<PAGE>
SEPTEMBER 30, 2000
Davis International Total Return Fund
[DAVIS FUNDS LOGO]
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
Dear Shareholder:
The Davis International Total Return Fund's Class A shares delivered a total
return on net asset value of 4.86% for the one-year period ended September 30,
2000.(1) During the same time period, the Morgan Stanley Capital International
EAFE (Europe, Australia, Far East) Index generated a return of 3.42%.(2)
FOCUSED ON LONG-TERM THEMES
The Fund's performance this year has been driven to a significant degree by its
weighting in technology companies. We are strong believers in technology over
the long term because we see the potential for productivity enhancements outside
the United States similar to what we have experienced in this country over the
past 10 years. Two large holdings in this area are Netherlands-based Philips
Electronics(3), which derives 50% of its earnings from semiconductor chip
manufacturing, and SAP, a software company headquartered in Germany.
Changing demographics is another long-term theme that is well represented in the
portfolio through our emphasis on financial services companies. The aging of the
world's population will have a big impact on the development of pension fund
systems both in Europe and Japan and create growing demand for financial
services from private pension funds. The Fund seeks to capitalize on this trend
by investing in companies such as online broker Direkt Anlage Bank in Germany,
UniCredito Italiano in Italy and Nomura Securities in Japan.
Taken together, investments in the financial services and technology sectors
account for approximately half of the Fund's assets. We expect these sectors
will remain important investment themes going forward.
LOOKING BEYOND NEAR-TERM VOLATILITY
International markets have been fairly volatile since midsummer largely due to
concerns about higher oil prices, currency weakness related to the euro and
pre-announcements of disappointing earnings. Higher oil prices will hamper
economic growth, particularly in Europe and Asia, which have a greater
sensitivity to oil prices. Although the weaker euro has been a positive factor
for European exports, it is negatively impacting the region's inflation outlook.
Inflation in Europe is higher now than originally anticipated in a period when
economic growth is beginning to slow. At the same time, moderating demand for
technology has led many companies to pre-announce unsatisfactory earnings, and
there are continuing concerns about capital spending for technology as we move
into 2001.
REGIONAL INVESTMENT STRATEGIES
The Fund is underweighted in Japan primarily because the country's economic
recovery appears to be losing steam. Consumption, which is a crucial part of the
economy, remains weak as disinflation continues to be one of Japan's biggest
problems. Consumers will not spend when they expect that goods and services will
become cheaper every day. Although big businesses are reporting better outlooks,
smaller companies, which currently represent about two-thirds of the Japanese
economy, are still fairly negative about their prospects over the next six
months.
We are neutral on Asia due to slowing world growth and the impact of high oil
prices. Our holdings there consist primarily of certain property companies in
Hong Kong. In addition, we have some exposure to technology through
semiconductor manufacturer Taiwan Semiconductor.
We are also neutral on Europe, which represents a slight shift in emphasis for
the Fund. We think the economic recovery is peaking in Europe and have concerns
about higher inflation due to higher oil prices and the weaker euro. We have
positioned the Fund more defensively in Europe by increasing our exposure to
financial services companies such as Banco Popular Espanol4 in Spain and
pharmaceutical companies such as Schering(4) in Germany.
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
Latin America is a relatively new investment arena for the Fund. Our exposure
there is based on the fact that we anticipate an improving outlook for Mexico,
which is an exporter of oil and thus a beneficiary of oil price hikes. We have
invested in Telefonos de Mexico both because the company should benefit from the
better economic outlook and because it is expected to spin off its mobile phone
operations sometime in the fourth quarter.
A RESEARCH-DRIVEN APPROACH
We think hands-on research is vital. That is why our research and portfolio
management team spends so much time visiting the various regions of the world
and getting to know company managements before we invest. Businesses may face
equal opportunities within a particular market, but management's competency at
capitalizing on those opportunities is critical to a company's ongoing success.
One significant change for international investors and another reason for the
importance of rigorous research is the increasing focus on sector returns in
global markets. Sectors now move more in tandem around the world than they ever
have before. For example, technology stocks tend to rise and fall together
regardless of the regions in which companies operate. We think this is largely
due to the fact that investors are becoming more sophisticated in the way they
view international markets and feel more comfortable investing in each sector
overseas. While it is still important to determine which countries are expected
to provide the best relative opportunities in mapping out an international
investment strategy, it is perhaps even more important today to identify those
sectors that are likely to outperform.
