) ........................................................... 275,260,778
Other Assets Less Liabilities - (1.91%) ......................... 5,363,601
------------
Net Assets - (100%) ............................................. $280,624,379
============
*Non-Income Producing Security.
+This security is in default and is not currently paying interest.
(a) Aggregate cost for Federal Income Tax purposes is $261,754,060.
At December 31, 1998 unrealized appreciation (depreciation) of
securities for Federal Income Tax purposes is as follows:
Unrealized appreciation ......................................... $ 37,562,266
Unrealized depreciation ......................................... (24,055,548)
-----------
Net unrealized appreciation ..................................... $ 13,506,718
============
(b) These securities are subject to Rule 144A. The Board of
Directors of the Fund has determined that there is sufficient
liquidity in these securities to realize current valuations. These
securities amounted to $25,070,083 and 8.93% of the Fund's total
net assets as of December 31, 1998.
(c) Illiquid security. See Note 7 of the Notes to Financial
Statements.
The zero coupon bonds amounted to $29,038,021 and 10.35% of the
Fund's net assets as of December 31, 1998.
See Notes to Financial Statements.
56
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS REAL ESTATE FUND
================================================================================
VALUE
SHARES SECURITY (NOTE 1)
- ------ -------- --------
COMMON STOCK - (90.94%)
APARTMENTS (REITS) - (21.22%)
298,231 Apartment Investment & Management Company ....... $ 11,090,465
317,267 Avalon Bay Communities, Inc. .................... 10,866,395
1,466,500 Boardwalk Equities, Inc.* ....................... 16,214,491
242,231 Camden Property Trust ........................... 6,298,006
37,000 Equity Residential Properties Trust ............. 1,496,188
226,200 Essex Property Trust ............................ 6,729,450
492,000 Gables Residential Trust ........................ 11,408,250
755,500 Home Properties of New York, Inc. ............... 19,454,125
110,000 Post Properties, Inc. ........................... 4,228,125
------------
87,785,495
------------
DIVERSIFIED - (3.61%)
21,740 Crescent Operating, Inc.* ....................... 102,586
189,504 Reckson Services Industries, Inc.* .............. 775,782
200,000 The St. Joe Company ............................. 4,687,500
372,200 Security Capital Group Incorporated Class B * ... 5,047,963
200,000 Trizec Hahn Corporation ......................... 4,100,000
25,160 Vornado Operating, Inc.* ........................ 202,853
------------
14,916,684
------------
DIVERSIFIED (REITS) - (14.47%)
300,000 AMB Property Corporation ........................ 6,600,000
201,400 Glenborough Realty Trust, Inc. .................. 4,103,525
424,800 Reckson Associates Realty Corp. ................. 9,425,250
465,100 Rouse Company ................................... 12,790,250
288,000 Spieker Properties, Inc. ........................ 9,972,000
503,200 Vornado Realty Trust ............................ 16,983,000
------------
59,874,025
------------
GOLF (REITS) - (1.51%)
225,100 Golf Trust of America, Inc. ..................... 6,246,525
------------
HEALTH CARE (REITS) - (2.74%)
750,000 Meditrust Companies ............................. 11,343,750
------------
HOTELS & LODGING - (3.87%)
285,500 MeriStar Hospitality Corp. (REIT) ............... 5,299,594
285,500 MeriStar Hotels & Resorts, Inc.* ................ 749,438
272,800 Patriot American Hospitality, Inc. (REIT). ...... 1,636,800
366,300 Starwood Lodging Trust (REIT). .................. 8,310,431
------------
15,996,263
------------
INDUSTRIAL (REITS) - (4.55%)
272,300 Centerpoint Properties Corp. .................... 9,207,144
300,000 Centerpoint Properties Corp. Private (b) ........ 9,636,563
------------
18,843,707
------------
57
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS REAL ESTATE FUND - CONTINUED
================================================================================
VALUE
SHARES SECURITY (NOTE 1)
- ------ -------- --------
COMMON STOCK - CONTINUED
MALLS (REITS) - (1.74%)
50,000 General Growth Properties, Inc. ................. $ 1,893,750
186,964 Simon Property Group, Inc. ...................... 5,328,474
------------
7,222,224
------------
OFFICE SPACE (REITS) - (17.89%)
498,100 Alexandria Real Estate Equities, Inc. ........... 15,409,969
416,500 Boston Properties, Inc. ......................... 12,703,250
250,000 Brandywine Realty Trust ......................... 4,468,750
394,000 Crescent Real Estate Equities Company ........... 9,062,000
242,819 Equity Office Properties Trust .................. 5,827,656
350,400 Mack-Cali Realty Corporation .................... 10,818,600
302,000 Parkway Properties Inc. ......................... 9,437,500
290,000 SL Green Realty Corp. ........................... 6,271,250
------------
73,998,975
------------
REAL ESTATE DEVELOPMENT - (1.56%)
451,000 Catellus Development Corporation* ............... 6,454,938
------------
RESORTS/THEME PARKS - (4.83%)
430,000 Premier Parks Inc.* ............................. 13,007,500
210,000 Vail Resorts, Inc.* ............................. 4,620,000
106,761 Vail Resorts, Inc. Private * (b) ................ 2,348,742
------------
19,976,242
------------
RESTAURANT ORIENTED - (2.17%)
368,600 U.S. Restaurant Properties, Inc. (REIT) ......... 8,961,588
------------
SHOPPING CENTERS - (3.27%)
627,300 JDN Realty Corp. (REIT) ......................... 13,526,156
------------
STORAGE (REITS) - (5.55%)
424,500 Public Storage, Inc. ............................ 11,488,031
355,000 Storage USA Inc. ................................ 11,470,938
------------
22,958,969
------------
WIRELESS EQUIPMENT/REAL ESTATE - (1.96%)
255,000 OmniAmerica, Inc.* .............................. 8,128,122
Total Common Stock -(identified cost $406,948,004) ................ 376,233,663
------------
CONVERTIBLE PREFERRED STOCK - (6.26%)
APARTMENTS - (1.36%)
16,700 Camden Property Trust, $2.25, Ser. A Cum. Conv.
Pfd. ............................................ 395,581
223,900 Equity Residential Properties Trust, 7.00%,
Ser. E Conv. Pfd. ............................... 5,247,656
------------
5,643,237
------------
58
<PAGE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At December 31, 1998
DAVIS REAL ESTATE FUND - CONTINUED
================================================================================
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
- ---------------- -------- --------
CONVERTIBLE PREFERRED STOCK - CONTINUED
DIVERSIFIED - (0.76%)
50,000 Rouse Company, $3.00, Ser. B Conv. Pfd. .........$ 2,168,750
20,000 Vornado Realty Trust, 6.50%, Ser. A Conv. Pfd. .. 970,000
------------
3,138,750
------------
MALLS - (3.24%)
520,000 General Growth Properties, 7.25%, Conv. Pfd...... 13,390,000
------------
OFFICE - (0.90%)
160,000 SL Green Realty Corp., 8.00%, Cum. Conv. Pfd..... 3,720,000
------------
Total Convertible Preferred Stock-(identified cost $27,464,896).... 25,891,987
------------
CONVERTIBLE CORPORATE BONDS - (0.49%)
$2,000,000 Rouse Company, Conv. Sub. Deb., 5.75%, 07/23/02
- (identified cost $2,125,000) .................. 2,037,684
------------
SHORT TERM - (1.40%)
5,773,000 Lehman Brothers Repurchase Agreement, 5.04%, 01/04/99,
dated 12/31/98, repurchase value $5,773,000 (collateralized by
$5,582,000 par value U.S. Treasury Note, 5.875%, 09/30/02, market
value $5,559, 010) - (identified cost $5,773,000) ................. 5,773,000
------------
Total Investment-(99.09%)-(identified cost $442,310,900)-(a)....... 409,936,334
Other Assets Less Liabilities - (0.91%) ........................... 3,775,336
------------
Net Assets - (100%) $413,711,670
============
* Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $442,310,900.
At December 31, 1998 unrealized appreciation (depreciation) of
securities for Federal Income Tax purposes is as follows:
Unrealized appreciation ......................................... $38,877,969
Unrealized depreciation ......................................... (71,252,535)
------------
Net unrealized depreciation ..................................... $(32,374,566)
============
(b) Restricted security. See Note 7 of the Notes to Financial Statements.
See Notes to Financial Statements.
