<PAGE>
SEMI-ANNUAL REPORT
[DAVIS LOGO]
MARCH 31, 1999
DAVIS INTERNATIONAL
TOTAL RETURN FUND
<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,
If you take a generational view of investing as we do, the importance of a
company being able to thrive in today's increasingly global marketplace is
obvious. We also believe investing directly in foreign markets--as the Davis
International Total Return Fund does--offers additional opportunities to
purchase quality, overlooked growth stocks and to diversify a portfolio of U.S.
securities.
Effective April 1, 1999, the Davis International Total Return Fund has been
managed by a team of senior portfolio managers and analysts from Davis Selected
Advisers' research department who share ideas and responsibility for the Fund's
investments. This team applies our signature Davis Investment Discipline to
international investing--using rigorous research to buy growing companies at
value prices and holding them for the long term.
INVESTMENT REVIEW
Over the six months ended March 31, 1999, the Davis International Total Return
Fund achieved solid absolute results but lagged its benchmark, the Morgan
Stanley Capital International EAFE Index (Europe, Australia, Far East Index).
The Fund delivered a return of 16.09% (on Class A shares at net asset value)
during the period while the EAFE Index returned 22.51%.(1)
The Fund's underperformance was disappointing but not surprising for several
reasons. First, we are not invested in certain sectors, such as the telecom
sector, that benefited from speculative run-ups during the period. These types
of high-flying glamour stocks have driven international market indexes recently,
much as they've driven market averages in the United States. But these are the
kinds of stocks we avoid because their high valuations don't fit our strict
price discipline.
A second reason for our trailing results is the strong performance of the
Japanese market. Although the Japanese stocks we own did quite well for the most
part, the Fund has a smaller percentage of its assets in Japan than that market
represents in the EAFE Index and this hurt our relative returns.
Finally, our portfolio is moderately defensive because of positions we
established in value stocks--particularly in smaller and mid-sized food
companies and retailers--that significantly underperformed. These holdings
include Somerfield and Safeway in the United Kingdom, Galeries Lafayette in
France and Canadian-based T. Eaton Company Ltd.(2) Despite disappointing
short-term results, we continue to think these are excellent companies that
offer great long-term values and they are trading in some cases at single-digit
price/earnings (P/E) multiples.
Generally, international markets enjoyed a tremendous recovery during the
six-month period and the Fund participated in that resurgence for the most part.
In the early months of the period, we repositioned the Fund by eliminating or
reducing certain holdings and shifting assets to companies that fit the Davis
investment philosophy--that is, well-managed companies in good businesses
selling at value prices.
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
- -------------------------------------------------------------------------------
A large percentage of the portfolio is now invested in the consumer staples
sector. The Fund's most successful holding in this sector and one of its big
positions is Kita Kyushu Coca-Cola Bottling Company, which is leading the
consolidation of Coca-Cola bottlers in Japan.(2)
Another area where we have found attractive opportunities and achieved good
results is the media sector, which includes advertising, business journal and
newspaper companies. Three excellent performers in this sector in the United
Kingdom have been advertising agencies WPP Group, which is also one of the
Fund's biggest holdings, and Saatchi & Saatchi, as well as Newsquest, a regional
newspaper company.(2)
In addition, we've expanded the Fund's universe of investments in
pharmaceuticals, although we significantly reduced our investment in Swiss-based
Novartis, the Fund's largest position six months ago, because of disappointing
sales growth in its drug portfolio. Among the companies we've added in
pharmaceuticals and health care are Takeda in Japan and Astra, a Swedish company
that is merging with U.K.-based Zeneca.(2)
The financial arena also continues to be an important segment of the portfolio.
In the banking area, we established a new position in UBS, a Swiss institution,
and we still maintain significant holdings in Lloyds TSB in the United Kingdom,
although we reduced our Lloyds investment because of the stock's increasing
valuation. In addition, we liquidated our position in U.K.-based Standard
Chartered because of concerns about the outlook for its operations in Asia and
Hong Kong. We also reduced our holdings of ING Groep in the Netherlands and
Swiss Reinsurance in Switzerland.(2)
INVESTMENT OUTLOOK
Despite ongoing concerns about the macroeconomic outlook in Europe, we still see
tremendous investment opportunities there because many European companies are at
far earlier stages of restructuring than their U.S. counterparts and many are
also becoming more shareholder-oriented. Those two characteristics when combined
in the right business can more than offset a low-growth or no-growth economic
environment. We are more optimistic about and have a greater concentration of
investments in the United Kingdom where we are finding more companies with
shareholder-focused managements and low valuations.
