<PAGE>
ANNUAL REPORT
SEPTEMBER 30, 1999
DAVIS INTERNATIONAL
TOTAL RETURN FUND
[DAVIS FUNDS LOGO]
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
Dear Shareholder,
The Davis International Total Return Fund's Class A shares delivered a total
return on net asset value of 15.44% for the one-year period ended September 30,
1999.(1) The Morgan Stanley Capital International EAFE Index (Europe, Australia,
Far East Index) generated a return of 31.32% over the same time period.(2) While
the Fund's return is reasonable in absolute terms, it is disappointing in
relative terms. It is also important to remember that the starting date for this
reporting period--October 1, 1998--was at the depth of the Asian financial
crisis when fears of a global economic slowdown were mounting. Markets overall
have moved substantially higher since that time.
INVESTING IN GLOBAL LEADERS
Our philosophy as managers is to invest in leading world-class companies with
strong global positions and international savvy--including both international
companies and U.S.-based companies with substantial overseas operations.
The Fund has a clear bias toward global leaders in growth sectors. For example,
in the fast-growing area of technology, we hold Koninklijke Philips Electronics,
Taiwan Semiconductor and Sony.(3) In the global consumer area, we own such
leaders as Coca-Cola West Japan, Heineken, Gillette and Philip Morris. In the
financial services area, we own companies such as Transatlantic Holdings and
Swiss Re in reinsurance and UBS in private banking. In the growing area of
global media, we own advertising giants such as WPP and Saatchi & Saatchi and
news companies such as Telegraaf Holdings. Finally, in global pharmaceuticals,
we hold American Home Products, Bristol-Myers Squibb, Pharmacia & Upjohn and
Monsanto.
A CLOSER LOOK AT OUR APPROACH
As is notable from the above list, the Fund does not have a significant presence
in Asia in general or Japan in particular and, thus, has not benefited from the
strong turnaround in those markets. Because of our research-driven, bottom-up
approach, we do not make investment decisions based on macroeconomic
predictions. Instead, we have built the portfolio on a company-by-company basis,
focusing on global leaders. It should be noted that the Fund holds a number of
positions in U.S.-domiciled companies, albeit those with significant global
exposure, which are not included in the EAFE benchmark index.
As the Fund is somewhat concentrated in fewer positions, investors should be
aware that many regions of the world are underrepresented in our portfolio.
Moreover, because of our relatively large holdings in businesses whose
short-term results are subject to great volatility, such as Taiwan Semiconductor
and Globalstar Telecommunications, overall Fund results may similarly be
volatile.
The entire research team is pleased with the quality of the businesses that we
now own and the prices at which they were acquired. We look forward to reporting
to you about the future of our portfolio companies.
The Davis Portfolio Management Team
November 5, 1999
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
This Annual Report is authorized for distribution only when accompanied or
preceded by a current prospectus of Davis International Total Return Fund which
contains more information about risks, fees and expenses. Please read the
prospectus carefully before investing or sending money.
(1) 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. Below are the average
annual total returns for Davis International Total Return Fund's Class A shares
for the periods ending September 30, 1999. Returns for other classes of shares
will vary from the following figures:
* (Without a 4.75% sales charge taken into consideration )
<TABLE>
<CAPTION>
FUND NAME 1 YEAR 5 YEAR 10 YEAR INCEPTION
<S> <C> <C> <C> <C>
Davis International Total Return A 15.44% N/A N/A 4.60% - 02/01/95
** (With a 4.75% sales charge taken into consideration)
FUND NAME 1 YEAR 5 YEAR 10 YEAR INCEPTION
Davis International Total Return A 9.98% N/A N/A 3.51% - 02/01/95
</TABLE>
(2) The Morgan Stanley Capital International EAFE Index is a recognized
international index that includes approximately 1,000 companies representing the
stock markets of 18 countries in Europe, Australia, New Zealand, and the Far
East. The average company has a market capitalization of over $3 billion. This
is a total return index calculated in U.S. dollars, with gross dividends
reinvested. It would be difficult to invest directly in the index.
(3) The Fund's portfolio securities as of September 30, 1999, including the
securities discussed in this letter, are listed in the Schedule of Investments.
Portfolio holdings are subject to change.
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.
2
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
DAVIS INTERNATIONAL TOTAL RETURN FUND -- CLASS A SHARES
COMPARISON OF DAVIS INTERNATIONAL TOTAL RETURN FUND AND
EUROPE AUSTRALIA FAR EAST INDEX
================================================================================
Average Annual Total Return For the Periods ended September 30, 1999.
- -----------------------------------------------------------------
CLASS A SHARES
(This calculation includes an initial sales charge of 4 3/4%).
One Year ........................................................ 9.98%
Life of Class (February 1, 1995 through September 30, 1999) ..... 3.51%
- -----------------------------------------------------------------
$10,000 INVESTED AT INCEPTION. Let's say you invested $10,000 in Class A shares
of Davis International Total Return Fund on February 1, 1995 (inception of Fund)
and paid a 4 3/4% sales charge. As the chart shows, by September 30, 1999 the
value of your investment would have grown to $11,747 - a 17.47% increase on your
initial investment. For comparison, the Europe Australia Far East Index is also
presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
DITRF Class A EAFE Index
------------- ----------
2/1/95 9,525 10,000
9/30/95 11,286 11,138
9/30/96 12,174 12,134
9/30/97 12,505 13,649
9/30/98 10,175 12,546
9/30/99 11,747 16,476
Europe Australia Far East Index is an unmanaged index and has no specific
investment objective. The index used does not take into account any sales
charges and has no expenses.
The performance data for Davis International Total Return 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.
3
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
DAVIS INTERNATIONAL TOTAL RETURN FUND -- CLASS B SHARES
COMPARISON OF DAVIS INTERNATIONAL TOTAL RETURN FUND AND EUROPE AUSTRALIA
FAR EAST INDEX
================================================================================
Average Annual Total Return For the Periods ended September 30, 1999.