59
<PAGE>
DAVIS SERIES, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
------------ ------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities, at
value* (see accompanying
Schedules of Investments) $117,046,077 $65,319,298 $505,421,790 $ 984,412,916 $275,260,778 $ 409,936,334
Cash 15,762 35,950 35,376 -- 4,257,949 439
Receivables: 172,238
Dividends and interest 58,995 683,671 218,293 1,142,101 1,377,117 2,643,105
Capital stock sold 459,923 245,808 9,086,200 2,226,946 1,297,433 3,723,599
Investments sold -- -- -- 9,732,925 4,781 --
Prepaid expenses 13,588 9,401 26,778 29,052 11,494 4,635
------------ ----------- ------------ ------------- ------------ -------------
Total assets 117,594,345 66,294,128 514,788,437 997,543,940 282,209,552 416,308,112
------------ ----------- ------------ ------------- ------------ -------------
LIABILITIES:
Cash Overdraft -- -- -- 5,872,838 -- --
Payables:
Investment securities
purchased -- -- -- 5,634,250 -- --
Capital stock reacquired 868,700 342,825 -- 1,632,540 1,146,933 1,931,212
Accrued expenses 116,609 65,454 284,071 714,414 240,787 360,016
Commissions payable to 779,698
distributor (Note 3) 92,804 65,389 -- 197,453 305,214
Distributions payable -- -- 30,735 -- -- --
------------ ----------- ------------ ------------- ------------ -------------
Total liabilities 1,078,113 473,668 314,806 14,633,740 1,585,173 2,596,442
------------ ----------- ------------ ------------- ------------ -------------
NET ASSETS (NOTE 5) $116,516,232 $65,820,460 $514,473,631 $ 982,910,200 $280,624,379 $ 413,711,670
============ =========== ============ ============= ============ =============
NET ASSETS CONSIST OF:
Par Value shares of capital
Stock 54,102 111,723 5,144,736 338,461 118,366 199,593
Additional paid-in capital 80,919,008 65,922,027 509,328,895 764,261,893 266,973,698 451,567,396
Accumulated net realized gain
(loss) -- (790,927) -- (1,754,284) 25,597 (5,680,753)
Net unrealized appreciation
(depreciation) investments 35,543,122 577,637 -- 220,064,130 13,506,718 (32,374,566)
------------ ----------- ------------ ------------- ------------ -------------
$116,516,232 $65,820,460 $514,473,631 $ 982,910,200 $280,624,379 $ 413,711,670
============ =========== ============ ============= ============ =============
</TABLE>
* Including repurchase agreements of $3,025,000, 1,100,000 and $5,773,000 for
Davis Growth Opportunity Fund, Davis Government Bond Fund and Davis Real Estate
Fund, respectively, and cost of $81,502,955, $64,741,661, $505,421,790,
$764,348,786, $261,754,060 and $442,310,900 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.
See Notes to Financial Statements.
60
<PAGE>
DAVIS SERIES, INC.
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
December 31, 1998
- --------------------------------------------------------------------------------
<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>
CLASS A SHARES
Net assets $52,212,217 $21,284,579 $472,876,890 $460,798,983 $132,855,712 $198,327,793
Shares outstanding 2,378,072 3,606,366 472,876,890 15,715,679 5,591,255 9,565,411
Net asset value and redemption
price per share (net assets/
shares outstanding) $ 21.96 $ 5.90 $ 1.00 $ 29.32 $ 23.76 $ 20.73
=========== =========== ============ ============ ============ ============
Maximum offering price per share
(100/95.25 of net asset value) $ 23.06 $ 6.19 $ 1.00 $ 30.78 $ 24.94 $ 21.76
=========== =========== ============ ============ ============ ============
CLASS B SHARES
Net assets $60,586,543 $36,005,377 $ 35,466,031 $419,144,616 $ 90,827,037 $143,993,353
Shares outstanding 2,860,900 6,120,639 35,466,031 14,598,181 3,857,582 6,967,789
Net asset value, offering and
redemption price per share
(net assets/shares outstanding)
(Note 3) $ 21.18 $ 5.88 $ 1.00 $ 28.71 $ 23.55 $ 20.67
=========== =========== ============ ============ ============ ============
CLASS C SHARES
Net assets $ 3,643,986 $ 8,178,145 $ 6,130,710 $ 92,513,321 $ 26,406,036 $ 34,336,083
Shares outstanding 167,873 1,385,796 6,130,710 3,176,671 1,106,767 1,649,876
Net asset value, offering and
redemption price per share
(net assets/shares outstanding)
(Note 3) $ 21.71 $ 5.90 $ 1.00 $ 29.12 $ 23.86 $ 20.81
=========== =========== ============ ============ ============ ============
CLASS Y SHARES
Net assets $ 73,486 $ 352,359 -- $ 10,453,280 $ 30,535,594 $ 37,054,441
Shares outstanding 3,346 59,519 -- 355,552 1,281,043 1,776,354
Net asset value, offering and
redemption price per share (net
assets/shares outstanding) $ 21.96 $ 5.92 -- $ 29.40 $ 23.84 $ 20.86
=========== =========== ============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
61
<PAGE>
DAVIS SERIES, INC.
STATEMENT OF OPERATIONS
Year ended December 31, 1998
- --------------------------------------------------------------------------------
<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 $6,209,
$64,855 and $9,000 for Davis
Growth Opportunity Fund, Davis
Financial Fund and Davis Real
Estate Fund respectively) $ 646,990 $ -- $ -- $ 9,897,992 $ 7,054,444 $ 16,820,511
Interest 507,220 2,723,085 27,031,112 1,434,411 4,631,166 1,607,988
----------- ---------- ----------- ----------- ------------ ------------
Total income 1,154,210 2,723,085 27,031,112 11,332,403 11,685,610 18,428,499
----------- ---------- ----------- ----------- ------------ ------------
Expenses:
Management fees (Note 2) 924,119 216,248 2,351,638 5,195,747 1,960,290 2,845,709
Custodian fees 49,747 48,690 84,051 149,351 74,017 76,525
Transfer agent fees
Class A 95,815 47,658 178,917 567,481 131,770 279,402
Class B 133,453 46,249 75,819 651,968 143,006 304,476
Class C 14,007 6,597 16,515 113,397 36,330 52,199
Class Y 502 99 -- 8,105 2,894 3,377
Audit fees 4,855 9,943 17,411 23,730 9,465 12,562
Legal fees 7,376 1,821 38,919 58,880 19,982 21,742
Accounting fees (Note 2) 6,504 2,496 37,500 14,496 7,500 9,504
Reports to s hareholders 37,624 49,846 94,447 194,388 61,930 91,847
Directors' fees and expenses 4,666 2,412 18,290 51,176 17,758 17,634
Registration and filing fees 70,752 80,037 109,826 212,548 100,274 170,757
Miscellaneous 9,119 1,719 5,037 2,080 7,407 9,904
Distribution plan payments
(Note 3)
Class A 141,000 49,428 -- 789,325 275,435 484,050
Class B 620,687 197,911 -- 3,305,680 769,236 1,477,840
Class C 38,471 29,187 -- 636,742 209,203 246,679
----------- ---------- ----------- ----------- ------------ ------------
Total expenses 2,158,697 790,341 3,028,370 11,975,094 3,826,497 6,104,207
Expenses paid indirectly
(Note 6) (1,889) (2,427) (441) (10,684) (26,826) (6,896)
----------- ---------- ----------- ----------- ------------ ------------
Net expenses 2,156,808 787,914 3,027,929 11,964,410 3,799,671 6,097,311
----------- ---------- ----------- ----------- ------------ ------------
Net investment income (loss) (1,002,598) 1,935,171 24,003,183 (632,007) 7,885,939 12,331,188
----------- ---------- ----------- ----------- ------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from
investment transactions 6,203,448 52,416 -- (1,754,284) 3,179,282 (5,680,753)
Net change in unrealized
appreciation /(depreciation)
of investments (4,643,587) 97,364 -- 94,092,422 (18,721,504) (78,469,955)
----------- ---------- ----------- ----------- ------------ ------------
Net realized and unrealized
gain (loss) on investments 1,559,861 149,780 -- 92,338,138 (15,542,222) (84,150,708)
----------- ---------- ----------- ----------- ------------ ------------
Net increase (decrease) in
net assets resulting from
operations $ 557,263 $2,084,951 $24,003,183 $91,706,131 $ (7,656,283) $(71,819,520)
=========== ========== =========== =========== ============ ============
</TABLE>
See Notes to Financial Statements.
62
<PAGE>
DAVIS SERIES, INC.
STATEMENT OF CHANGES IN NET ASSETS
Year ended December 31, 1998
================================================================================
<TABLE>
<CAPTION>
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
------------ ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (1,002,598) $ 1,935,171 $ 24,003,183 $ (632,007) $ 7,885,939 $ 12,331,188
Net realized gain (loss) from
investment transactions 6,203,448 52,416 -- (1,754,284) 3,179,282 (5,680,753)
Net change in unrealized
appreciation/(depreciation)
of investments (4,643,587) 97,364 -- 94,092,422 (18,721,504) (78,469,955)
------------ ----------- ------------ ------------ ------------ ------------
Net increase (decrease) in
net assets resulting from
operations 557,263 2,084,951 24,003,183 91,706,131 (7,656,283) (71,819,520)
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income
Class A -- (1,011,026) (22,555,142) -- (4,305,724) (6,590,346)
Class B -- (824,586) (1,203,998) -- (1,892,880) (3,781,620)
Class C -- (117,098) (244,043) -- (530,204) (700,728)
Class Y -- (3,500) -- -- (1,157,131) (1,258,494)
Realized gains from
investment transactions
Class A (2,392,175) -- -- -- (1,495,013) --
Class B (2,818,423) -- -- -- (1,025,386) --
Class C (167,105) -- -- -- (293,996) --
Class Y (3,289) -- -- -- (339,290) --
Return of capital
Class A -- (128,856) -- -- (32,807) (290,164)
Class B -- (105,094) -- -- (14,423) (166,501)
Class C -- (14,924) -- -- (4,040) (30,852)
Class Y -- (446) -- -- (8,818) (55,416)
CAPITAL SHARE
TRANSACTIONS (NOTE 5) 8,892,042 35,434,492 49,528,343 382,567,706 130,898,104 201,164,809
------------ ----------- ------------ ------------ ------------ ------------
Total increase in net assets 4,068,313 35,313,913 49,528,343 474,273,837 112,142,109 116,471,168
NET ASSETS:
Beginning of period 112,447,919 30,506,547 464,945,288 508,636,363 168,482,270 297,240,502
------------ ----------- ------------ ------------ ------------ ------------
End of period $116,516,232 $65,820,460 $514,473,631 $982,910,200 $280,624,379 $413,711,670
============ =========== ============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
63
<PAGE>
DAVIS SERIES, INC.
STATEMENT OF CHANGES IN NET ASSETS
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>
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 change 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
DIVIDENDS AND
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)
Return of 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.