WHAT IS THE INVESTMENT OUTLOOK?
Although it has been a difficult year for international equities and we are
cautious over the near term, we remain optimistic about the long term.
International diversification is important because each region offers
comparative advantages and, by carefully investigating each region, we are able
to find fairly unique companies. Looking ahead we see excellent opportunities
because of the growth in pension fund investing in Europe and Japan and the need
for enhanced productivity to enable these economies to continue to move forward
and stay competitive.
Sincerely,
/s/ Sheila Hartnett-Devlin
-----------------------------------------
Sheila Hartnett-Devlin
Portfolio Manager
November 3, 2000
--------------------------
Franklin Resources, Inc. (operating as Franklin Templeton Investments) of San
Mateo, CA, and Fiduciary Trust Company International of New York announced on
October 25, 2000, that they have signed a definitive agreement under which
Franklin Resources will acquire Fiduciary Trust International in an all-stock
transaction valued at approximately $825 million. Based on current assets, the
combined entity would have more than $280 billion in assets under management
worldwide. Fiduciary Trust Company International is the ultimate parent company
of Fiduciary International, Inc., the sub-adviser for Davis International Total
Return Fund.
The transaction, which is subject to shareholder and regulatory approvals and
other customary closing conditions, is expected to be completed in the first
quarter of calendar 2001. It is not expected that the transaction will result in
any change in the manner in which the Fund will be managed. However, the Fund's
Board of Directors will consider what, if any, action will be necessary in the
future. Shareholders will be kept informed of any material developments.
2
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
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 ended September 30, 2000. Returns for other classes of shares
will vary from the following figures:
* (Without a 4.75% sales charge taken into consideration)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
1 5 10
FUND NAME YEAR YEAR YEAR INCEPTION
--------- ----- ---- ---- ---------
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Davis International Total Return A 4.86% 1.77% N/A 4.65% - 02/01/95
-------------------------------------------------------------------------------------------------------
</TABLE>
** (With a 4.75% sales charge taken into consideration)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
1 5 10
FUND NAME YEAR YEAR YEAR INCEPTION
--------- ----- ---- ---- ---------
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Davis International Total Return A (0.09)% 0.78% N/A 3.75% - 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 more than $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) See the Fund's Schedule of Investments for a detailed list of portfolio
holdings.
(4) The fund did not own Banco Popular Espanola and Schering as of 9/30/00, as
of 10/31/00 these securities represented 1.71% and 1.00% of net assets,
respectively.
This report reflects the professional opinions of portfolio manager Sheila
Hartnett-Devlin. All investments involve some degree of risk; there can be no
assurance that the Fund's investment strategies will be successful. Prices of
shares will vary so that, when redeemed, an investor's shares could be worth
more or less than their original cost.
An investment in the Fund is not a deposit of any bank and is not insured nor
guaranteed by any bank, the Federal Deposit Insurance Corporation or any other
government agency.
3
<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
================================================================================
<TABLE>
<CAPTION>
Average Annual Total Return For the Periods Non-Annualized Total Return For the Period
ended September 30, 2000. ended September 30, 2000
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES CLASS Y SHARES
(This calculation includes an initial sales charge of 4 3/4%). (There is no sales charge applicable to this calculation).
One Year .............................. (0.09%)
Five Year ............................. 0.78% Life of Class (May 5, 2000
Life of Class (February 1, 1995 through September 30, 2000)...... 3.13%
through September 30, 2000)...... 3.75%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
$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, 2000 the
value of your investment would have grown to $12,318 - a 23.18% 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 13,648
9/30/98 10,175 12,546
9/30/99 11,747 16,476
9/30/00 12,318 17,041
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 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, 2000.
------------------------------------------------------------------------------
CLASS B SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year...................................................... (0.10%)
Five Year .................................................... 0.48%
Life of Class (February 1, 1995 through September 30, 2000)... 3.55%
------------------------------------------------------------------------------
$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, 2000 the value of your investment,
after deducting any applicable contingent deferred sales charge, would have
grown to $12,186 - a 21.86% 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 11,825 16,476
9/30/00 12,186 17,041
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
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, 2000.