Japan was the strongest performer of the EAFE markets in the first quarter of
1999, on the hope that its economy really had hit bottom and that the
restructuring efforts announced by a few Japanese companies were both real and
the beginning of a tidal wave. However, we remain in the camp of the skeptical.
Until the Japanese come to grips with the significant structural reforms needed
in both their manufacturing and financial systems, it will be hard for the
country to achieve real economic recovery.
That is not to say that investors cannot anticipate and hope for recovery in
Japan, as has happened several times in the last five years. However, we have
focused our investments in Japan on a few companies, such as Kita Kyushu
Coca-Cola Bottling, that we think are market leaders, that are not dependent on
domestic economic recovery and that are managed with a strong shareholder
orientation.(2)
2
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
- --------------------------------------------------------------------------------
Today, we believe we have the opportunity to buy a number of great international
companies at discount prices even though their prospects over the next 10 years
may be as good as they have ever been. Being long-term value investors, we
recognize there are periods when we must sit tight with our holdings even though
certain sectors and sometimes entire markets are out of favor. History has shown
that this is often the best time to be adding to these investments, not running
from them. Having upgraded the quality of the companies the Fund owns, we have
confidence in the portfolio and in the wealth-building opportunities that may
result over the long term by broadening investment horizons to international
markets.
Sincerely,
/s/ Shelby M.C. Davis
Shelby M.C. Davis
Chief Investment Officer
May 10, 1999
This Semi-Annual Report is furnished to you by Davis Distributors, LLC, which
acts as the distributor for Davis International Total Return Fund. This
Semi-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 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.
(Without a sales charge taken into consideration for the period ended
March 31, 1999)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FUND NAME 1 YEAR 3 YEAR INCEPTION
- --------- ------ ------ ---------
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Davis International Total Return "A" (8.51)% (1.67)% 5.31% - 02/01/95
- -------------------------------------------------------------------------------------------------------
Davis International Total Return "B" (9.51)% (2.59)% 4.38% - 02/01/95
- -------------------------------------------------------------------------------------------------------
Davis International Total Return "C" (9.24)% NA (4.87)% - 08/19/97
- -------------------------------------------------------------------------------------------------------
</TABLE>
(With a 4.75% sales charge or any applicable contingent deferred sales charge
taken into consideration for the period ended March 31, 1999)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FUND NAME 1 YEAR 3 YEAR INCEPTION
- --------- ------ ------ ---------
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Davis International Total Return "A" (12.88)% (3.26)% 4.08% - 02/01/95
- -------------------------------------------------------------------------------------------------------
Davis International Total Return "B" (13.13)% (3.49)% 3.95% - 02/01/95
- -------------------------------------------------------------------------------------------------------
Davis International Total Return "C" (10.15)% NA (4.87)% - 08/19/97
- -------------------------------------------------------------------------------------------------------
</TABLE>
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.
(2) The Fund's portfolio securities as of March 31, 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.