64
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DAVIS SERIES, INC. (the Company) 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 issuing shares of common stock in the following
six series (collectively "the Funds"):
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. It 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. Class B and C shares are sold at net asset value and may be
subject to a contingent deferred sales charge upon redemption. Class Y shares
are sold at net asset value and are not subject to any contingent deferred sales
charge. Class Y shares are only available to certain qualified investors.
Income, expenses (other than those attributable to a specific class) and gains
and losses are allocated daily to each class of shares based upon the relative
proportion of net assets represented by each class. Operating expenses directly
attributable to a specific class are charged against the operations of that
class. All classes have identical rights with respect to voting (exclusive of
each Class' distribution arrangement), liquidation and distributions. The
following is a summary of significant accounting policies followed by the Funds
in the preparation of their financial statements.
65
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1998
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
A. VALUATION OF SECURITIES - Portfolio securities listed on national securities
exchanges are valued at the last reported sales price on the day of valuation.
Securities traded in the over the counter market and listed securities for which
no sale was reported on that date are stated at the average of closing bid and
asked prices. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by the Board of Directors.
Short-term obligations are valued at amortized cost which approximates fair
value. The valuation procedures are reviewed and subject to approval by the
Board of Directors.
B. CURRENCY TRANSLATION - The market values of all assets and liabilities
denominated in foreign currencies are recorded in the financial statements after
translation to the U.S. dollar based upon the mean between the bid and offered
quotations of the currencies against U.S. dollars on the date of valuation. The
cost basis of such assets and liabilities is determined based upon historical
exchange rates. Income and expenses are translated at average exchange rates in
effect as accrued or incurred.
C. FORWARD CURRENCY CONTRACTS - The Funds may enter into forward purchases or
sales of foreign currencies to hedge certain foreign currency denominated assets
and liabilities against declines in market value relative to the U.S. dollar.
Forward currency contracts are marked-to-market daily and the change in market
value is recorded by the Funds as an unrealized gain or loss. When the forward
currency contract is closed, the Funds record a realized gain or loss equal to
the difference between the value of the forward currency contract at the time it
was opened and value at the time it was closed. Investments in forward currency
contracts may expose the Funds to risks resulting from unanticipated movements
in foreign currency exchange rates or failure of the counter-party to the
agreement to perform in accordance with the terms of the contract.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities
transactions, the difference between the amounts of dividends, interest and
foreign withholding taxes recorded on the Fund's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
D. FEDERAL INCOME TAXES - It is the Funds' policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of their taxable income to
shareholders. Therefore, no provision for federal income or excise tax is
required. At December 31, 1998, Davis Government Bond Fund had approximately
$790,900 of capital loss carryovers available to offset future capital gains, if
any, of which $84,300, $376,100, $298,600, and $32,000 expire in 1999, 2001,
2002 and 2003, respectively. At December 31, 1998, Davis Financial Fund had
approximately $1,754,284 of capital loss carryovers available to offset future
capital gains, if any, which will expire in 2006. At December 31, 1998, Davis
Real Estate Fund had approximately $5,680,753 of capital loss carryovers
available to offset future capital gains, if any, which will expire in 2006.
E. USE OF ESTIMATES IN FINANCIAL STATEMENTS - In preparing financial statements
in conformity with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of income and expenses
during the reporting period. Actual results may differ from these estimates.
66
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1998
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
F. SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME - Securities
transactions are accounted for on the trade date (date the order to buy or sell
is executed) with realized gain or loss on the sale of securities being
determined based upon identified cost. Interest income is recorded on the
accrual basis and dividend income is recorded on the ex-dividend date. Discounts
and premiums on debt securities are amortized over the lives of the respective
securities in accordance with the requirements of the Internal Revenue Code.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions to
shareholders are recorded on the ex-dividend date. The character of the
distributions made during the year from net investment income may differ from
its ultimate characterization for federal income tax purposes. Also, due to the
timing of distributions, the fiscal year in which amounts are distributed may
differ from the fiscal year in which income or gain was recorded by the Funds.
The Funds adjust the classification of distributions to shareholders to reflect
the differences between financial statement amounts and distributions determined
in accordance with income tax regulations. Accordingly, during the year ended
December 31, 1998, for Davis Growth Opportunity Fund, amounts have been
reclassified to reflect a decrease in accumulated net investment loss of
$1,002,598, a decrease in accumulated net realized gain of $1,163,296, and an
increase in additional paid-in capital of $160,698; for Davis Government Bond
Fund, amounts have been reclassified to reflect a decrease in accumulated net
realized loss of $1,058,541 and a corresponding decrease in additional paid-in
capital; and for Davis Financial Fund, amounts have been reclassified to reflect
an increase in undistributed net investment income of $632,007 and a
corresponding decrease in additional paid-in capital.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATE
Advisory fees are paid monthly to Davis Selected Advisers, L.P., the Funds'
investment adviser (the "Adviser"). The fee for the Davis Government Money
Market Fund is 0.50% of the first $250 million of average net assets, 0.45% of
the next $250 million of average net assets and 0.40% of average net assets in
excess of $500 million. The fee for the Davis Government Bond Fund is 0.50%
average net assets. The fee for each of the Davis Growth Opportunity Fund, Davis
Financial Fund, Davis Convertible Securities Fund and Davis Real Estate Fund is
0.75% of the average net assets for the first $250 million, 0.65% of the average
net assets on the next $250 million, and 0.55% of the average net assets in
excess of $500 million.
The Adviser is paid for registering fund shares for sale in various states.
The fee for the year ended December 31, 1998 for the Davis Growth Opportunity
Fund, Davis Government Bond Fund, Davis Government Money Market Fund, Davis
Financial Fund, Davis Convertible Securities Fund and Davis Real Estate Fund,
amounted to $9,996 for each fund. Boston Financial Data Services is the Funds'
primary transfer agent. The Adviser is also paid for certain transfer agent
services. The fee for these services for the year ended December 31, 1998 for
the Davis Growth Opportunity Fund, Davis Government Bond Fund, Davis Government
Money Market Fund, Davis Financial Fund, Davis Convertible Securities Fund and
Davis Real Estate Fund amounted to $33,840, $8,135, $20,809, $170,050, $32,827
and $75,161, respectively. State Street Bank & Trust Company ("State Street
Bank") is the Funds' primary accounting provider. Fees for such services are
included in the custodian fee as State Street Bank also serves as the Funds'
custodian. The Adviser is also paid for certain accounting services. The fee for
the year ended December 31, 1998 for the Davis Growth Opportunity Fund, Davis
Government Bond Fund, Davis Government Money Market Fund, Davis Financial Fund,
Davis Convertible Securities Fund and Davis Real Estate Fund amounted to $6,504,
$2,496, $37,500, $14,496, $7,500 and $9,504, respectively. Certain directors and
officers of the Funds are also directors and officers of the general partner of
the Adviser.
67
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1998
================================================================================
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATE -
(CONTINUED)
Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of
the Adviser, acts as sub-adviser to the Funds. DSA-NY performs research and
portfolio management services for the Funds under a Sub-Advisory Agreement with
the Adviser. The Funds pay no fees directly to DSA-NY.
Each fund has adopted procedures to treat Shelby Cullom Davis & Co. ("SCD")
as an affiliate of the Adviser. During the year ended December 31, 1998, SCD
received $53,340, $4,032, $14,382 in commissions on the purchases and sales of
portfolio securities in Davis Financial Fund, Davis Convertible Securities Fund
and Davis Real Estate Fund, respectively.
NOTE 3 - DISTRIBUTION AND UNDERWRITING FEES
CLASS A SHARES OF DAVIS GROWTH OPPORTUNITY FUND, DAVIS GOVERNMENT BOND FUND,
DAVIS FINANCIAL FUND, DAVIS CONVERTIBLE SECURITIES FUND AND DAVIS REAL ESTATE
FUND
Class A shares of the Funds are sold at net asset value plus a sales charge
and are redeemed at net asset value (without a contingent deferred sales
charge).
During the year ended December 31, 1998, Davis Distributors, LLC, the Funds'
Underwriter (the "Underwriter" or "Distributor") received $369,205, $85,407,
$5,418,760, $1,238,727 and $1,888,528 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 Fund,
respectively, of which $55,924, $11,372, $850,301, $189,347 and $294,893 was
retained by the Underwriter and the remaining $313,281, $74,035, $4,568,459,
$1,049,380 and $1,593,635 was re-allowed to investment dealers. The Underwriter
paid the costs of prospectuses in excess of those required to be filed as part
of the Funds' registration statement, sales literature and other expenses
assumed or incurred by it in connection with such sales.
The Underwriter is reimbursed for amounts paid to dealers as a service fee
with respect to Class A shares sold by dealers which remain outstanding during
the period. The service fee is paid at the annual rate of 1/4 of 1% of the
average net assets maintained by the responsible dealers. The Underwriter is not
reimbursed for accounts in which the Underwriter pays no service fees to other
firms. The service fee for Class A shares of Davis Growth Opportunity Fund,
Davis Government Bond Fund, Davis Financial Fund, Davis Convertible Securities
Fund and Davis Real Estate Fund for the year ended December 31, 1998, was
$141,000, $49,428, $789,325, $275,435 and $484,050, respectively.
CLASS B SHARES OF DAVIS GROWTH OPPORTUNITY FUND, DAVIS GOVERNMENT BOND FUND,
DAVIS FINANCIAL FUND, DAVIS CONVERTIBLE SECURITIES FUND AND DAVIS REAL ESTATE
FUND
Class B shares of the Funds are sold at net asset value and are redeemed at
net asset value. A contingent deferred sales charge my be assessed on shares
redeemed within six years of purchase.