-----------------------------------------------------------------------------
CLASS C SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year...................................................... 3.18%
Life of Class (August 19, 1997 through September 30, 2000).... (1.50%)
-----------------------------------------------------------------------------
$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, 2000 the value of your investment
would have been $9,539 - a 4.61% 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
9/30/00 9,539 13,187
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.
6
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
PORTFOLIO HOLDINGS AS OF SEPTEMBER 30, 2000
================================================================================
PORTFOLIO MAKEUP (% OF FUND NET ASSETS)
---------------------------------------
Short Term Investments, Other Assets & Liabilities 10.5%
Preferred Stocks 1.7%
Common Stocks 87.8%
SECTOR WEIGHTINGS (% OF PORTFOLIO)
----------------------------------
Food/Beverage 4.7%
Retail 3.8%
Consumer Services 8.1%
Financial Services 29.8%
Other 4.6%
Publishing 3.2%
Telecommunications 15.6%
Broadcast services 3.9%
Office Equipment 5.2%
Energy 6.7%
Banking 5.0%
Technology 9.4%
TOP 10 HOLDINGS SECTOR % OF FUND NET ASSETS
--------------------------------------------------------------------------------
Julius Baer Holding Ltd. Financial Services 4.82%
Canon Inc. Office Euipment 4.67%
Alcatel Telecommunications 4.49%
Koninklijke Philips Electronics NV Technology 4.33%
Sun Hung Kai Properties Ltd. Financial Services 4.13%
Tokyo Broadcasting System, Inc. Broadcast Services 3.53%
Investor AB-Class B Financial Services 3.48%
The Nomura Securities Co., Ltd. Financial Services 3.43%
Carrefour SA Retail 3.42%
Cheung Kong Holdings Ltd. Financial Services 3.12%
7
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
PORTFOLIO ACTIVITY -- OCTOBER 1, 1999 THROUGH SEPTEMBER 30, 2000
================================================================================
NEW POSITIONS ADDED (10/1/99-9/30/00)
(HIGHLIGHTED POSITIONS ARE THOSE GREATER THAN 2.50% OF 9/30/00 TOTAL NET
ASSETS.)
<TABLE>
<CAPTION>
% OF 9/30/00
DATE OF 1ST FUND
SECURITY SECTOR PURCHASE NET ASSETS
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ABB Ltd. R&D Services 3/16/00 -
Accor SA Hotels & Motels 8/1/00 0.99%
Adecco SA, Registered Consumer Services 3/21/00 2.39%
Alcatel Telecommunications 3/16/00 4.49%
Amvescap PLC Financial Services 8/29/00 2.20%
Asahi Breweries, Ltd. Beverages 5/24/00 -
Banco Bilbao Vizcaya Argentaria, SA Banking 6/8/00 2.65%
The Bank of Tokyo - Mitsubishi, Ltd. Banking 3/16/00 -
Bayerische Motoren Werke AG Consumer Services 8/22/00 2.16%
BP Amoco PLC Energy 6/8/00 -
Canon Inc. Office Equipment 3/16/00 4.67%
Cap Gemini SA Computer Services 1/11/00 -
Carrefour SA Retail 1/19/00 3.42%
Cheung Kong Holdings Ltd. Financial Services 1/6/00 3.12%
COLT Telecom Group PLC Telecommunications 1/7/00 1.21%
Deltathree.com, Inc. Internet 11/22/99 -
Direkt Anlage Bank AG Financial Services 3/17/00 2.60%
Ebookers.com PLC Internet 11/11/99 -
EMI Group PLC Leisure & Recreation 3/16/00 -
Equant NV Computer Services 1/4/00 -
Exel PLC Transportation 9/25/00 0.49%
Granada Compass PLC Consumer Services 1/5/00 2.73%
Hitachi, Ltd. Electronics 1/6/00 -
I-Cable Communications Ltd. Cable Television Services 11/18/99 -
International Business Machines Corp. Computer Services 10/28/99 -