3
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS
At March 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
VALUE
SHARES (NOTE 1)
------ ------
<S> <C> <C>
COMMON STOCKS - (96.27%)
CANADA - (3.85%)
10,000 Canadian Tire Corporation Ltd. - Class A................................... $ 265,982
356,200 The T. Eaton Company Ltd.*................................................. 663,082
35,000 Torstar Corporation-Class B................................................ 405,764
---------------
1,334,828
---------------
FRANCE - (5.36%)
4,000 Eridania Beghin-Say SA.................................................... 593,390
1,214 Galeries Lafayette......................................................... 1,260,131
---------------
1,853,521
---------------
GERMANY - (4.86%)
15,500 Adidas-Salomon AG.......................................................... 1,385,162
12,000 Continental AG............................................................. 297,127
---------------
1,682,289
---------------
HONG KONG - (1.67%)
200,000 Vtech Holdings Ltd......................................................... 576,811
---------------
ITALY - (3.77%)
35,000 Arnoldo Mondadori Editore SpA............................................. 524,136
125,000 Bulgari SpA................................................................ 781,203
---------------
1,305,339
---------------
JAPAN - (5.61%)
27,000 Kita Kyushu Coca-Cola Bottling Co., Ltd.................................... 1,142,338
19,000 Mikuni Coca-Cola Bottling Co., Ltd......................................... 410,759
10,000 Takeda Chemical Industries................................................. 387,620
---------------
1,940,717
---------------
NETHERLANDS - (14.26%)
5,000 Gucci Group NV............................................................. 409,794
25,000 Heineken NV................................................................ 1,262,359
12,198 ING Groep NV............................................................... 673,303
20,000 Philips Electronics NV..................................................... 1,631,605
22,500 Telegraaf Holdings MIJ - CVA............................................... 568,061
10,000 VNU NV..................................................................... 390,331
---------------
4,935,453
---------------
SPAIN - (3.74%)
29,000 Aldeasa, SA................................................................ 1,006,535
12,000 Argentaria, SA............................................................. 288,823
---------------
1,295,358
---------------
</TABLE>
4
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
VALUE
SHARES (NOTE 1)
------ ------
<S> <C> <C>
COMMON STOCKS - CONTINUED
SWEDEN - (1.33%)
10,090 AstraZeneca PLC-ADR........................................................ $ 459,028
---------------
SWITZERLAND - (11.51%)
500 Compagnie Financiere Richemont-UTS AG...................................... 833,079
750 Novartis Ltd., Registered.................................................. 1,219,648
1,500 The Selecta Group, Registered.............................................. 477,497
300 Swiss Reinsurance Co., Registered ......................................... 665,448
2,500 UBS-AG, Registered......................................................... 787,362
---------------
3,983,034
---------------
UNITED KINGDOM - (36.31%)
350,000 Courtaulds Textiles PLC.................................................... 875,866
315,000 Fairview Holdings PLC...................................................... 615,366
11,000 Glaxo Wellcome PLC......................................................... 368,865
500,000 Hazlewood Foods PLC........................................................ 1,057,219
600,000 Hillsdown Holdings PLC..................................................... 794,334
62,531 Lloyds TSB Group PLC....................................................... 941,922
150,000 Newsquest PLC.............................................................. 938,428
120,000 Nycomed Amersham........................................................... 1,042,321
150,000 Saatchi & Saatchi PLC...................................................... 500,091
280,000 Safeway PLC................................................................ 1,096,245
50,000 Smiths Industries PLC...................................................... 732,176
180,000 Somerfield PLC............................................................. 922,686
126,000 Synstar PLC*............................................................... 252,249
400,000 Terranova Foods PLC........................................................ 865,372
180,000 WPP Group PLC.............................................................. 1,566,387
---------------
12,569,527
---------------
UNITED STATES OF AMERICA - (4.00%)
278,800 Cott Corporation........................................................... 679,575
20,000 Philip Morris Companies, Inc............................................... 703,750
---------------
1,383,325
---------------
TOTAL COMMON STOCKS (identified cost $31,087,064)................... 33,319,230
---------------
</TABLE>
5
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
- --------- ------
<S> <C> <C>
SHORT TERM - (3.06%)
$ 1,060,000 State Street Corporation Repurchase Agreement, 4.95%, 04/01/99
dated 03/31/99, repurchase value of $1,060,146 (collateralized by
$1,088,000 par value Fannie Mae, 5.20%, 02/12/01,
market value $1,092,113) - (identified cost $1,060,000).................. $ 1,060,000
---------------
TOTAL INVESTMENTS (identified cost $32,147,064) -
(99.33%) (a).................................................. 34,379,230
OTHER ASSETS LESS LIABILITIES - (0.67%)........................... 233,538
---------------
NET ASSETS - (100%)............................................... $ 34,612,768
===============
(a) Aggregate cost for Federal income tax purposes is $32,147,064.
* Non income-producing security.