- -----------------------------------------------------------------
CLASS B SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year......................................................... 10.25%
Life of Class (February 1, 1995 through September 30, 1999)...... 3.28%
- -----------------------------------------------------------------
$10,000 INVESTED AT INCEPTION. Let's say you invested $10,000 in Class B shares
of Davis International Total Return Fund on February 1, 1995 (inception of
Fund). As the chart shows, by September 30, 1999 the value of your investment,
after deducting any applicable contingent deferred sales charge, would have
grown to $11,625 - a 16.25% increase on your initial investment. For comparison,
the Europe Australia Far East Index is also presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
DITRF Class B EAFE Index
------------- ----------
2/1/95 10,000 10,000
9/30/95 11,790 11,138
9/30/96 12,627 12,134
9/30/97 12,851 13,649
9/30/98 10,350 12,546
9/30/99 11,625 16,476
Europe Australia Far East Index is an unmanaged index and has no specific
investment objective. The index used does not take into account any sales
charges and has no expenses.
The performance data for Davis International Total Return 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.
4
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
DAVIS INTERNATIONAL TOTAL RETURN FUND -- CLASS C SHARES
COMPARISON OF DAVIS INTERNATIONAL TOTAL RETURN FUND AND EUROPE AUSTRALIA
FAR EAST INDEX
================================================================================
Average Annual Total Return For the Periods ended September 30, 1999.
- -----------------------------------------------------------------
CLASS C SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year......................................................... 13.83%
Life of Class (August 19, 1997 through September 30, 1999)....... (4.08%)
- -----------------------------------------------------------------
$10,000 INVESTED AT INCEPTION. Let's say you invested $10,000 in Class C shares
of Davis International Total Return Fund on August 19, 1997 (inception of
class). As the chart shows, by September 30, 1999 the value of your investment
would have been $9,157 - a 8.43% decrease on your initial investment. For
comparison, the Europe Australia Far East Index is also presented on the chart
below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
DITRF Class C EAFE Index
------------- ----------
8/19/97 10,000 10,000
9/30/97 9,887 10,562
9/30/98 7,974 9,709
9/30/99 9,157 12,749
Europe Australia Far East Index is an unmanaged index and has no specific
investment objective. The index used does not take into account any sales
charges and has no expenses.
The performance data for Davis International Total Return 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.
5
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
PORTFOLIO HOLDINGS AS OF SEPTEMBER 30, 1999
================================================================================
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
PORTFOLIO MAKEUP (% OF FUND NET ASSETS)
Preferred Stocks 3.5%
Common Stocks 92.7%
Other Assets & Liabilities 3.8%
SECTOR WEIGHTINGS (% OF PORTFOLIO)
Retail 5.0%
Pharmaceuticals 12.2%
Food/Beverage 10.7%
Consumer Products 8.7%
Insurance 10.9%
Banking 10.4%
Publishing 8.2%
Technology 14.4%
Advertising 7.1%
Telecommunications 5.5%
Other 6.9%
<TABLE>
<CAPTION>
TOP 10 HOLDINGS SECTOR % OF FUND NET ASSETS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Koninklijke Philips Electronics NV Technology 5.76%
Taiwan Semiconductor Manufacturing Co. Ltd. ADR Technology 5.64%
Globalstar Telecommunications Ltd. Telecommunications 5.35%
WPP Group PLC Advertising 5.25%
Transatlantic Holdings, Inc. Insurance 4.92%
UBS - AG, Registered Banking 4.73%
Heineken NV Beverages 4.64%
Monsanto Co. Pharmaceuticals 4.11%
Coca-Cola West Japan Co. Ltd. Beverages 3.86%
Newsquest PLC Publishing 3.53%
</TABLE>
6
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
PORTFOLIO ACTIVITY -- OCTOBER 1, 1998 THROUGH SEPTEMBER 30, 1999
================================================================================
NEW POSITIONS ADDED (10/1/98-9/30/99)
(HIGHLIGHTED POSITIONS ARE THOSE GREATER THAN 2.50% OF 9/30/99 TOTAL NET
ASSETS.)
<TABLE>
<CAPTION>
% OF 9/30/99
DATE OF 1ST FUND
SECURITY SECTOR PURCHASE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ace Ltd. Insurance 4/5/99 2.37%
Adidas-Salomon AG Consumer Products 11/4/98 2.12%
Alcatel Telecommunications 10/7/98 -
Aldeasa, SA Retail 10/16/98 2.39%
American Home Products Corp. Pharmaceuticals 8/18/99 1.29%
Antenna TV SA-ADR Broadcast Service 3/4/99 -
Argentaria, SA Banking 1/7/99 -
Arnoldo Mondadori Editore SpA Publishing 12/21/98 1.90%
Asatsu-DK Inc. Advertising 12/11/98 -
AstraZeneca Group PLC-ADR Pharmaceuticals 11/5/98 -
Bristol-Myers Squibb Co. Pharmaceuticals 5/11/99 1.26%
Bulgari SpA Retail 12/11/98 -
Canadian Pacific Ltd. Transportation 10/8/98 -
Canadian Tire Corp. Ltd.-Class A Retail 10/5/98 -
Coca-Cola West Japan Co. Ltd. Beverages 10/19/98 3.86%
Compagnie Financiere Richemont-UTS AG Financial Services 10/16/98 3.15%
Continental AG Industrial Products 11/5/98 -
Cott Corp. Food & Restaurant 10/2/98 -
Courtaulds Textiles PLC Consumer Products 11/3/98 2.00%
Deodeo Corp. Retail 11/5/98 -
Diageo PLC Food & Restaurant 10/07/98 -
The T. Eaton Co. Ltd. Retail 10/5/98 -
Equant NV Computer Systems 2/12/99 -
Eridania Beghin-Say SA Agriculture 1/15/99 -
Fairview Holdings PLC Real Estate 12/11/98 -
Fortis NV Financial Services 1/13/99 -
Galeries Lafayette Retail 10/6/98 2.36%
The Gillette Co. Consumer Products 4/20/99 2.16%
Glaxo Wellcome PLC Pharmaceuticals 10/7/98 1.95%
Globalstar Telecommunications Ltd. Telecommunications 4/6/99 5.35%
Gucci Group NV Consumer Products 1/7/99 -
Havas Advertising SA Advertising 11/4/98 -
Hazlewood Foods PLC Food & Restaurant 10/16/98 -
Hillsdown Holdings PLC Consumer Products 11/5/98 -
Imperial Chemical Industries PLC Chemicals 10/7/98 -
Imperial Tobacco Group PLC Consumer Products 1/7/99 -
Internet Initiative Japan Inc.-ADR Internet Software 8/3/99 -
Koninklijke Philips Electronics NV Technology 11/18/98 5.76%
Laox Retail 11/5/98 -
LVMH Consumer Products 10/7/98 -
Mikuni Coca-Cola Bottling Co., Ltd. Beverages 11/5/98 -
Monsanto Co. Pharmaceuticals 4/26/99 4.11%
</TABLE>
7
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
PORTFOLIO ACTIVITY -- OCTOBER 1, 1998 THROUGH SEPTEMBER 30, 1999
================================================================================
NEW POSITIONS ADDED (10/1/98-9/30/99) - CONTINUED
(HIGHLIGHTED POSITIONS ARE THOSE GREATER THAN 2.50% OF 9/30/99 TOTAL NET
ASSETS.)