Each of the Class B shares of the Funds (other than Davis Government Money
Market Fund) pay a distribution fee to reimburse the Distributor for commission
advances on the sale of each Fund's Class B shares. The National Association of
Securities Dealers Inc. (the "NASD"), limits the percentage of each fund's
68
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1998
================================================================================
NOTE 3 - DISTRIBUTION AND UNDERWRITING FEES - (CONTINUED)
average annual net assets attributable to Class B shares which may be used to
reimburse the Distributor. The limit is 1%, of which 0.75% may be used to pay
distribution expenses and 0.25% may be used to pay shareholder service fees. The
NASD rules also limit the aggregate amount the Funds may pay for distribution to
6.25% of gross Funds sales since inception of the Distribution Plans plus
interest at 1% over the prime rate on unpaid amounts. The Distributor intends to
seek full payment (plus interest at prime plus 1%) of distribution charges that
exceed the 1% annual limit in some future period or periods when the plan limits
have not been reached.
During the year ended December 31, 1998, Class B shares of the Davis Growth
Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis
Convertible Securities Fund and Davis Real Estate Fund made distribution plan
payments which included distribution fees of $471,372, $149,536, $2,482,100,
$576,954 and $1,109,708, respectively and service fees of $149,315, $48,375,
$823,580, $192,282 and $368,132, respectively.
Commission advances by the Distributor during the year ended December 31,
1998 on the sale of Class B shares of the Davis Growth Opportunity Fund, Davis
Government Bond Fund, Davis Financial Fund, Davis Convertible Securities Fund
and Davis Real Estate Fund amounted to $552,260, $247,303, $8,791,353,
$2,825,766 and $4,023,392 of which $537,150, $227,596, $8,712,371, $2,814,182
and $3,929,605 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
$632,976, $464,906, $12,556,756, $3,697,492 and $6,624,863, respectively,
representing the cumulative commission advances by the Distributor on the sale
of the Funds' Class B shares, plus interest, reduced by cumulative distribution
fees paid by the Funds and cumulative contingent deferred sales charges paid by
redeeming shareholders. The Funds have no contractual obligation to pay any such
distribution charges and the amounts, if any, timing and condition of such
payments are solely within the discretion of the Directors who are not
interested persons of the Funds or the Distributor.
A contingent deferred sales charge is imposed upon redemption of certain
Class B shares of the Funds within six years of the original purchase. The
charge is a declining percentage starting at 4% of the lesser of net asset value
of the shares redeemed or the total cost of such shares. During the year ended
December 31, 1998 the Distributor received contingent deferred sales charges
from Class B shares of the Davis Growth Opportunity Fund, Davis Government Bond
Fund, Davis Financial Fund, Davis Convertible Securities Fund and Davis Real
Estate Fund of $100,568, $90,905, $927,899, $180,059 and $452,740, respectively.
CLASS C SHARES OF DAVIS GROWTH OPPORTUNITY FUND, DAVIS GOVERNMENT BOND FUND,
DAVIS FINANCIAL FUND, DAVIS CONVERTIBLE SECURITIES FUND AND DAVIS REAL ESTATE
FUND
Class C shares of the Funds are sold at net asset value and are redeemed at
net asset value less a contingent deferred sales charge of 1% if redeemed within
one year of purchase. The Funds pay the Distributor 1% of the Funds' average
annual net assets attributable to Class C shares, of which 0.75% may be used to
pay distribution expenses and 0.25% may be used to pay shareholder service fees.
69
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1998
================================================================================
NOTE 3 - DISTRIBUTION AND UNDERWRITING FEES - (CONTINUED)
During the year ended December 31, 1998, Class C shares of the Davis Growth
Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis
Convertible Fund and Davis Real Estate Fund made distribution payments of
$38,471, $29,187, $636,742, $209,203 and $246,679, respectively. During the year
ended December 31, 1998, the Distributor received $2,515, $1,055, $32,692,
$8,683 and $14,686 in contingent deferred sales charges from Class C shares of
Davis Growth Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund,
Davis Convertible Securities and Davis Real Estate Fund, respectively.
DAVIS GOVERNMENT MONEY MARKET FUND
All classes of shares of the Davis Government Money Market Fund are sold to
investors at net asset value. The shareholders of the Davis Government Money
Market Fund have adopted a Distribution expense plan in accordance with Rule
12b-1, which does not provide for any amounts to be paid directly to the
Distributor as either compensation or reimbursement for distributing shares of
the Fund, but does authorize the use of the advisory fee to the extent such fee
may be considered to be indirectly financing any activity or expense which is
primarily intended to result in the sale of Fund shares.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the year ended December 31, 1998 for the Davis Growth
Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis
Convertible Securities Fund and Real Estate Fund were as follows:
<TABLE>
<CAPTION>
DAVIS DAVIS DAVIS
GROWTH GOVERNMENT DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cost of purchases $29,497,948 $45,402,160 $514,128,610 $175,623,490 $305,427,640
Proceeds of sales $20,327,477 $ 7,238,440 $ 88,130,874 $ 32,014,628 $ 70,618,209
</TABLE>
NOTE 5 - CAPITAL STOCK
At December 31, 1998 there were 10 billion shares of capital stock ($0.01
par value per share) authorized of which 550 million shares each are designated
to the Davis Growth Opportunity Fund, Davis Government Bond Fund, Davis
Financial Fund, Davis Convertible Securities Fund and Davis Real Estate Fund.
5.1 million shares are designated to Davis Government Money Market Fund.
Transactions in capital stock were as follows:
70
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1998
================================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<TABLE>
<CAPTION>
CLASS A YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------------
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,518,470 3,160,162 539,737,311 12,668,316 3,736,408 8,062,035
Shares issued in
reinvestment of
distributions 107,320 141,050 22,137,587 138 211,983 275,560
------------ ------------- ------------- ------------- ------------- -------------
1,625,790 3,301,212 561,874,898 12,668,454 3,948,391 8,337,595
Shares redeemed (1,398,742) (2,689,218) (541,302,595) (8,327,667) (1,924,393) (4,577,513)
------------ ------------- ------------- ------------- ------------- -------------
Net increase 227,048 611,994 20,572,303 4,340,787 2,023,998 3,760,082
============ ============= ============= ============= ============= =============
$ 35,361,613 $ 18,668,243 $ 539,737,311 $ 343,611,116 $ 93,013,319 $ 188,681,546
Proceeds from shares sold
Proceeds from shares issued
in reinvestment of
distributions 2,307,465 828,828 22,137,587 3,438 5,077,907 6,083,772
------------ ------------- ------------- ------------- ------------- -------------
37,669,078 19,497,071 561,874,898 343,614,554 98,091,226 194,765,318
Cost of shares redeemed (31,907,274) (15,792,905) (541,302,596) (224,087,698) (46,225,588) (102,923,479)
------------ ------------- ------------- ------------- ------------- -------------
Net increase $ 5,761,804 $ 3,704,166 $ 20,572,302 $ 119,526,856 $ 51,865,638 $ 91,841,839
============ ============= ============= ============= ============= =============
CLASS A YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------------------------
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
------------ ------------ ------------- ------------- ------------ ------------
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
============ ============= ============= ============= ============= =============
$ 26,573,315 $ 3,237,351 $ 330,851,219 $ 171,133,319 $ 38,576,000 $ 130,359,222
Proceeds from shares sold
Proceeds from shares issued
in reinvestment of
distributions 3,149,356 683,818 8,451,998 4,379,988 5,173,270 4,870,372
------------ ------------- ------------- ------------- ------------- -------------
29,722,671 3,921,169 339,303,217 175,513,307 43,749,270 135,229,594
Cost of shares redeemed (11,675,708) (4,767,135) (293,545,839) (50,496,593) (5,002,912) (36,105,903)
------------ ------------- ------------- ------------- ------------- -------------
Net increase (decrease) $ 18,046,963 $ (845,966) $ 45,757,378 $ 125,016,714 $ 38,746,358 $ 99,123,691
============ ============= ============= ============= ============= =============
</TABLE>
71
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1998
================================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<TABLE>
<CAPTION>
CLASS B YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 868,064 7,172,861 95,164,634 9,271,722 2,999,720 4,400,784
Shares issued in
reinvestment of 130,667 93,650 1,056,722 177 95,158 125,670
distributions ------------ ------------ ------------ ------------ ------------ ------------
998,731 7,266,511 96,221,356 9,271,899 3,094,878 4,526,454
(943,806) (3,313,729) (71,677,377) (2,293,408) (657,019) (2,072,314)
Shares redeemed ------------ ------------ ------------ ------------ ------------ ------------
54,925 3,952,782 24,543,979 6,978,491 2,437,859 2,454,140
Net increase ============ ============ ============ ============ ============ ============
$ 19,480,204 $ 42,278,281 $ 95,164,634 $249,847,256 $ 73,963,154 $104,063,066
Proceeds from shares sold
Proceeds from shares issued
in reinvestment of
distributions 2,708,838 549,153 1,056,722 4,293 2,243,009 2,757,015
------------ ------------ ------------ ------------ ------------ ------------
22,189,042 42,827,434 96,221,356 249,851,549 76,206,163 106,820,081
Cost of shares redeemed (20,375,069) (19,462,470) (71,677,377) (59,273,762) (15,501,180) (45,308,919)
------------ ------------ ------------ ------------ ------------ ------------
Net increase $ 1,813,973 $ 23,364,964 $ 24,543,979 $190,577,787 $ 60,704,983 $ 61,511,162
============ ============ ============ ============ ============ ============
CLASS B YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------------------