Intershop Communications AG Telecommunications 1/19/00 1.88%
Investor AB-Class B Financial Services 2/8/00 3.48%
Julius Baer Holding Ltd. Financial Services 1/5/00 4.82%
Korea Thrunet Co., Ltd. Internet 11/16/99 -
Misys PLC Computer Services 1/7/00 -
NDS Group PLC Internet 11/22/99 -
Nokia Oyj Telecommunications 1/4/00 1.42%
The Nomura Securities Co., Ltd. Financial Services 3/16/00 3.43%
Nortel Networks Corp. Telecommunications 8/17/00 2.09%
ROHM Co., Ltd. Electronics 3/16/00 -
San Paolo - IMI SpA Banking 4/7/00 -
Schlumberger Ltd. Energy 6/8/00 2.88%
Sharp Corp. Electronics 1/6/00 -
Singapore Press Holdings Ltd. Publishing 7/28/00 0.95%
Societe Europeenne des Satellites Telecommunications 3/22/00 1.33%
StarMedia Network, Inc. Internet 1/6/00 -
Sun Hung Kai Properties Ltd. Financial Services 3/16/00 4.13%
</TABLE>
8
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
PORTFOLIO ACTIVITY -- OCTOBER 1, 1999 THROUGH SEPTEMBER 30, 2000
================================================================================
NEW POSITIONS ADDED (10/1/99-9/30/00) - CONTINUED
(HIGHLIGHTED POSITIONS ARE THOSE GREATER THAN 2.50% OF 9/30/00 TOTAL NET
ASSETS.)
<TABLE>
<CAPTION>
% OF 9/30/00
DATE OF 1ST FUND
SECURITY SECTOR PURCHASE NET ASSETS
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telefonica, SA Telecommunications 3/16/00 -
Telefonos de Mexico SA de CV ADR Telecommunications 9/18/00 1.58%
Telewest Communications PLC Cable Television Services 1/20/00 -
Tokyo Broadcasting System, Inc. Broadcast Services 3/28/00 3.53%
Total Fina Elf SA Energy 5/5/00 3.08%
Tyco International Ltd. Diversified Manufacturing 11/8/99 -
UniCredito Italiano SpA Banking 8/23/00 1.79%
Wolters Kluwer NV Publishing 8/1/00 -
</TABLE>
POSITIONS CLOSED (10/1/99-9/30/00) (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. R&D Services 9/21/00 $(163,077)
Ace Ltd. Insurance 1/7/00 (609,508)
Adidas-Salomon AG Consumer Products 3/8/00 (416,547)
Aldeasa, SA Retail 3/9/00 (518,895)
American Home Products Corp. Pharmaceuticals 3/7/00 (4,047)
Asahi Breweries, Ltd. Beverages 7/31/00 (115,196)
The Bank of Tokyo - Mitsubishi, Ltd. Banking 7/25/00 (282,963)
BP Amoco PLC Energy 8/8/00 (15,677)
Bristol-Myers Squibb Co. Pharmaceuticals 3/9/00 (105,458)
Cap Gemini SA Computer Services 8/23/00 (279,311)
Coca-Cola West Japan Co. Ltd. Beverages 3/15/00 806
Compagnie Financiere Richemont-UTS AG Financial Services 1/5/00 511,905
Courtaulds Textiles PLC Consumer Products 1/10/00 (286,871)
Deltathree.com, Inc. Internet 11/23/99 7,531
Ebookers.com PLC Internet 11/11/99 22,999
EMI Group PLC Leisure & Recreation 9/13/00 (208,459)
Equant NV Computer Services 5/24/00 (691,662)
Galeries Lafayette Retail 1/4/00 340,042
The Gillette Co. Consumer Products 1/6/00 (201,206)
Globalstar Telecommunications Ltd. Telecommunications 3/9/00 837,680
Hitachi, Ltd. Electronics 3/15/00 (121,367)
I-Cable Communications Ltd. Cable Television Services 11/24/99 18,248
International Business Machines Corp. Computer Services 3/9/00 75,634
Korea Thrunet Co., Ltd. Internet 11/19/99 109,056
Lloyds TSB Group PLC Banking 3/9/00 (430,076)
Misys PLC Computer Services 8/23/00 (108,765)
</TABLE>
9
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
PORTFOLIO ACTIVITY -- OCTOBER 1, 1999 THROUGH SEPTEMBER 30, 2000
================================================================================
POSITIONS CLOSED (10/1/99-9/30/00) - CONTINUED (GAINS OR LOSSES GREATER THAN
$250,000 ARE HIGHLIGHTED.)