At March 31, 1999, unrealized appreciation (depreciation) of securities for
Federal income tax purposes was as follows:
Unrealized appreciation............................................... $ 4,855,939
Unrealized depreciation............................................... (2,623,773)
---------------
Net unrealized appreciation........................................ $ 2,232,166
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES - At March 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities, at value (identified cost - $32,147,064) (See accompanying
Schedule of Investments)......................................................... $ 34,379,230
Cash................................................................................. 52,890
Receivables:
Dividends and interest........................................................... 108,720
From adviser..................................................................... 83,650
Prepaid expenses..................................................................... 60,790
Other assets......................................................................... 26,356
-----------------
Total assets................................................................ 34,711,636
-----------------
LIABILITIES:
Payable for capital stock reacquired................................................. 20,176
Accrued expenses..................................................................... 74,754
Other liabilities.................................................................... 3,938
-----------------
Total liabilities........................................................... 98,868
-----------------
NET ASSETS ............................................................................... $ 34,612,768
=================
CLASS A SHARES
Net assets....................................................................... $ 28,466,025
Shares outstanding............................................................... 2,648,966
Net asset value and redemption price per share................................... $ 10.75
========
Maximum offering price per share (100/95.25 of $10.75)........................... $ 11.29
========
CLASS B SHARES
Net assets....................................................................... $ 5,853,855
Shares outstanding............................................................... 564,543
Net asset value and redemption price per share................................... $ 10.37
========
CLASS C SHARES
Net assets....................................................................... $ 292,888
Shares outstanding............................................................... 27,597
Net asset value and redemption price per share................................... $ 10.61
========
NET ASSETS CONSIST OF:
Deficit in undistributed net investment income....................................... $ (55,308)
Par value of shares of capital stock................................................. 3,241
Additional paid-in capital........................................................... 38,505,716
Net unrealized appreciation on investments and translation of assets and liabilities
in foreign currencies............................................................ 2,232,166
Accumulated net realized losses from investments and foreign currency transactions... (6,073,047)
-----------------
Net assets.................................................................. $ 34,612,768
=================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
STATEMENT OF OPERATIONS - For the six months ended March 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME (LOSS):
Income:
Dividends (net of foreign taxes withheld of $15,656)............................. $ 204,879
Interest......................................................................... 35,179
-----------------
Total income................................................................ 240,058
-----------------
Expenses:
Management fees (Note 3)...................................... $ 179,313
Custodian fees................................................ 40,772
Transfer agent fees
Class A..................................................... 11,270
Class B..................................................... 8,957
Class C..................................................... 600
Audit fees.................................................... 9,100
Legal fees.................................................... 6,090
Accounting fees (Note 3)...................................... 4,002
Reports to shareholders....................................... 24,217
Directors' fees and expenses.................................. 15,866
Registration and filing fees ................................. 35,625
Miscellaneous................................................. 1,010
Payments under distribution plan (Note 3)
Class A..................................................... 13,320
Class B..................................................... 29,490
Class C..................................................... 1,399
---------------
Total expenses.............................................................. 381,031
Reimbursement of expenses by adviser (Note 3).................................... (83,650)
Expenses paid indirectly (Note 6)................................................ (2,015)
-----------------
Net expenses................................................................ 295,366
-----------------
Net investment loss..................................................... (55,308)
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain from:
Investment transactions.......................................................... 6,019,648
Foreign currency transactions.................................................... 302,740
Net decrease in unrealized appreciation of investments............................... (1,326,473)
-----------------
Net realized and unrealized gain on investments and foreign currency........ 4,995,915
-----------------
Net increase in net assets resulting from operations.................... $ 4,940,607
=================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SIX
MONTHS ENDED
MARCH 31, YEAR ENDED
1999 SEPTEMBER 30,
(UNAUDITED) 1998
------------ -------------
<S> <C> <C>
OPERATIONS:
Net investment loss............................................ $ (55,308) $ (25,542)
Net realized gain (loss) from investments and foreign currency
transactions............................................... 6,322,388 (7,888,819)
Decrease in unrealized appreciation on investments and
translation of assets and liabilities in foreign currencies (1,326,473) (537,854)
------------- -------------
Net increase (decrease) in net assets resulting from
operations............................................ 4,940,607 (8,452,215)
CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets resulting from capital
share transactions (Note 5)
Class A ................................................... (2,520,016) (5,902,135)
Class B ................................................... (430,969) (1,281,658)
Class C ................................................... (3,916) 232,064
------------- -------------
Total increase (decrease) in net assets................... 1,985,706 (15,403,944)
NET ASSETS:
Beginning of period............................................ 32,627,062 48,031,006
------------- -------------
End of period.................................................. $ 34,612,768 $ 32,627,062
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
At March 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------
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 foreign securities. 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.
FORWARD 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
10
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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 March 31, 1999,
the Fund had approximately $4,230,000 of capital loss carryovers available to
offset future capital gains, if any, of which $2,867,000 and $1,363,000 expire
in 2005 and 2006, respectively.
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.
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 six months ended March 31, 1999, were $37,010,939 and
$41,014,774, respectively.