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
------------ ------------ ----------- ------------ ------------ ------------
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 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 $ 17,693,813 $ (461,430) $ 6,767,446 $ 162,764,821 $ 33,073,977 $ 93,108,376
============ ============ ============= ============= ============ ============
</TABLE>
72
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1998
================================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<TABLE>
<CAPTION>
CLASS C YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
----------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 151,917 2,106,807 22,054,854 2,982,995 1,106,813 1,702,090
Shares issued in
reinvestment of
distributions 7,636 9,341 203,415 -- 25,053 23,551
----------- ----------- ------------ ------------ ----------- -----------
159,553 2,116,148 22,258,269 2,982,995 1,131,866 1,725,641
Shares redeemed (106,932) (766,851) (17,846,207) (565,286) (273,399) (402,275)
----------- ----------- ------------ ------------ ----------- -----------
Net increase 52,621 1,349,297 4,412,062 2,417,709 858,467 1,323,366
=========== =========== ============ ============ =========== ===========
Proceeds from shares sold
Proceeds from shares issued
in reinvestment of
distributions $ 3,480,079 $12,473,788 $ 22,054,854 $ 81,536,806 $27,554,478 $39,481,196
Cost of shares redeemed 162,272 55,001 203,415 -- 597,272 511,436
----------- ----------- ------------ ------------ ----------- -----------
3,642,351 12,528,789 22,258,269 81,536,806 28,151,750 39,992,632
Net increase (2,329,570) (4,517,484) (17,846,207) (14,848,755) (6,500,906) (8,869,683)
----------- ----------- ------------ ------------ ----------- -----------
$ 1,312,781 $ 8,011,305 $ 4,412,062 $ 66,688,051 $21,650,844 $31,122,949
=========== =========== ============ ============ =========== ===========
CLASS C AUGUST 15, AUGUST 19, AUGUST 12, AUGUST 12, AUGUST 13,
1997 1997 1997 1997 1997
(INCEPTION (INCEPTION (INCEPTION (INCEPTION (INCEPTION
OF CLASS) OF CLASS) OF CLASS) OF CLASS) OF CLASS)
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
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
------------ ------------ ----------- ------------ ----------- ------------
Shares sold 117,836 81,512 11,684,526 761,161 244,199 335,470
Shares issued in
reinvestment of
distributions 6,062 186 105,277 7,941 11,513 4,832
---------- -------- ---------- ----------- ---------- ----------
123,898 81,698 11,789,803 769,102 255,712 340,302
Shares redeemed (8,646) (45,199) (10,785,633) (10,141) (7,411) (13,792)
---------- -------- ---------- ----------- ---------- ----------
Net increase 115,252 36,499 1,004,170 758,961 248,301 326,510
========== ======== ========== =========== ========== ==========
Proceeds from shares sold
Proceeds from shares issued
in reinvestment of
distributions $3,139,205 $475,986 $11,684,526 $18,756,737 $6,408,741 $8,385,602
Cost of shares redeemed 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
Net increase (207,854) (263,512) (10,785,633) (250,089) (197,278) (344,542)
---------- -------- ---------- ----------- ---------- ----------
$3,066,588 $213,561 $1,004,170 $18,709,933 $6,502,453 $8,164,235
========== ======== ========== =========== ========== ==========
</TABLE>
73
<PAGE>
DAVIS SERIES, INC.
December 31, 1998
================================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<TABLE>
<CAPTION>
CLASS Y SEPTEMBER 1, (INCEPTION
1998 OF CLASS)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, YEAR ENDED DECEMBER 31, 1998
1998 1998 ------------------------------------------
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>
Shares sold 4,004 64,225 384,619 83,627 754,373
Shares issued in
reinvestment of
distributions 153 259 -- 59,589 52,922
--------- ------------ ------------ ------------ ------------
4,157 64,484 384,619 143,216 807,295
Shares redeemed (4,997) (4,965) (177,312) (304,192) (93,138)
--------- ------------ ------------ ------------ ------------
Net increase (840) 59,519 207,307 (160,976) 714,157
========= ============ ============ ============ ============
Proceeds from shares sold $ 101,885 $ 381,919 $ 10,496,605 $ 2,093,815 $ 17,553,545
Proceeds from shares issued
in reinvestment of
distributions 3,290 1,533 -- 1,437,986 1,168,974
--------- ------------ ------------ ------------ ------------
105,175 383,452 10,496,605 3,531,801 18,722,519
Cost of shares redeemed (101,691) (29,395) (4,721,593) (6,855,162) (2,033,660)
--------- ------------ ------------ ------------ ------------
Net increase $ 3,484 $ 354,057 $ 5,775,012 $ (3,323,361) $ 16,688,859
========= ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
CLASS Y SEPTEMBER 18, MARCH 10,
1997 1997
(INCEPTION (INCEPTION
OF CLASS) OF CLASS)
THROUGH THROUGH
DECEMBER 31, DECEMBER 31,
1997 1997 YEAR ENDED 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 235 2,156 109,438 44,811
distributions --------- ----------- ----------- -----------
4,812 165,056 163,216 214,673
(626) (16,811) (271,815) (2,344)
Shares redeemed --------- ----------- ----------- -----------
4,186 148,245 (108,599) 212,329
Net increase ========= =========== =========== ===========
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 $ 113,389 $ 3,532,743 $(2,066,246) $ 5,206,250
========= =========== =========== ===========
</TABLE>
74
<PAGE>
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1998
================================================================================
NOTE 6 - CUSTODY FEES
Under an agreement with the custodian bank, custody fees are reduced by
credits for cash balances. Such reductions amounted to $1,889, $2,427, $441,
$10,684, $26,826 and $6,896 for Davis Growth Opportunity Fund, Davis Government
Bond Fund, Davis Government Money Market Fund, Davis Financial Fund, Davis
Convertible Securities Fund and Davis Real Estate Fund, respectively, during the
year ended December 31, 1998.
NOTE 7 - RESTRICTED AND ILLIQUID SECURITIES
Restricted securities are not registered under the Securities Act of 1933
and may have contractual restrictions on resale. They are valued under methods
approved by the Board of Directors as reflecting fair value. The aggregate value
of restricted securities in Davis Real Estate Fund was $11,985,305, or 2.90% of
the Fund's net assets as of December 31, 1998. Securities may be considered
illiquid if they lack a readily available market or if valuation has not changed
for a certain period of time. The aggregate value of illiquid securities in
Davis Convertible Securities Fund was $40,000, or 0.01% of the Fund's net assets
as of December 31, 1998. Information concerning restricted and illiquid
securities is as follows:
Valuation per Unit
as of
December 31,
Acquisition Cost per 1998
Fund Security Date Unit Shares/Par
- ---- ------------------ ----------- -------- ----------
Davis
Real Estate Centerpoint Properties
Corp. Private 04/02/98 $33.375 $32.122
Davis
Real Estate Vail Resorts 07/10/98 $29.828 $ 22.00
Davis
Convertible Florida West Airlines,
Securities Inc., 8.00%, 03/25/99 03/23/94 $100.00 $ 8.00
75
<PAGE>
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS GROWTH OPPORTUNITY FUND
================================================================================
The following financial information represents selected data for each share
of capital stock outstanding throughout each period:
CLASS A
ONE MONTH
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
----------------------------------- ------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net Asset Value,
Beginning of Period $ 22.49 $ 18.93 $ 17.25 $ 12.83 $ 13.70
------- ------- ------- ------- -------
INCOME(LOSS) FROM
INVESTMENT OPERATIONS
Net Investment Loss (0.09) (0.10) (0.13) (0.11) (0.01)
Net Realized and Unrealized
Gains (Losses) 0.59 5.34 3.37 6.08 (0.29)
------- ------- ------- ------- -------
Total From Investment
Operations 0.50 5.24 3.24 5.97 (0.30)
------- ------- ------- ------- -------
DISTRIBUTIONS
Distributions from
Realized Gains (1.03) (1.68) (1.55) (1.55) (0.57)
Return of Capital -- -- (0.01) -- --
------- ------- ------- ------- -------
Total Distributions (1.03) (1.68) (1.56) (1.55) (0.57)
------- ------- ------- ------- -------
Net Asset Value, End
of Period $ 21.96 $ 22.49 $ 18.93 $ 17.25 $ 12.83
======= ======= ======= ======= =======
TOTAL RETURN(1) 2.32% 27.70% 18.73% 46.65% (2.21)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $52,212 $48,386 $27,158 $22,890 $12,455
Ratio of Expenses to
Average Net Assets 1.32% 1.27% 1.49%(2) 1.51% 1.42%*
Ratio of Net Investment
Loss to Average Net Assets (0.38)% (0.58)% (0.76)% (0.71)% (0.08)%*
Portfolio Turnover Rate(3) 18.03% 19.33% 30.55% 30.07% 37.31%
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.48% for 1996. Prior to 1996, such
reductions were reflected in the expenses ratios.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
*Annualized
See Notes to Financial Statements.
76
<PAGE>
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS GROWTH OPPORTUNITY FUND
The following financial information represents selected data for each share
of capital stock outstanding throughout each period:
CLASS B YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net Asset Value,
Beginning of Period $ 21.88 $ 18.58 $ 17.08 $ 12.82 $ 14.67
------- ------- --------- ------- -------
INCOME(LOSS) FROM
INVESTMENT OPERATIONS
Net Investment Loss (0.26) (0.25) (0.27) (0.26) (0.12)
Net Realized and Unrealized
Gains (Losses) 0.59 5.23 3.33 6.07 (1.11)
------- ------- --------- ------- -------
Total From Investment
Operations 0.33 4.98 3.06 5.81 (1.23)
DISTRIBUTIONS
Distributions from
Realized Gains (1.03) (1.68) (1.55) (1.55) (0.62)
Return of Capital -- -- (0.01) -- --
------- ------- --------- ------- -------
Total Distributions (1.03) (1.68) (1.56) (1.55) (0.62)
------- ------- --------- ------- -------
Net Asset Value, End
of Period $ 21.18 $ 21.88 $ 18.58 $ 17.08 $ 12.82
======= ======= ========= ======= =======
TOTAL RETURN(1) 1.61% 26.82% 17.86% 45.44% (8.45)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $60,587 $61,383 $39,343 $35,326 $36,087
Ratio of Expenses to
Average Net Assets 2.10% 2.09%(3) 2.25%(3) 2.30% 2.15%
Ratio of Net Investment
Loss to Average Net Assets (1.16)% (1.40)% (1.52)% (1.50)% (0.81)
Portfolio Turnover Rate(3) 18.03% 19.33% 30.55% 30.07% 37.31%
(1) Per share data has been restated to give effect to a 2 for 1 stock split to
shareholders of record as of the close of business of January 7, 1994.