<TABLE>
<CAPTION>
DATE OF FINAL
SECURITY SECTOR SALE GAIN/(LOSS)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Monsanto Co. Pharmaceuticals 1/4/00 (490,112)
NDS Group PLC Internet 11/23/99 11,124
Newsquest PLC Publishing 10/28/99 512,802
Old Mutual PLC Insurance 3/31/00 74,071
Pharmacia & Upjohn, Inc. Pharmaceuticals 1/4/00 (223,492)
Philip Morris Cos., Inc. Consumer Products 3/7/00 (595,289)
ROHM Co., Ltd. Electronics 6/20/00 (83,419)
Saatchi & Saatchi PLC Adversising 6/20/00 518,663
San Paolo - IMI SpA Banking 8/23/00 81,139
Sharp Corp. Electronics 9/18/00 (226,556)
StarMedia Network, Inc. Internet 5/24/00 (321,684)
Swiss Reinsurance Co., Registered Insurance 1/5/00 (11,882)
Telefonica, SA Telecommunications 8/28/00 (241,903)
Telegraaf Holdings MIJ - CVA Publishing 3/9/00 57,231
Telewest Communications PLC Cable Television Services 7/26/00 (327,297)
Transatlantic Holdings, Inc. Insurance 3/9/00 (162,680)
Tyco International Ltd. Diversified Manufacturing 3/9/00 83,457
UBS-AG, Registered Banking 1/4/00 (100,122)
VNU NV Publishing 3/15/00 258,594
Wolters Kluwer NV Publishing 9/18/00 (71,404)
WPP Group PLC Advertising 3/31/00 2,156,358
</TABLE>
10
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS
At September 30, 2000
================================================================================
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
COMMON STOCKS - (87.80%) --------
<S> <C> <C> <C>
CANADA - (2.09%)
10,000 Nortel Networks Corp....................................................... $ 595,625
[LINE CHART OMITTED]
FINLAND - (1.42%)
10,000 Nokia Oyj.................................................................. 405,818
---------------
FRANCE - (11.98%)
7,600 Accor SA................................................................... 282,496
20,000 Alcatel.................................................................... 1,281,333
13,220 Carrefour SA............................................................... 977,729
6,000 Total Fina Elf SA.......................................................... 878,927
---------------
3,420,485
---------------
GERMANY - (6.64%)
18,000 Bayerische Motoren Werke AG................................................ 616,415
15,000 Direkt Anlage Bank AG*..................................................... 742,350
8,250 Intershop Communications AG*............................................... 538,071
---------------
1,896,836
---------------
HONG KONG - (7.25%)
74,000 Cheung Kong Holdings Ltd................................................... 892,195
125,000 Sun Hung Kai Properties Ltd................................................ 1,178,413
---------------
2,070,608
---------------
ITALY - (3.70%)
45,800 Arnoldo Mondadori Editore SpA.............................................. 545,613
98,000 UniCredito Italiano SpA.................................................... 511,850
---------------
1,057,463
---------------
JAPAN - (13.23%)
30,000 Canon Inc.................................................................. 1,332,468
45,000 The Nomura Securities Co., Ltd............................................. 980,574
4,500 Sony Corp.................................................................. 457,231
25,000 Tokyo Broadcasting System, Inc............................................. 1,008,389
---------------
3,778,662
---------------
LUXEMBOURG - (1.33%)
2,500 Societe Europeenne des Satellites.......................................... 379,995
---------------
MEXICO - (1.58%)
8,500 Telefonos de Mexico SA de CV ADR .......................................... 452,094
---------------
</TABLE>
11
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 2000
================================================================================
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
COMMON STOCKS - CONTINUED --------
<S> <C> <C> <C>
NETHERLANDS - (10.11%)
15,000 Heineken NV................................................................ $ 835,144
12,198 ING Groep NV............................................................... 813,673
28,712 Koninklijke Philips Electronics NV......................................... 1,237,501
---------------
2,886,318
---------------
SINGAPORE - (0.95%)
18,000 Singapore Press Holdings Ltd............................................... 270,132
---------------
SPAIN - (2.65%)
50,000 Banco Bilbao Vizcaya Argentaria, SA....................................... 756,468
---------------
SWEDEN - (3.48%)
70,000 Investor AB-Class B........................................................ 993,760
---------------
SWITZERLAND - (8.52%)
1,050 Adecco SA, Registered...................................................... 681,478
265 Julius Baer Holding Ltd.................................................... 1,376,713
1,500 The Selecta Group, Registered.............................................. 375,203
---------------
2,433,394
---------------
TAIWAN - (0.79%)
11,020 Taiwan Semiconductor Manufacturing Co., Ltd. ADR*.......................... 224,533
---------------