<TABLE>
<CAPTION>
% OF 9/30/99
DATE OF 1ST FUND
SECURITY SECTOR PURCHASE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Newsquest PLC Publishing 11/11/98 3.53%
Nobleza Piccardo SA Consumer Products 10/22/98 -
Nycomed Amersham PLC Pharmaceuticals 11/5/98 -
Old Mutual PLC Insurance 7/12/99 1.00%
Pacific Internet Ltd. Internet Software 2/5/99 -
Pharmacia & Upjohn, Inc. Pharmaceuticals 5/11/99 3.09%
Philip Morris Cos., Inc. Consumer Products 10/7/98 2.13%
PrimaCom AG Cable Television Services 2/19/99 -
PT Ramayana Lestari Sentosa TBK Retail 10/12/98 -
Saatchi & Saatchi PLC Advertising 11/5/98 1.61%
Safeway PLC Retail 10/16/98 -
SAP AG Computer Software 4/6/99 3.48%
Saskatchewan Wheat Pool Agriculture 10/5/98 -
The Selecta Group, Registered Food & Restaurant 1/7/99 1.80%
Smiths Industries PLC Aerospace 12/10/98 -
Somerfield PLC Food & Restaurant 10/7/98 -
Sony Corp. Technology 7/29/99 2.50%
Swiss Com AG Telecommunications 10/5/98 -
Synstar PLC Computer Services 2/26/99 -
Taiwan Semiconductor Manufacturing Co. Ltd. ADR Technology 4/21/99 5.64%
Takeda Chemical Industries Ltd. Pharmaceuticals 2/10/99 -
Tate & Lyle PLC Sugar Manufacturer 12/16/98 -
Telegraaf Holdings MIJ - CVA Publishing 12/22/98 1.36%
Terranova Foods PLC Food & Restaurant 11/5/98 -
Torstar Corp.-Class B Publishing 10/20/98 -
Transatlantic Holdings, Inc. Insurance 4/26/99 4.92%
UBS-AG, Registered Banking 12/10/98 4.73%
United News & Media PLC Publishing 10/13/98 -
Usinor SA Steel Producer 10/7/98 -
Van Melle NV Food & Restaurant 12/22/98 -
Versatel Telecom Intl NV-ADR Telecommunications 7/23/99 -
VNU NV Publishing 1/7/99 1.08%
Vtech Holdings Ltd. Technology 2/3/99 -
WPP Group PLC Advertising 11/12/98 5.25%
</TABLE>
8
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
PORTFOLIO ACTIVITY -- OCTOBER 1, 1998 THROUGH SEPTEMBER 30, 1999
================================================================================
POSITIONS CLOSED (10/1/98-9/30/99) (GAINS OR LOSSES GREATER THAN $250,000 ARE
HIGHLIGHTED.)
<TABLE>
<CAPTION>
DATE OF FINAL
SECURITY SECTOR SALE GAIN/(LOSS)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ABB Ltd., Bearer Engineering 11/10/98 48,184
Alcatel Telecommunications 12/3/98 114,346
Antenna TV SA Broadcast Service 3/5/99 (15,324)
Argentaria, SA Banking 4/27/99 (58,724)
Asatsu-DK Inc. Advertising 3/17/99 (44,290)
Asko Oyj Diversified 12/16/98 (31,197)
AstraZeneca Group PLC-ADR Pharmaceuticals 4/6/99 114,768
Bayerische Hypo- und Vereinsbank AG Banking 10/20/98 55,072
Bank of Bermuda Ltd. Banking 10/28/98 (174,660)
BHF-Bank AG Banking 10/8/98 (119,481)
Bulgari SpA Retail 5/11/99 (28,027)
Canadian Pacific Ltd. Transportation 3/11/99 56,746
Canadian Tire Corp. Ltd.-Class A Retail 4/21/99 76,873
Cap Gemini SA Computer Products 11/5/98 2,698
Ciba Specialty Chemicals Ltd., Registered Pharmaceuticals 10/5/98 221,596
Continental AG Industrial Products 4/1/99 (24,072)
Cott Corp. Food & Restaurant 6/16/99 (322,803)
CRH PLC Diversified 10/2/98 96,253
Deodeo Corp. Retail 2/23/99 12,534
Diageo PLC Food & Restaurant 12/21/98 65,614
The T. Eaton Co. Ltd. Retail 8/18/99 (1,089,147)
Electrolux AB Manufacturing 12/21/98 (12,309)
Elkjop Norge ASA Technology 10/6/98 (37,477)
ENI SpA Energy 11/6/98 346,694
Equant NV Computer Systems 2/12/99 3,623
Eridania Beghin-Say SA Agriculture 4/6/99 (33,474)
Fairview Holdings PLC Real Estate 4/6/99 116,158
Far East Bank & Trust Co. Banking 10/7/98 (27,574)
Fortis NV Financial Services 2/19/99 22,122
Garban-Intercapital PLC Financial Services 12/11/98 1,534
Global TeleSystems Group, Inc. Telecommunications 10/2/98 (323,134)
Gucci Group NV Consumer Products 4/6/99 60,892
Havas Advertising SA Advertising 2/12/99 62,457
Hazlewood Foods PLC Food & Restaurant 7/8/99 (170,792)
Hillsdown Holdings PLC Consumer Products 7/27/99 194,522
Imperial Chemical Industries PLC Chemicals 12/3/98 34,587
Imperial Tobacco Group PLC Consumer Products 2/3/99 8,159
ING Groep NV Banking 1/19/99 134,144
Internet Initiative Japan Inc.-ADR Internet Software 8/4/99 3,497
Laox Retail 2/18/99 41,939
LVMH Consumer Products 11/12/98 55,302
Mannesmann AG Manufacturing 10/20/98 (50,909)
Merita PLC-Class A Banking 12/14/98 (131,129)
</TABLE>
9
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
PORTFOLIO ACTIVITY -- OCTOBER 1, 1998 THROUGH SEPTEMBER 30, 1999
================================================================================
POSITIONS CLOSED (10/1/98-9/30/99) - CONTINUED (GAINS OR LOSSES GREATER THAN
$250,000 ARE HIGHLIGHTED.)