(2) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
(3) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement 2.08% and 2.24% for 1997 and 1996,
respectively. Prior to 1996, such reductions were reflected in the expenses
ratios.
(4) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
See Notes to Financial Statements.
77
<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
YEAR OF OPERATIONS) YEAR OF OPERATIONS)
ENDED THROUGH ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $22.43 $25.56 $22.52 $27.19
------ ------ ------ ------
INCOME(LOSS) FROM
INVESTMENT OPERATIONS
Net Investment Loss (0.30) (0.04) (0.14) -
Net Realized and Unrealized
Gains (Losses) 0.61 (1.41) 0.61 (2.99)
------ ------ ------ ------
Total From Investment
Operations 0.31 (1.45) 0.47 (2.99)
------ ------ ------ ------
DISTRIBUTIONS
Distributions from
Realized Gains
Return of Capital (1.03) (1.68) (1.03) (1.68)
------ ------ ------ ------
Total Distributions (1.03) (1.68) (1.03) (1.68)
------ ------ ------ ------
Net Asset Value, End
of Period $21.71 $22.43 $21.96 $22.52
====== ====== ====== ======
TOTAL RETURN(1) 1.48% (5.66)% 2.18% (10.98)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $3,644 $2,585 $73 $94
Ratio of Expenses to
Average Net Assets 2.27% 2.19%* 1.33%(2) 1.01%*
Ratio of Net Investment
Loss to Average Net Assets (1.33)% (1.51)%* (0.38)% (0.33)%*
Portfolio Turnover Rate(3) 18.03% 19.33% 18.03% 19.33%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.32% for Class Y for 1998.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
See Notes to Financial Statements.
78
<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:
CLASS A
ONE MONTH
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------- ------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net Asset Value, $ 5.87 $ 5.76 $ 6.00 $ 5.79 $ 5.78
Beginning of Period ------- ------- ------- ------- -------
INCOME(LOSS) FROM
INVESTMENT OPERATIONS 0.29 0.33 0.33 0.39 0.02
Net Investment Loss 0.07 0.11 (0.14) 0.27 (0.01)
Net Realized and Unrealized ------- ------- ------- ------- -------
Gains (Losses) 0.36 0.44 0.19 0.66 0.01
------- ------- ------- ------- -------
Total From Investment
Operations
DISTRIBUTIONS (0.29) (0.33) (0.33) (0.36) --
Distributions from (0.04) -- (0.10) (0.09) --
Realized Gains ------- ------- ------- ------- -------
Return of Capital (0.33) (0.33) (0.43) (0.45) --
------- ------- ------- ------- -------
Total Distributions
$ 5.90 $ 5.87 $ 5.76 $ 6.00 $ 5.79
Net Asset Value, End ======= ======= ======= ======= =======
of Period
TOTAL RETURN(1) 6.31% 7.92% 3.40% 11.82% (0.97)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted)
Ratio of Expenses to $21,285 $17,589 $18,129 $21,485 $20,035
Average Net Assets 1.43% 1.27%(2) 1.77% 1.74% 1.64%*
Ratio of Net Investment
Loss to Average Net Assets 4.87% 5.82% 5.88% 6.54% 6.22%*
Portfolio Turnover Rate(3) 18.40% 24.35% 45.50% 41.04% 62.17%
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.26% for 1997. Prior to 1996, such
reductions were reflected in the expenses ratios.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. * Annualized See Notes to Financial Statements.
79
<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:
CLASS B
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net Asset Value,
Beginning of Period $ 5.86 $ 5.75 $ 5.98 $ 5.79 $ 6.33
------- ------- ------- ------- -------
INCOME(LOSS) FROM
INVESTMENT OPERATIONS
Net Investment Loss 0.27 0.29 0.29 0.34 0.31
Net Realized and Unrealized
Gains (Losses) 0.04 0.11 (0.13) 0.26 (0.37)
------- ------- ------- ------- -------
Total From Investment
Operations 0.31 0.40 0.16 0.60 (0.06)
------- ------- ------- ------- -------
DISTRIBUTIONS
Distributions from
Realized Gains (0.27) (0.29) (0.29) (0.33) (0.37)
Return of Capital (0.02) - (0.10) (0.08) (0.11)
------- ------- ------- ------- -------
Total Distributions (0.29) (0.29) (0.39) (0.41) (0.48)
------- ------- ------- ------- -------
Net Asset Value, End
of Period $ 5.88 $ 5.86 $ 5.75 $ 5.98 $ 5.79
======= ======= ======= ======= =======
TOTAL RETURN(1) 5.38% 7.12% 2.78% 10.62% (0.97)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $36,005 $12,703 $12,959 $15,976 $19,241
Ratio of Expenses to
Average Net Assets 2.18%(3) 2.01%(3) 2.53%(3) 2.51% 2.38%
Ratio of Net Investment
Loss to Average Net Assets 4.13% 5.07% 5.13% 5.77% 5.48%
Portfolio Turnover Rate(3) 18.40% 24.35% 45.50% 41.04% 62.17%
(1) Per share calculations other than distributions were based on average
shares outstanding during the period.
(2) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total returns
are not annualized for periods of less than one full year.
(3) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.17%, and 2.00% and 2.52% for 1998,
1997 and 1996, respectively. Prior to 1996, such reductions were reflected
in the expenses ratios.
(4) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
See Notes to Financial Statements.
80
<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:
CLASS C CLASS Y
----------------------- -------
AUGUST 19, SEPTEMBER 1,
1997 1998
(INCEPTION (INCEPTION
YEAR OF CLASS) OF CLASS)
ENDED THROUGH THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ------------ -------------
1998 1997 1998
---- ---- ----
Net Asset Value, Beginning of Period $5.88 $5.79 $5.92
----- ----- -----
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.27 0.08 0.07
Net Realized and Unrealized Gains 0.04 0.09 0.02
----- ----- -----
Total From Investment Operations 0.31 0.17 0.09
----- ----- -----
DIVIDENDS AND DISTRIBUTIONS
Net Investment Income (0.27) (0.08) (0.07)
Return of Capital (0.02) -- (0.02)
----- ----- -----
Total Dividend and Distributions (0.29) (0.08) (0.09)
----- ----- -----
Net Asset Value, End of Period $5.90 $5.88 $5.92
===== ===== =====
TOTAL RETURN(1) 5.42% 2.97% 1.59%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000 omitted) $8,178 $ 215 $ 352
Ratio of Expenses to Average Net Assets 2.18% 1.97%*(2) 1.05%*
Ratio of Net Investment Income to
Average Net Assets 4.12% 5.11%* 5.25%*
Portfolio Turnover Rate(3) 18.40% 24.35% 18.40%
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.96% for Class C for 1997.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
See Notes to Financial Statements.
81
<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.
CLASSES A, B & C
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
Net Asset Value,
Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income .048 .049 .047 .051 .034
DIVIDENDS
Net Investment Income (.048) (.049) (.047) (.051) (.034)
-------- ------- ------- ------- -------
Net Asset Value, End of
Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
TOTAL RETURN(1) 4.94% 5.02% 4.80% 5.25% 3.48%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $514,474 $464,459 $411,416 $360,290 $240,727
Ratio of Expenses to
Average Net Assets 0.61% 0.57% 0.66% 0.73% 0.64%
Ratio of Net Investment
Income to Average
Net Assets 4.84% 4.92% 4.72% 5.13% 3.43%
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Total returns are not annualized for periods of less than one full
year.
See Notes to Financial Statements.
82
<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,
-------------------------------------------------
1998 1997 1996 1995 1994(2)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 25.68 $ 18.06 $ 14.50 $ 10.68 $ 11.70
-------- ------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.09 0.13 0.14 0.07 0.08
Net Realized and Unrealized
Gains 3.55 7.92 4.44 5.32 (0.61)
-------- ------- -------- ------- -------
Total From Investment
Operations 3.64 8.05 4.58 5.39 (0.53)
-------- ------- -------- ------- -------
DIVIDENDS AND DISTRIBUTIONS
Net Investment Income -- (0.13) (0.15) (0.07) (0.08)
Return of Capital -- (0.30) (0.87) (1.50) (0.39)
Total Dividend and
Distributions -- -- -- -- (0.02)
-------- ------- -------- ------- -------
Net Asset Value, End
of Period -- (0.43) (1.02) (1.57) (0.49)
-------- ------- -------- ------- -------
$ 29.32 $ 25.68 $ 18.06 $ 14.50 $ 10.68
======== ======= ======== ======= =======
TOTAL RETURN(1) 14.17% 44.53% 31.50% 50.51% (4.55)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $460,799 $292,059 $107,579 $79,874 $57,670
Ratio of Expenses to
Average Net Assets 1.07%(3) 1.07% 1.15% 1.18 % 1.24%
Ratio of Net Investment
Income to Average Net
Assets 0.34% 0.77% 0.92% 0.53 % 0.67%
Portfolio Turnover Rate(3) 11.37% 6.23% 25.78% 41.89 % 43.95%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total returns
are not annualized for periods of less than one full year.