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.
11
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At March 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 3 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
(CONTINUED)
The Adviser is paid for registering Fund shares for sale in various
states. The fee for the six months ended March 31, 1999, amounted to $6,000.
Boston Financial Data Services 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 six months ended March 31, 1999, amounted to $3,232.
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 $4,002 for the six months ended March
31, 1999. The Adviser has agreed to reimburse the Fund for certain expenses
which amounted to $83,650. 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 six months ended March 31, 1999, Davis Distributors, LLC, the
Fund's Underwriter (the "Underwriter" or "Distributor") received $6,449 from
commissions earned on sales of Class A shares of the Fund, of which $1,170 was
retained by the underwriter and the remaining $5,279 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 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 for which the Underwriter pays no service fees to
other firms. The service fee for Class A shares of the Fund for the six months
ended March 31, 1999, was $13,320.
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.
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.
12
<PAGE>
DAVIS INTERNATIONAL SERIES,
INC. DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At March 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 4 - DISTRIBUTION AND UNDERWRITING FEES - (CONTINUED)
CLASS B SHARES - (CONTINUED)
During the six months ended March 31, 1999, Class B shares of the Fund
made distribution plan payments which included distribution fees of $22,312 and
service fees of $7,178.
Commission advances by the Distributor during the six months ended March
31, 1999, on the sale of Class B shares of the Fund amounted to $8,083, of which
$7,902 was re-allowed to qualified selling dealers.
The Distributor intends to seek payment from Class B shares of the Fund
in the amount of $258,003, 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 six months ended
March 31, 1999, the Distributor received contingent deferred sales charges of
$8,764 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 six months ended March 31, 1999, Class C shares of the Fund
made distribution payments of $1,399. During the six months ended March 31,
1999, the Distributor did not receive any contingent deferred sales charges from
Class C shares of the Fund.
13
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At March 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 5 - CAPITAL STOCK
At March 31, 1999, there were 5 billion shares of capital stock ($0.001
par value per share) authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
CLASS A
SIX MONTHS ENDED
MARCH 31, 1999
(UNAUDITED)
-----------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares subscribed.......................................................... 376,494 $ 4,088,969
Shares redeemed............................................................ (635,806) (6,608,985)
-------------- --------------
Net decrease.......................................................... (259,312) $ (2,520,016)
============= ==============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1998
------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares subscribed.......................................................... 506,499 $ 5,578,928
Shares redeemed............................................................ (1,091,006) (11,481,063)
------------- --------------
Net decrease.......................................................... (584,507) $ (5,902,135)
============= ==============
</TABLE>
<TABLE>
<CAPTION>
CLASS B
SIX MONTHS ENDED
MARCH 31, 1999
(UNAUDITED)
-----------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares subscribed.......................................................... 56,779 $ 557,098
Shares redeemed............................................................ (99,343) (988,067)
------------- --------------
Net decrease.......................................................... (42,564) $ (430,969)
============= ==============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1998
------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares subscribed.......................................................... 107,968 $ 1,158,196
Shares redeemed............................................................ (238,958) (2,439,854)
------------- --------------
Net decrease.......................................................... (130,990) $ (1,281,658)
============= ==============
</TABLE>
14
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At March 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<TABLE>
<CAPTION>
CLASS C
SIX MONTHS ENDED
MARCH 31, 1999
(UNAUDITED)
-----------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares subscribed.......................................................... 3,879 $ 40,018
Shares redeemed............................................................ (4,195) (43,934)
------------- --------------
Net decrease.......................................................... (316) $ (3,916)
============= ==============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1998
------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares subscribed.......................................................... 41,210 $ 439,030
Shares redeemed............................................................ (18,663) (206,966)
------------- --------------
Net increase.......................................................... 22,547 $ 232,064
============= ==============
</TABLE>
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 $2,015 during the six months ended March 31, 1999.
15
<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.