<TABLE>
<CAPTION>
DATE OF FINAL
SECURITY SECTOR SALE GAIN/(LOSS)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mikuni Coca-Cola Bottling Co., Ltd. Beverages 4/1/99 89,109
Nobleza Piccardo SA Consumer Products 2/11/99 2,337
Nokia Oyj - Class A Telecommunications 10/5/98 500,008
Novartis Ltd., Registered Pharmaceuticals 5/11/99 2,293,245
Nycomed Amersham PLC Pharmaceuticals 5/12/99 127,871
Orange PLC Telecommunications 10/15/98 (138,716)
Pacific Internet Ltd. Internet Software 2/5/99 81,534
Panamerican Beverages Inc. - Class A Beverages 10/1/98 (290,325)
PrimaCom AG Cable Television Services 2/23/99 2,842
Raisio Group PLC Food & Restaurant 10/14/98 391,969
PT Ramayana Lestari Sentosa TBK Retail 3/19/99 210,144
Ryanair Holdings PLC Aviation 10/2/98 56,890
Safeway PLC Retail 7/9/99 (158,906)
Saskatchewan Wheat Pool Agriculture 1/14/99 (11,026)
Skandia Forsakrings AB Insurance 11/5/98 336,156
SKF AB Series B Industrial Products 11/5/98 (122,771)
Smiths Industries PLC Aerospace 7/28/99 (5,177)
Somerfield PLC Food & Restaurant 7/22/99 (317,903)
Standard Chartered PLC Banking 1/29/99 692,798
Swiss Com AG Telecommunications 1/13/99 803,157
Synstar PLC Computer Services 4/16/99 (108,153)
Takeda Chemical Industries Ltd. Pharmaceuticals 4/6/99 50,097
Tate & Lyle PLC Sugar Manufacturer 3/1/99 138,281
Telecom Italia MOB Telecommunications 12/14/98 92,950
Telecom Italia SpA Telecommunications 11/10/98 102,871
Terranova Foods PLC Food & Restaurant 4/8/99 149,680
Tomra Systems ASA Waste Management 10/6/98 (48,318)
Torstar Corp.-Class B Publishing 4/1/99 48,738
Unilever NV Consumer Products 3/8/99 347,206
Union Electrica Fenosa, SA Utilities 10/7/98 67,945
United News & Media PLC Publishing 2/18/99 49,981
Usinor SA Steel Producer 12/10/98 (5,479)
Van Melle NV Food & Restaurant 3/10/99 (10,324)
Versatel Telecom Intl NV-ADR Telecommunications 7/23/99 2,091
Vestas Wind Systems A/S Utilities 10/6/98 (3,088)
Vodafone Group PLC Telecommunications 10/15/98 (8,540)
Vtech Holdings Ltd. Technology 8/20/99 74,009
Xeikon NV, ADR (144A) Manufacturing 10/7/98 (118,170)
Zodiac SA Consumer Products 10/6/98 (28,728)
</TABLE>
10
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS
At September 30, 1999
================================================================================
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C>
COMMON STOCKS - (92.74%)
BERMUDA - (2.37%)
45,000 Ace Ltd.................................................................... $ 762,188
---------------
FRANCE - (2.36%)
5,000 Galeries Lafayette......................................................... 759,740
---------------
GERMANY - (2.12%)
8,000 Adidas-Salomon AG.......................................................... 679,715
---------------
ITALY - (1.90%)
35,000 Arnoldo Mondadori Editore SpA............................................. 610,764
---------------
JAPAN - (6.36%)
27,000 Coca-Cola West Japan Co. Ltd............................................... 1,239,385
5,400 Sony Corp.................................................................. 804,783
---------------
2,044,168
NETHERLANDS - (14.90%)
30,000 Heineken NV................................................................ 1,490,733
12,198 ING Groep NV............................................................... 661,943
18,400 Koninklijke Philips Electronics NV......................................... 1,850,169
22,500 Telegraaf Holdings MIJ - CVA............................................... 438,122
10,000 VNU NV..................................................................... 346,898
---------------
4,787,865
SPAIN - (2.39%)
29,000 Aldeasa, SA................................................................ 768,897
---------------
SWITZERLAND - (11.85%)
500 Compagnie Financiere Richemont - UTS AG.................................... 1,010,982
1,500 The Selecta Group, Registered.............................................. 579,055
350 Swiss Reinsurance Co., Registered ......................................... 697,863
5,400 UBS - AG, Registered....................................................... 1,520,296
---------------
3,808,196
TAIWAN - (5.65%)
61,500 Taiwan Semiconductor Manufacturing Co. Ltd. ADR*........................... 1,814,250
----------------
UNITED KINGDOM - (18.53%)
275,000 Courtaulds Textiles PLC.................................................... 642,880
24,128 Glaxo Wellcome PLC......................................................... 626,072
83,887 Lloyds TSB Group PLC....................................................... 1,026,381
150,000 Newsquest PLC.............................................................. 1,135,946
150,000 Old Mutual PLC*............................................................ 319,794
150,000 Saatchi & Saatchi PLC...................................................... 517,103
180,000 WPP Group PLC.............................................................. 1,687,621
---------------
5,955,797
---------------
</TABLE>
11
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1999
================================================================================
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C>
COMMON STOCKS - CONTINUED
UNITED STATES OF AMERICA - (24.31%)
10,000 American Home Products Corp................................................ $ 415,000
6,000 Bristol - Myers Squibb Co.................................................. 405,000
20,500 The Gillette Co............................................................ 695,719
75,000 Globalstar Telecommunications Ltd.*........................................ 1,720,313
37,000 Monsanto Co................................................................ 1,320,438
20,000 Pharmacia & Upjohn, Inc.................................................... 992,500
20,000 Philip Morris Cos., Inc.................................................... 683,750
22,500 Transatlantic Holdings, Inc................................................ 1,580,625
---------------
7,813,345
---------------
TOTAL COMMON STOCKS (identified cost $27,588,002) 29,804,925
---------------
PREFERRED STOCKS - (3.48%)
GERMANY - (3.48%)
2,500 SAP AG - (identified cost $785,678)........................................ 1,119,912
---------------
TOTAL INVESTMENTS (identified cost $28,373,680) -
(96.22%) (a).................................................. 30,924,837
OTHER ASSETS LESS LIABILITIES - (3.78%)........................... 1,215,114
---------------
NET ASSETS - (100%)............................................... $ 32,139,951
===============
(a)Aggregate cost for Federal income tax purposes is $28,373,680.