(2) Per share data has been restated to give effect to a 2 for 1 stock split to
shareholders of record as of the close of business on January 7, 1994.
(3) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.06% for 1998.
(4) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
See Notes to Financial Statements.
83
<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.
CLASS B
<TABLE>
<CAPTION>
DECEMBER 27, 1994
(INCEPTION
OF CLASS)
YEAR ENDED DECEMBER 31, THROUGH
-------------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 25.36 $ 17.91 $14.41 $10.68 $11.22
-------- ------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (0.12) (0.01) 0.01 0.01 0.03
Net Realized and Unrealized
Gains 3.47 7.76 4.37 5.22 (0.13)
-------- ------- ------ ------ ------
Total From Investment
Operations 3.35 7.75 4.38 5.23 (0.10)
-------- ------- ------ ------ ------
DIVIDENDS AND DISTRIBUTIONS
Net Investment Income -- -- (0.01) -- (0.03)
Return of Capital -- (0.30) (0.87) (1.50) (0.39)
Total Dividend and
Distributions -- -- -- -- (0.02)
-------- ------- ------ ------ ------
Net Asset Value, End
of Period (0.30) (0.88) (1.50) (0.44)
-------- ------- ------ ------ ------
$ 28.71 $ 25.36 $17.91 $14.41 $10.68
======== ======= ====== ====== ======
TOTAL RETURN(1) 13.21% 43.25% 30.29% 49.00% (0.90)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $419,145 $193,257 $8,213 $1,762 $ 28
Ratio of Expenses to
Average Net Assets 1.93%(2) 1.97% 2.04% 2.09% 2.04%*
Ratio of Net Investment
Income to Average Net
Assets (0.52)% (0.12)% 0.19% (0.38)% (0.13)%*
Portfolio Turnover Rate 11.37% 6.23% 25.78% 41.89% 43.95%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
(2) Ratio of expenses of average net assets after the reduction of custodian
fees under a custodian agreement was 1.92% for 1998.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
See Notes to Financial Statements.
84
<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
(INCEPTION (INCEPTION
YEAR OF CLASS) YEAR OF CLASS
ENDED THROUGH ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 25.71 $ 23.76 $ 25.66 $20.32
------- ------- ------- ------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.10) -- 0.14 0.09
Net Realized and Unrealized
Gains 3.51 2.25 3.60 5.74
------- ------- ------- ------
Total From Investment
Operations 3.41 2.25 3.74 5.83
------- ------- ------- ------
DIVIDENDS AND DISTRIBUTIONS
Net Investment Income -- -- -- (0.19)
Distributions from Realized
Gains -- (0.30) -- (0.30)
------- ------- ------- ------
Total Dividend and
Distributions -- (0.30) -- (0.49)
------- ------- ------- ------
Net Asset Value, End of
Period $ 29.12 $ 25.71 $ 29.40 $25.66
======= ======= ======= ======
TOTAL RETURN (1) 13.26% 9.45% 14.58% 28.66%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $92,513 $19,515 $10,453 $3,805
Ratio of Expenses to
Average Net Assets 1.91% 1.93%* 0.83%(2) 0.79%*
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.51)% (0.09)%* 0.58% 1.06%*
Portfolio Turnover Rate(3) 11.37% 6.23% 11.37% 6.23%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 0.82% for Class Y shares for 1998.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
See Notes to Financial Statements.
85
<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.
CLASS A
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $25.26 $21.22 $18.22 $15.57 $17.45
-------- ------- ------- ------- -------
INCOME(LOSS) FROM
INVESTMENT OPERATIONS
Net Investment Loss 0.77 0.67 0.71 0.67 0.67
Net Realized and Unrealized
Gains (Losses) (1.23) 5.33 4.56 3.42 (1.83)
-------- ------- ------- ------- -------
Total From Investment
Operations (0.46) 6.00 5.27 4.09 (1.16)
-------- ------- ------- ------- -------
DISTRIBUTIONS
Distributions from
Realized Gains (0.76) (0.67) (0.69) (0.66) (0.67)
Return of Capital (0.27) (1.22) (1.54) (0.78) (0.05)
Distribution (from
paid-in capital) (0.01) (0.07) (0.04) - -
-------- ------- ------- ------- -------
Total Distributions (1.04) (1.96) (2.27) (1.44) (0.72)
-------- ------- ------- ------- -------
Net Asset Value, End
of Period $23.76 $25.26 $21.22 $18.22 $15.57
======== ======= ======= ======= =======
TOTAL RETURN(1) (1.79)% 28.68% 29.46% 26.68% (6.72)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $132,856 $90,107 $42,841 $59,757 $47,844
======== ======= ======= ======= =======
Ratio of Expenses to
Average Net Assets 1.16%(2) 1.08%(2) 1.05% 1.14% 1.20%
Ratio of Net Investment
Loss to Average Net Assets 3.27% 3.00% 3.34% 3.87% 4.06%
Portfolio Turnover Rate(3) 14.43% 23.68% 43.16% 53.58% 45.15%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in total returns. Total returns are
not annualized for periods of less than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.15% and 1.07% for 1998 and 1997,
respectively. Prior to 1996, such reductions were reflected in the expenses
ratios.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
See Notes to Financial Statements.
86
<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
(INCEPTION (INCEPTION
OF CLASS) YEAR OF CLASS)
YEAR ENDED THROUGH ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31 DECEMBER 31,
--------------------------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1998 1997
---- ---- ---- ---- ---- ----
Net Asset Value, Beginning
of Period $ 25.03 $ 21.05 $ 18.14 $ 15.95 $ 25.36 $ 24.91
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net Investment Income 0.56 0.44 0.59 0.54 0.59 0.11
Net Realized and Unrealized
Gains (Losses) (1.22) 5.26 4.45 2.97 (1.26) 1.72
------- ------- ------- ------- ------- -------
Total From Investment Operations (0.66) 5.70 5.04 3.51 (0.67) 1.83
------- ------- ------- ------- ------- -------
DIVIDENDS AND DISTRIBUTIONS
Net Investment Income (0.54) (0.44) (0.56) (0.54) (0.55) (0.11)
Distributions from Realized Gains (0.27) (1.22) (1.54) (0.78) (0.27) (1.22)
Return of Capital (0.01) (0.06) (0.03) -- (0.01) (0.05)
------- ------- ------- ------- ------- -------
Total Dividend and Distributions (0.82) (1.72) (2.13) (1.32) (0.83) (1.38)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $ 23.55 $ 25.03 $ 21.05 $ 18.14 $ 23.86 $ 25.36
======= ======= ======= ======= ======= =======
TOTAL RETURN (1) (2.62)% 27.35% 28.21% 25.31% (2.61)% 7.38%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $90,827 $35,536 $ 2,075 $ 378 $26,406 $ 6,296
Ratio of Expenses to Average
Net Assets 2.04%(2) 2.11%(2) 2.01%(2) 2.01%* 2.03%*(2) 2.08%*(2)
Ratio of Net Investment Income
to Average Net Assets 2.39% 2.09% 2.40% 3.00%* 2.40%* 2.01%*
Portfolio Turnover Rate(3) 14.43% 23.68% 43.16% 53.58% 14.43% 23.68%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.03%, 2.10% and 2.00% for Class B
shares for 1998, 1997 and 1996, respectively and 2.02% and 2.07% for Class
C Shares for 1998 and 1997, respectively. Prior to 1996, such reductions
were reflected in the expenses ratios.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
See Notes to Financial Statements.
87
<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.
CLASS Y
<TABLE>
<CAPTION>
NOVEMBER 13, 1996
(INCEPTION
YEAR YEAR OF CLASS)
ENDED ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 25.34 $ 21.29 $ 21.39
------- ------- -------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net Investment Income 0.89 0.69 0.07
Net Realized and Unrealized
Gains (Losses) (1.27) 5.35 1.44
------- ------- -------
Total From Investment Operations 0.38) 6.04 1.51
------- ------- -------
DIVIDENDS AND DISTRIBUTIONS
Net Investment Income (0.85) (0.69) (0.06)
Distributions from Realized Gains (0.27) (1.22) (1.54)
Return of Capital -- (0.08) (0.01)
------- ------- -------
Total Dividend and Distributions (1.12) (1.99) (1.61)
------- ------- -------
Net Asset Value, End of Period $ 23.84 $ 25.34 $ 21.29
======= ======= =======
TOTAL RETURN (1) (1.46)% 28.80% 7.01%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $30,536 $36,543 $33,006
Ratio of Expenses to Average
Net Assets 0.86%(2) 0.95% 0.98%*
Ratio of Net Investment Income
to Average Net Assets 3.57% 3.09% 3.11%*
Portfolio Turnover Rate(3) 14.43% 23.68% 43.16%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 0.85% for 1998.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
See Notes to Financial Statements.
88
<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.