<TABLE>
<CAPTION>
CLASS A
SIX MONTHS
ENDED EIGHT
MARCH 31, YEAR ENDED SEPTEMBER 30, MONTHS ENDED
1999 --------------------------------- SEPTEMBER 30,
(UNAUDITED) 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 (Loss)........ (0.01) - - 0.03 0.05
Net Realized and Unrealized
Gains (Losses)..................... 1.50 (2.12) 0.25 0.85 1.80
--------- --------- --------- --------- ---------
Total From Investment Operations... 1.49 (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.......... $ 10.75 $ 9.26 $ 11.38 $ 12.12 $ 11.85
========= ========= ========= ========= =========
Total Return (1)......................... 16.09% (18.63)% 2.71% 7.87% 18.50%
- -------------
Ratios/Supplemental Data
Net Assets, End of
Period (000 omitted)............... $ 28,466 $ 26,921 $ 39,740 $ 41,545 $ 13,427
Ratio of Expenses
to Average Net Assets............ 1.46%(2),(3)* 1.45%(2) 1.67%(2),(3) 1.70%(2),(3) 1.72%(2)*
Ratio of Net Investment Income
to Average Net Assets............. (0.11)%* 0.13% 0.03% 0.23% 0.95%*
Portfolio Turnover Rate(4).......... 108% 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 six months ended March 31, 1999, the years ended
September 30, 1998, September 30, 1997, September 30, 1996 and the eight
months ended September 30, 1995 would have been 1.92%, 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 1.45%, 1.66% and 1.69% for
the six months ended March 31, 1999 and 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.
* Annualized
16
<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.
<TABLE>
<CAPTION>
CLASS B
SIX MONTHS
ENDED EIGHT
MARCH 31, YEAR ENDED SEPTEMBER 30, MONTHS ENDED
1999 -------------------------------------- SEPTEMBER 30,
(UNAUDITED) 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 Loss.................. (0.06) - (0.10) (0.03) (0.01)
Net Realized and Unrealized
Gains (Losses)..................... 1.45 (2.17) 0.24 0.82 1.80
-------- -------- -------- -------- ---------
Total From Investment Operations... 1.39 (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.......... $ 10.37 $ 8.98 $ 11.15 $ 12.00 $ 11.79
======== ======== ======== ======== =========
Total Return (1)......................... 15.48% (19.46)% 1.77% 7.10% 17.90%
Ratios/Supplemental Data
Net Assets, End of
Period (000 omitted)............... $ 5,854 $ 5,450 $ 8,230 $ 8,283 $ 2,002
Ratio of Expenses
to Average Net Assets............ 2.59%(2),(3)* 2.60%(2) 2.51%(2),(3) 2.47%(2),(3) 2.46%(2)*
Ratio of Net Investment Income
to Average Net Assets............. (1.24)%* (1.02)% (0.80)% (0.54)% (0.09)%*
Portfolio Turnover Rate(4)........... 108% 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 six months ended March 31, 1999, the years ended
September 30, 1998, September 30, 1997, September 30, 1996 and the eight
months ended September 30, 1995 would have been 3.04%, 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 2.58%, 2.50% and 2.46% for
the six months ended March 31, 1999, 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.
* Annualized
17
<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.
<TABLE>
<CAPTION>
CLASS C
AUGUST 19, 1997
SIX MONTHS (INCEPTION
ENDED YEAR OF CLASS)
MARCH 31, ENDED THROUGH
1999 SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 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..................... (0.05) - (0.02)
Net Realized and Unrealized
Gains (Losses)........................ 1.49 (2.20) (0.11)
-------- -------- --------
Total From Investment Operations...... 1.44 (2.20) (0.13)
-------- -------- --------
Net Asset Value, End of Period............. $ 10.61 $ 9.17 $ 11.37
======== ======== ========
Total Return (1)............................ 15.70% (19.35)% (1.13)%
- -------------
Ratios/Supplemental Data
Net Assets, End of
Period (000 omitted).................. $ 293 $ 256 $ 61
Ratio of Expenses
to Average Net Assets................ 2.72%(2),(3) 2.78%(2),(3) 2.62%(2)*
Ratio of Net Investment Income
to Average Net Assets................. (1.37)%* (1.19)% (2.27)%*
Portfolio Turnover Rate(4)............. 108% 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 six months ended March 31, 1999, the year ended
September 30, 1998 and the period ended September 30, 1997 would have been
3.18%, 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 2.71% and 2.77% for the six
months ended March 31, 1999 and the year ended 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.
* Annualized
18
<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
Vice President
INVESTMENT ADVISER Christopher C. Davis
Davis Selected Advisers, L.P. Vice President
124 East Marcy Street Carolyn H. Spolidoro
Santa Fe, New Mexico 87501 Vice President
1-800-279-0279
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>
[DAVIS LOGO]
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
1-800-279-0279