* Non income-producing security.
At September 30, 1999, unrealized appreciation (depreciation) of securities for
Federal income tax purposes was as follows:
Unrealized appreciation............................................... $ 5,396,803
Unrealized depreciation............................................... (2,845,646)
--------------
Net unrealized appreciation........................................ $ 2,551,157
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES - At September 30, 1999
================================================================================
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value (identified cost - $28,373,680) (See accompanying
Schedule of Investments)......................................................... $ 30,924,837
Cash................................................................................. 109,569
Receivables:
Dividends and interest........................................................... 57,901
Capital stock sold............................................................... 971,094
From adviser..................................................................... 97,712
Prepaid expenses..................................................................... 10,463
Other assets......................................................................... 42,267
-----------------
Total assets................................................................ 32,213,843
-----------------
LIABILITIES:
Payable for capital stock redeemed................................................... 1,719
Accrued expenses..................................................................... 67,680
Other liabilities.................................................................... 4,493
-----------------
Total liabilities........................................................... 73,892
-----------------
NET ASSETS ............................................................................... $ 32,139,951
=================
CLASS A SHARES
Net assets....................................................................... $ 27,201,691
Shares outstanding............................................................... 2,545,032
Net asset value and redemption price per share................................... $ 10.69
========
Maximum offering price per share (100/95.25 of $10.69)*.......................... $ 11.22
========
CLASS B SHARES
Net assets....................................................................... $ 4,635,983
Shares outstanding............................................................... 451,797
Net asset value and redemption price per share................................... $ 10.26
========
CLASS C SHARES
Net assets....................................................................... $ 302,277
Shares outstanding............................................................... 28,699
Net asset value and redemption price per share................................... $ 10.53
========
NET ASSETS CONSIST OF:
Par value of shares of capital stock................................................. $ 3,026
Additional paid-in capital........................................................... 33,421,422
Accumulated net investment loss...................................................... (1,143,399)
Net unrealized appreciation on investments and translation of assets and liabilities in
foreign currencies............................................................... 2,551,157
Accumulated net realized losses from investments and foreign currency transactions (2,692,255)
------------------
Net assets.................................................................. $ 32,139,951
=================
</TABLE>
* On purchases of $100,000 or more, the offering price is reduced.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
STATEMENT OF OPERATIONS - For the year ended September 30, 1999
================================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME (LOSS):
Income:
<S> <C>
Dividends (Net of foreign withholding taxes of $60,485).......................... $ 559,175
Interest......................................................................... 39,203
-----------------
Total income................................................................ 598,378
-----------------
Expenses:
Management fees (Note 3)...................................... $ 350,101
Custodian fees................................................ 67,115
Transfer agent fees
Class A..................................................... 23,727
Class B..................................................... 11,431
Class C..................................................... 600
Audit fees.................................................... 14,950
Legal fees.................................................... 11,927
Accounting fees (Note 3)...................................... 8,004
Reports to shareholders....................................... 59,624
Directors' fees and expenses.................................. 33,409
Registration and filing fees ................................. 74,904
Miscellaneous................................................. 6,619
Payments under distribution plan (Note 4)
Class A..................................................... 21,977
Class B..................................................... 56,168
Class C..................................................... 2,934
---------------
Total expenses.............................................................. 743,490
Reimbursement of expenses by adviser (Note 3).................................... (166,390)
Expenses paid indirectly (Note 6)................................................ (1,681)
----------------
Net expenses................................................................ 575,419
-----------------
Net investment income................................................... 22,959
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) from:
Investment transactions.......................................................... 6,477,350
Foreign currency transactions.................................................... (538,036)
Net decrease in unrealized appreciation of investments............................... (1,007,482)
-------------------
Net realized and unrealized gain on investments and foreign currency........ 4,931,832
------------------
Net increase in net assets resulting from operations........................ $ 4,954,791
==================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
--------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)................................... $ 22,959 $ (25,542)
Net realized gain (loss) from investments and foreign currency
transactions............................................... 5,939,314 (7,888,819)
Decrease in unrealized appreciation on investments and
translation of assets and liabilities in foreign currencies (1,007,482) (537,854)
------------- ----------------
Net increase (decrease) in net assets resulting from
operations............................................ 4,954,791 (8,452,215)
CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets resulting from capital share
transactions (Note 5)
Class A.................................................... (3,797,361) (5,902,135)
Class B.................................................... (1,654,561) (1,281,658)
Class C.................................................... 10,020 232,064
------------- ----------------
Total decrease in net assets.............................. (487,111) (15,403,944)
NET ASSETS:
Beginning of year.............................................. 32,627,062 48,031,006
------------- ----------------
End of year (including net investment loss of 1,143,399
in 1999)............................................... $ 32,139,951 $ 32,627,062
============= ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
At September 30, 1999
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Davis International 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 currently offers one fund, Davis
International Total Return Fund (the "Fund") whose primary objective is to
achieve total return through capital growth or income or both. The Fund invests
principally in the common stock of foreign companies and in common stock issued
by U.S. companies doing substantial business in foreign markets. The Fund offers
shares in four classes, Class A, Class B, Class C and Class Y. The Class A
shares are sold with a front-end sales charge, the Class B and Class C shares
are sold at net asset value and may be subject to a contingent deferred sales
charge upon redemption. Class Y shares are sold at net asset value and are not
subject to any contingent deferred sales charge. Class Y shares are only
available to certain qualified investors. 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 Fund in the
preparation of its financial statements.