CLASS A
<TABLE>
<CAPTION>
JANUARY 3, 1994
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
DECEMBER 31, THROUGH
------------------------------------------ DECEMBER 31,
1998 1997 1996(1) 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 25.41 $ 21.24 $ 16.44 $ 14.72 $ 14.29
-------- -------- ------- ------- -------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net Investment Income 0.74 0.74 0.71 0.82 0.62
Net Realized and Unrealized
Gains (Losses) (4.65) 4.51 5.22 1.71 0.55
-------- -------- ------- ------- -------
Total From Investment Operations (3.91) 5.25 5.93 2.53 1.17
-------- -------- ------- ------- -------
DIVIDENDS AND DISTRIBUTIONS
Net Investment Income (0.74) (0.74) (0.70) (0.81) (0.62)
Distributions from Realized Gains -- (0.27) (0.25) -- (0.12)
Return of Capital (0.03) (0.07) (0.18) -- --
-------- -------- ------- ------- -------
Total Dividend and Distributions (0.77) (1.08) (1.13) (0.81) (0.74)
-------- -------- ------- ------- -------
Net Asset Value, End of Period $ 20.73 $ 25.41 $ 21.24 $ 16.44 $ 14.72
======== ======== ======= ======= =======
TOTAL RETURN (1) (15.56)% 25.08% 37.05% 17.70% 8.18%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $198,328 $147,488 $32,507 $29,320 $25,450
Ratio of Expenses to Average
Net Assets 1.21% 1.18% 1.32%(3) .43% 1.86%*
Ratio of Net Investment Income
to Average Net Assets 3.40% 3.40% 3.95% 5.44% 3.98%*
Portfolio Turnover Rate(3) 19.14% 12.50% 18.60% 38.82% 35.80%
</TABLE>
(1) Per share calculations other than distributions were based on average
shares outstanding during the period.
(2) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
(3) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.31% for 1996, respectively. Prior to
1996, such reductions were reflected in the expenses ratios.
(4) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
See Notes to Financial Statements.
89
<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
(INCEPTION
YEAR ENDED OF CLASS)
DECEMBER 31, THROUGH
---------------------------------------- DECEMBER 31,
1998 1997 1996(1) 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 25.32 $ 21.19 $ 16.41 $14.72 $14.73
-------- -------- ------- ------ ------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net Investment Income 0.56 0.54 0.56 0.68 0.02
Net Realized and Unrealized
Gains (Losses) (4.63) 4.47 5.21 1.70 0.11
-------- -------- ------- ------ ------
Total From Investment Operations (4.07) 5.01 5.77 2.38 0.13
-------- -------- ------- ------ ------
DIVIDENDS AND DISTRIBUTIONS
Net Investment Income (0.56) (0.54) (0.63) (0.69) (0.02)
Distributions from Realized Gains -- (0.27) (0.25) -- (0.12)
Return of Capital (0.02) (0.07) (0.11) -- --
-------- -------- ------- ------ ------
Total Dividend and Distributions (0.58) (0.88) (0.99) (0.69) (0.14)
-------- -------- ------- ------ ------
Net Asset Value, End of Period $ 20.67 $ 25.32 $ 21.19 $16.41 $14.72
======== ======== ======= ====== ======
TOTAL RETURN (1) (16.21)% 23.88% 35.99% 16.59% 0.89%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $143,993 $114,283 $10,919 $ 414 $ 34
Ratio of Expenses to Average
Net Assets 2.02% 2.04% 2.22% 2.39% 2.64%*
Ratio of Net Investment Income
to Average Net Assets 2.59% 2.60% 3.46% 4.48% 3.20%*
Portfolio Turnover Rate(3) 19.14% 12.50% 18.60% 38.82% 35.80%
</TABLE>
(1) Per share calculations other than distributions were based on average
shares outstanding during the period.
(2) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
See Notes to Financial Statements.
90
<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.
CLASS C
<TABLE>
<CAPTION>
AUGUST 13, 1997
(INCEPTION
YEAR OF CLASS)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Net Asset Value, Beginning of Period $ 25.49 $23.41
------- ------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net Investment Income 0.53 0.18
Net Realized and Unrealized Gains (Losses) (4.62) 2.42
------ ------
Total From Investment Operations (4.09) 2.60
------ ------
DIVIDENDS AND DISTRIBUTIONS
Net Investment Income (0.53) (0.18)
Distributions from Realized Gains - (0.27)
Return of Capital (0.06) (0.07)
------ ------
Total Dividend and Distributions (0.59) (0.52)
------ ------
Net Asset Value, End of Period $ 20.81 $25.49
======= ======
TOTAL RETURN(1) (16.20)% 11.12%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000 omitted) $34,336 $8,322
Ratio of Expenses to Average Net Assets 2.02% 2.03%*
Ratio of Net Investment Income to Average
Net Assets 2.59% 2.56%*
Portfolio Turnover Rate(2) 19.14% 12.50%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
(2) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
See Notes to Financial Statements.
91
<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.
CLASS Y
<TABLE>
<CAPTION>
NOVEMBER 8,1996
(INCEPTION
OF CLASS)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 25.56 $ 21.37 $ 19.29
------- ------- -------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net Investment Income 0.83 0.79 0.13
Net Realized and Unrealized
Gains (Losses) (4.67) 4.54 2.35
------- ------- -------
Total From Investment Operations (3.84) 5.33 2.48
------- ------- -------
DIVIDENDS AND DISTRIBUTIONS
Net Investment Income (0.83) (0.79) (0.13)
Distributions from Realized Gains -- (0.27) (0.25)
Return of Capital (0.03) (0.08) (0.02)
------- ------- -------
Total Dividend and Distributions (0.86) (1.14) (0.40)
------- ------- -------
Net Asset Value, End of Period $ 20.86 $ 25.56 $ 21.37
======= ======= =======
TOTAL RETURN (1) (15.20)% 25.29% 12.89%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $37,054 $27,147 $18,165
Ratio of Expenses to Average
Net Assets 0.83%(2) 1.00% 1.18%*
Ratio of Net Investment Income
to Average Net Assets 3.79% 3.47% 4.22%*
Portfolio Turnover Rate(3) 19.14% 12.50% 18.60%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 0.82% for 1998.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
See Notes to Financial Statements.
92
<PAGE>
DAVIS SERIES, INC.
INCOME TAX INFORMATION (UNAUDITED)
December 31, 1998
================================================================================
In early 1999, shareholders will receive information regarding all dividends
and distributions paid to them by the Fund during calendar year 1998.
Regulations of the U.S. Treasury Department require the Fund to report this
information to the Internal Revenue Service.
DAVIS GROWTH OPPORTUNITY FUND
Distributions of $1.03 per share were paid to Class A, Class B, Class C and
Class Yshareholders during the calendar year 1998, all of which was designated
as a "capital gain distribution" for federal income tax purposes. Whether
received in stock or cash, the capital gain distribution should be treated by
shareholders as a gain from the sale of capital assets held for more than one
year (long-term capital gains).
None of the dividends paid by the Fund during the calendar year ended 1998
are eligible for the corporate dividend-received deduction.
DAVIS GOVERNMENT BOND FUND
None of the dividends paid by the Fund during the calendar year ended 1998
are eligible for the corporate dividend-received deduction.
DAVIS CONVERTIBLE SECURITIES FUND
Distributions of $1.04000, $0.81850, $0.83350 and $1.11980 per share were
paid to Class A, Class B, Class C and Class Yshareholders during the calendar
year 1998, of which $0.27000 was designated as a "capital gain distribution" for
federal income tax purposes. Whether received in stock or cash, the capital gain
distribution should be treated by shareholders as a gain from the sale of
capital assets held for more than one year (long-term capital gains).
Dividends paid by the Fund during the calendar year ended 1998 which are not
designated as capital gain distributions should be multiplied by 37.6% to arrive
at the net amount eligible for the corporate dividend-received deduction.
DAVIS REAL ESTATE FUND
Dividends paid by the Fund during the calendar year ended 1998 which are not
designated as capital gain distributions should be multiplied by 7.1% to arrive
at the net amount eligible for the corporate dividend-received deduction.
The foregoing information is presented to assists shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because of
the complexity of the federal regulations which may affect your individual tax
return and the many variations in state and local regulations, we recommend that
you consult your tax adviser for specific guidance.
93
<PAGE>
DAVIS SERIES, INC.
INDEPENDENT AUDITORS' REPORT
================================================================================
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF DAVIS SERIES, INC.:
We have audited the accompanying statements of assets and liabilities of
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 investments as of December 31,
1998 and the related statements of operations, the statements of changes in net
assets, and the financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The statements of
changes in net assets for the year ended December 31, 1997 and the financial
highlights for each of the years in the four-year period ended December 31, 1997
were audited by other auditors whose report dated February 13, 1998, expressed
an unqualified opinion of this information.
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, 1998, by correspondence with the custodian and brokers; and where
confirmations were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial positions of
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 as of December 31, 1998, and the results of operations,
the changes in net assets and the financial highlights for the year then ended,
in conformity with generally accepted accounting principles.
KPMG LLP
Denver, Colorado
February 5, 1999
94
<PAGE>
DAVIS SERIES, INC.
124 East Marcy Street Santa Fe, New Mexico 87501
DIRECTORS OFFICERS
Jeremy H. Biggs Jeremy H. Biggs
Wesley E. Bass, Jr. CHAIRMAN
Marc P. Blum Shelby M.C. Davis
Andrew A. Davis PRESIDENT
Christopher C. Davis Kenneth C. Eich
Jerry D. Geist VICE PRESIDENT
D. James Guzy Sharra L. Reed
G. Bernard Hamilton VICE PRESIDENT,
LeRoy E. Hoffberger TREASURER &
Laurence W. Levine ASSISTANT SECRETARY
Christian R. Sonne Thomas D. Tays
VICE PRESIDENT & SECRETARY
Christopher C. Davis
VICE PRESIDENT
Andrew A. Davis
VICE PRESIDENT
Carolyn H Spolidoro
VICE PRESIDENT
INVESTMENT ADVISER
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
(800) 279-2279
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
111 E. Wacker Drive, Suite 2800
Chicago, Illinois 60601-4205
AUDITORS
KPMG LLP
707 Seventeenth Street, Suite 2300
Denver, CO 80202
================================================================================
FOR MORE INFORMATION ABOUT DAVIS SERIES, INC. INCLUDING MANAGEMENT FEE, CHARGES
AND EXPENSES, SEE THE CURRENT PROSPECTUS WHICH MUST PRECEDE OR ACCOMPANY THIS
REPORT.
95