SECURITY VALUATION - Portfolio securities are normally valued using current
market valuations: either the last reported sales price, or in the case of
securities for which there is no reported last sale, the closing bid price. Debt
securities maturing in 60 days or less are usually valued at amortized cost and
longer term debt securities may be valued by an independent pricing service or
broker. Securities for which market quotations are not readily available and
other assets are appraised at fair value as determined in good faith in
accordance with methods that are authorized by the Board of Directors. Because
of the difference in times of closing of markets in which the Fund's securities
are traded, events affecting portfolio values that occur between the time their
prices are determined and the time the Fund's shares are priced will generally
not be reflected in the Fund's share price.
FOREIGN CURRENCY - Amounts denominated in or expected to settle in foreign
currencies ("FC") are translated into United States dollars at current exchange
rates computed by State Street Bank & Trust Company ("State Street Bank"), the
Fund's custodian bank. Investment securities, other assets, and liabilities are
valued at the closing rate of exchange at the balance sheet date. Purchases and
sales of investment securities, income and expenses are valued at the rate of
exchange prevailing on the respective dates of such transactions (or at an
average rate if significant rate fluctuations have not occurred). The Fund does
not isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from changes
in market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales
and maturities of short-term securities, sales of FCs, 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.
16
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At September 30, 1999
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
FOREIGN CURRENCY CONTRACTS - The Fund 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 as an unrealized gain or loss equal to the difference between
the value of the forward currency contract at the time it was opened and the
value at the time it was closed. Investments in forward currency contracts may
expose the company to risks resulting from unanticipated movements in foreign
currency exchange rates or failure of the counter-party to the agreement to
perform in accordance with the terms of the contract.
FEDERAL INCOME TAXES - It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no provision for federal income or excise tax is required. At September 30,
1999, the Fund had approximately $2,692,000 of capital loss carryovers available
to offset future capital gains, if any, which expire in 2007.
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. Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis.
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 Fund.
The Fund adjusts 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
September 30, 1999, amounts have been reclassified to reflect a decrease in
undistributed net investment income of $1,166,358, a decrease in accumulated net
realized losses of $3,763,866 and a decrease in additional paid-in capital of
$2,597,508.
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.
NOTE 2 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the year ended September 30, 1999, were $51,982,571 and
$58,273,710, respectively.
17
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At September 30, 1999
================================================================================
NOTE 3 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Advisory fees are paid monthly to Davis Selected Advisers, L.P. (the
"Adviser"), at the annual rate of 1.00% of the first $250 million of average net
assets, 0.90% on the next $250 million of average annual net assets, and 0.80%
of average annual 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 September 30, 1999, amounted to $12,000.
State Street Bank is the Fund's primary transfer agent. The Adviser is also paid
for certain transfer agent services. The fee for these services paid to the
Adviser for the year ended September 30, 1999, amounted to $5,190. State Street
Bank is the Fund's primary accounting provider. Fees for such services are
included in the custodian fee. The Adviser is also paid for certain accounting
services. Such fee amounted to $8,004 for the year ended September 30, 1999. The
Adviser has agreed to reimburse the Fund for certain expenses incurred in the
current fiscal year which amounted to $166,390. Certain directors and the
officers of the Fund are also directors and officers of the general partner of
the Adviser.
Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of
the Adviser, acts as sub-adviser to the Fund. The Fund pays no fees directly to
DSA-NY.
NOTE 4 - DISTRIBUTION AND UNDERWRITING FEES
CLASS A SHARES
Class A shares of the Fund 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 September 30, 1999, Davis Distributors, LLC, the
Fund's Underwriter (the "Underwriter" or "Distributor") received $9,425 from
commissions earned on sales of Class A shares of the Fund, of which $1,638 was
retained by the underwriter and the remaining $7,787 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 Fund's registration statement, sales
literature and other expenses assumed or incurred by it in connection with such
sales.
The Underwriter is reimbursed for amounts paid to dealers as a service
fee with respect to Class A shares sold by dealers which remain outstanding
during the period. The service fee is reimbursed at the annual rate up to 1/4 of
1% of the average net assets maintained by the responsible dealers. The
Underwriter is not reimbursed for accounts for which the Underwriter pays no
service fees to other firms. The service fee for Class A shares of the Fund for
the year ended September 30, 1999, was $21,977.
CLASS B SHARES
Class B shares of the Fund are sold at net asset value and are redeemed
at net asset value less a contingent deferred sales charge if redeemed within
six years of purchase.
18
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At September 30, 1999
================================================================================
NOTE 4 - DISTRIBUTION AND UNDERWRITING FEES - (CONTINUED)
CLASS B SHARES - (CONTINUED)
The Fund pays a distribution fee to reimburse the Distributor for
commission advances on the sale of the Fund's Class B shares. The National
Association of Securities Dealers, Inc., ("NASD") limits the percentage of the
Fund's average annual net assets attributable to Class B shares which may be
used to reimburse the Distributor. The limit is 1%, of which 0.75% may be used
to pay distribution expenses and 0.25% may be used to pay shareholder service
fees. The NASD rule also limits the aggregate amount the Fund may pay for
distribution-related services to 6.25% of gross Fund sales since inception of
the Rule 12b-1 plan 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 September 30, 1999, Class B shares of the Fund made
distribution plan payments which included distribution fees of $42,535 and
service fees of $13,633.
Commission advances by the Distributor during the year ended September
30, 1999, on the sale of Class B shares of the Fund amounted to $11,063, of
which $10,886 was re-allowed to qualified selling dealers.
The Distributor intends to seek payment from Class B shares of the Fund
in the amount of $238,725, representing the cumulative commission advances by
the Distributor on the sale of the Fund's Class B shares, plus interest, reduced
by cumulative distribution fees paid by the Fund and cumulative contingent
deferred sales charges paid by redeeming shareholders. The Fund has no
contractual obligation to pay any such distribution charges and the amount, if
any, timing and condition of such payment are solely within the discretion of
the Directors who are not interested persons of the Fund or the Distributor.
A contingent deferred sales charge is imposed upon redemption of certain
Class B shares of the Fund 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
September 30, 1999, the Distributor received contingent deferred sales charges
of $21,271 from redemptions of Class B shares of the Fund.
CLASS C SHARES
Class C shares of the Fund are sold at net asset value and are redeemed
at net asset value less a contingent deferred sales charge of 1% if redeemed
within one year of purchase. The Fund pays the Distributor 1% of the Fund's
average annual net assets attributable to Class C shares, of which 0.75% may be
used to pay distribution expenses and 0.25% may be used to pay shareholder
service fees.
During the year ended September 30, 1999, Class C shares of the Fund made
distribution payments of $2,934. During the year ended September 30, 1999, the
Distributor received $79 in contingent deferred sales charges from Class C
shares of the Fund.
19
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At September 30, 1999
================================================================================
NOTE 5 - CAPITAL STOCK
At September 30, 1999, there were 5 billion shares of capital stock
($0.001 par value per share) authorized. Transactions in capital stock were as
follows:
CLASS A
YEAR ENDED
SEPTEMBER 30, 1999
------------------
SHARES AMOUNT
------ ------
Shares subscribed........................ 964,536 $ 11,010,239
Shares redeemed.......................... (1,327,782) (14,807,600)
------------- --------------
Net decrease........................ (363,246) $ (3,797,361)
============= ==============
YEAR ENDED
SEPTEMBER 30, 1999
------------------
SHARES AMOUNT
------ ------
Shares subscribed........................ 506,499 $ 5,578,928
Shares redeemed.......................... (1,091,006) (11,481,063)
------------- --------------
Net decrease........................ (584,507) $ (5,902,135)
============= ==============
CLASS B
YEAR ENDED
SEPTEMBER 30, 1999
------------------
SHARES AMOUNT
------ ------
Shares subscribed........................ 72,968 $ 730,704
Shares redeemed.......................... (228,278) (2,385,265)
------------- --------------
Net decrease........................ (155,310) $ (1,654,561)
============= ==============
YEAR ENDED
SEPTEMBER 30, 1999
------------------
SHARES AMOUNT
------ ------
Shares subscribed........................ 107,968 $ 1,158,196
Shares redeemed.......................... (238,958) (2,439,854)
-------------- --------------
Net decrease........................ (130,990) $ (1,281,658)
============= ==============
20
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At September 30, 1999
================================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
CLASS C
YEAR ENDED
SEPTEMBER 30, 1999
------------------
SHARES AMOUNT
------ ------
Shares subscribed.......................... 9,748 $ 106,601
Shares redeemed............................ (8,962) (96,581)
------------- --------------
Net decrease.......................... 786 $ 10,020
============= ==============
YEAR ENDED
SEPTEMBER 30, 1999
------------------
SHARES AMOUNT
------ ------
Shares subscribed.......................... 41,210 $ 439,030
Shares redeemed............................ (18,663) (206,966)
------------- --------------
Net increase.......................... 22,547 $ 232,064
============= ==============
NOTE 6 - CUSTODIAN FEES
Under an agreement with the custodian bank, custody fees are reduced for
earnings on cash balances maintained at the custodian by the Fund. Such
reductions amounted to $1,681 during the year ended September 30, 1999.
21
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
================================================================================
The following represents financial highlights for a share of capital stock
outstanding throughout each period.
CLASS A
<TABLE>
<CAPTION>
EIGHT
YEAR ENDED SEPTEMBER 30, MONTHS ENDED
-------------------------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................... $ 9.26 $ 11.38 $ 12.12 $ 11.85 $ 10.00
------- ------- ------- ------- -------
Income (Loss) From Investment Operations
Net Investment Income................. -(5) - - 0.03 0.05
Net Realized and Unrealized
Gains (Losses)....................... 1.43 (2.12) 0.25 0.85 1.80
------- ------- ------- ------- -------
Total From Investment Operations..... 1.43 (2.12) 0.25 0.88 1.85
------- ------- ------- ------- -------
Dividends and Distributions
Net Investment Income................. - - - (0.03) -
Distributions from Realized Gains...... - - (0.99) (0.58) -
------- ------- ------- ------- -------
Total Dividends and Distributions.... - - (0.99) (0.61) -
------- ------- ------- ------- -------
Net Asset Value, End of Period............ $10.69 $9.26 $11.38 $12.12 $11.85
======= ======= ======= ======= =======
Total Return(1).......................... 15.44% (18.63)% 2.71% 7.87% 18.50%
Ratios/Supplemental Data
Net Assets, End of
Period (000 omitted)................. $27,202 $26,921 $39,740 $41,545 $13,427
Ratio of Expenses
to Average Net Assets.............. 1.47%(2) 1.45%(2) 1.67%(2,3) 1.70%(2,3) 1.72%(2)*
Ratio of Net Investment Income
to Average Net Assets............... 0.24% 0.13% 0.03% 0.23% 0.95%*
Portfolio Turnover Rate(4) 154% 63% 97% 78% 85%
</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) Had the Adviser not absorbed certain expenses, the ratio of expenses to
average net assets for the years ended September 30, 1999, September
30, 1998, September 30, 1997, September 30, 1996 and the eight months
ended September 30, 1995 would have been 1.95%, 1.86%, 1.93%, 2.24% and
2.88%, respectively.
(3) The ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement were 1.66% and 1.69% for the
years ended September 30, 1997 and September 30, 1996, respectively.
Prior to 1996, such reductions were reflected in the expense ratios.
(4) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or
expiration date at the time of acquisition of one year or less are
excluded from the calculation.
(5) Less than $0.005 per share.
* Annualized
22
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
================================================================================
The following represents financial highlights for a share of capital stock
outstanding throughout each period.
CLASS B
<TABLE>
<CAPTION>
EIGHT
YEAR ENDED SEPTEMBER 30, MONTHS ENDED
-------------------------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................... $ 8.98 $ 11.15 $ 12.00 $ 11.79 $ 10.00
-------- -------- -------- -------- --------
Income (Loss) From Investment Operations
Net Investment Income (Loss)........... -(5) - (0.10) (0.03) (0.01)
Net Realized and Unrealized
Gains (Losses)....................... 1.28 (2.17) 0.24 0.82 1.80
-------- -------- -------- -------- --------
Total From Investment Operations..... 1.28 (2.17) 0.14 0.79 1.79
-------- -------- -------- -------- --------
Dividends and Distributions
Distributions from Realized Gains...... - - (0.99) (0.58) -
-------- -------- -------- -------- --------
Total Dividends and Distributions... - - (0.99) (0.58) -
-------- -------- -------- -------- --------
Net Asset Value, End of Period............ $ 10.26 $ 8.98 $ 11.15 $ 12.00 $ 11.79
======== ======== ======== ======== ========
Total Return (1)........................... 14.25% (19.46)% 1.77% 7.10% 17.90%
Ratios/Supplemental Data
Net Assets, End of
Period (000 omitted)................. $ 4,636 $ 5,450 $ 8,230 $ 8,283 $ 2,002
Ratio of Expenses
to Average Net Assets.............. 2.51%(2,3) 2.60%(2) 2.51%(2,3) 2.47%(2,3) 2.46%(2)*
Ratio of Net Investment Income
(Loss) to Average Net Assets........ (0.79)% (1.02)% (0.80)% (0.54)% (0.09)%*
Portfolio Turnover Rate(4)............. 154% 63% 97% 78% 85%
</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) Had the Adviser not absorbed certain expenses, the ratio of expenses to
average net assets for the years ended September 30, 1999, September
30, 1998, September 30, 1997, September 30, 1996 and the eight months
ended September 30, 1995 would have been 2.98%, 3.01%, 2.98%, 3.01% and
3.62%, respectively.
(3) The ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement were 2.50%, 2.50% and 2.46%
for the years ended September 30, 1999, September 30, 1997 and
September 30, 1996, respectively. Prior to 1996, such reductions were
reflected in the expense ratios.
(4) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or
expiration date at the time of acquisition of one year or less are
excluded from the calculation.
(5) Less than $0.005 per share.
* Annualized
23
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
================================================================================
The following represents financial highlights for a share of capital stock
outstanding throughout each period.
CLASS C
<TABLE>
<CAPTION>
AUGUST 19, 1997
(INCEPTION
OF CLASS)
YEAR ENDED SEPTEMBER 30, THROUGH
------------------------ SEPTEMBER 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period......................... $ 9.17 $ 11.37 $ 11.50
------- -------- --------
Income (Loss) From Investment Operations
Net Investment Loss......................... -(5) - (0.02)
Net Realized and Unrealized
Gains (Losses)............................ 1.36 (2.20) (0.11)
------- -------- --------
Total From Investment Operations.......... 1.36 (2.20) (0.13)
------- -------- --------
Net Asset Value, End of Period................. $ 10.53 $ 9.17 $ 11.37
======= ======== ========
Total Return (1)............................... 14.83% (19.35)% (1.13)%
Ratios/Supplemental Data
Net Assets, End of
Period (000 omitted)...................... $ 302 $ 256 $ 61
Ratio of Expenses
to Average Net Assets................... 2.52%(2,3) 2.78%(2,3) 2.62%(2)*
Ratio of Net Investment Income (Loss)
to Average Net Assets.................... (0.80)% (1.19)% (2.27)%*
Portfolio Turnover Rate(4)................. 154% 63% 97%
</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) Had the Adviser not absorbed certain expenses, the ratio of expenses to
average net assets for the years ended September 30, 1999, September
30, 1998 and the period ended September 30, 1997 would have been 2.99%,
3.19% and 3.14%, respectively.
(3) The ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement were 2.51% and 2.77% for the
years ended September 30, 1999 and September 30, 1998, respectively.
(4) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or
expiration date at the time of acquisition of one year or less are
excluded from the calculation.
(5) Less than $0.005 per share.
* Annualized
24
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
INDEPENDENT AUDITORS' REPORT
================================================================================
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF DAVIS INTERNATIONAL TOTAL RETURN FUND:
We have audited the accompanying statement of assets and liabilities of
Davis International Total Return Fund (a fund of Davis International Series,
Inc.) including the schedule of investments, as of September 30, 1999, and the
related statement of operations for the year then ended, and the statement of
changes in net assets and the financial highlights for each of the years in the
two-year period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits. The financial highlights for each of the years in the two-year
period ended September 30, 1997 and for the eight months ended September 30,
1995, were audited by other auditors whose report, dated November 11, 1997,
expressed an unqualified opinion on 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
September 30, 1999, 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
position of Davis International Total Return Fund as of September 30, 1999, and
the results of its operations for the year then ended, and the changes in its
net assets and the financial highlights for each of the years in the two-year
period then ended, in conformity with generally accepted accounting principles.
KPMG LLP
Denver, Colorado
November 5, 1999
25
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<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
124 East Marcy Street, P.O. Box 1688, Santa Fe, New Mexico 87501
================================================================================
DIRECTORS OFFICERS
Jeremy H. Biggs Jeremy H. Biggs
Christopher C. Davis Chairman
G. Bernard Hamilton Shelby M.C. Davis
Keith R. Kroeger President
The Very Reverend Kenneth C. Eich
James R. Leo Vice President
Richard M. Murray Sharra L. Reed
Theodore B. Smith Jr. Vice President, Treasurer
& Assistant Secretary
Thomas D. Tays
Vice President & Secretary
Andrew A. Davis
INVESTMENT ADVISER Vice President
Davis Selected Advisers, L.P. Christopher C. Davis
124 East Marcy Street Vice President
Santa Fe, New Mexico 87501
1-800-279-2279
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, Massachusetts 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, Colorado 80202
================================================================================
FOR MORE INFORMATION ABOUT DAVIS INTERNATIONAL SERIES, INC., DAVIS INTERNATIONAL
TOTAL RETURN FUND, INCLUDING MANAGEMENT FEE, CHARGES AND EXPENSES, SEE THE
CURRENT PROSPECTUS WHICH MUST PRECEDE OR ACCOMPANY THIS REPORT.
================================================================================
<PAGE>
ANNUAL REPORT
DAVIS SELECTED ADVISERS, L.P.
124 EAST MARCY STREET
SANTA FE, NEW MEXICO 87501
1-800-279-0279
[DAVIS FUNDS LOGO]