UNITED KINGDOM - (9.20%)
29,000 Amvescap PLC............................................................... 628,075
12,000 COLT Telecom Group PLC*.................................................... 344,288
8,800 Exel PLC................................................................... 139,117
24,359 Glaxo Wellcome PLC......................................................... 737,678
83,200 Granada Compass PLC*....................................................... 778,872
---------------
2,628,030
---------------
UNITED STATES OF AMERICA - (2.88%)
10,000 Schlumberger Ltd.......................................................... 823,125
---------------
TOTAL COMMON STOCKS - (identified cost $23,371,351)................. 25,073,346
---------------
PREFERRED STOCKS - (1.73%)
GERMANY - (1.73%)
2,000 SAP AG - (identified cost $205,836)........................................ 494,982
---------------
</TABLE>
12
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 2000
================================================================================
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
SHORT TERM - (9.47%) --------
<S> <C> <C> <C>
$ 660,000 Donaldson, Lufkin & Jenrette Securities Corp. Repurchase Agreement,
6.67%, 10/02/00, dated 09/29/00, repurchase value of $660,367
(collateralized by: U.S. Government obligations in a pooled cash
account)................................................................. $ 660,000
1,385,000 Goldman Sachs & Co. Repurchase Agreement, 6.63%, 10/02/00,
dated 09/29/00, repurchase value of $1,385,765 (collateralized by:
U.S. Government obligations in a pooled cash account) ................... 1,385,000
660,000 Prudential Securities Inc. Repurchase Agreement, 6.66%, 10/02/00,
dated 09/29/00, repurchase value of $660,366 (collateralized by:
U.S. Government obligations in a pooled cash account).................... 660,000
---------------
TOTAL SHORT TERM INVESTMENTS
- (identified cost $2,705,000)................................... 2,705,000
---------------
TOTAL INVESTMENTS - (identified cost $26,282,187) -
(99.00%) (a).................................................. 28,273,328
OTHER ASSETS LESS LIABILITIES - (1.00%)........................... 284,359
---------------
Net assets - (100%)............................................... $ 28,557,687
===============
(a) Aggregate cost for Federal income tax purposes is $26,282,187.
* Non income-producing security.
At September 30, 2000, unrealized appreciation (depreciation) of securities for
Federal Income Tax purposes was as follows:
Unrealized appreciation.................................................... $ 3,522,761
Unrealized depreciation.................................................... (1,531,620)
---------------
Net unrealized appreciation............................................. $ 1,991,141
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES - At September 30, 2000
================================================================================
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value (identified cost - $26,282,187) (See accompanying
Schedule of Investments)......................................................... $ 28,273,328
Cash................................................................................. 9,967
Receivables:
Dividends and interest........................................................... 55,980
Capital stock sold............................................................... 1,168,443
Investment securities sold....................................................... 158,672
From adviser..................................................................... 5,839
-----------------
Total assets................................................................ 29,672,229
-----------------
LIABILITIES:
Payables:
Investment securities purchased.................................................. 134,238
Capital stock redeemed........................................................... 942,868
Accrued expenses..................................................................... 37,436
-----------------
Total liabilities........................................................... 1,114,542
-----------------
NET ASSETS ............................................................................... $ 28,557,687
=================
CLASS A SHARES
Net assets....................................................................... $ 24,066,908
Shares outstanding............................................................... 2,146,169
Net asset value and redemption price per share................................... $ 11.21
========
Maximum offering price per share (100/95.25 of $11.21)*.......................... $ 11.77
========
CLASS B SHARES
Net assets....................................................................... $ 4,026,067
Shares outstanding............................................................... 377,794
Net asset value and redemption price per share................................... $ 10.66
========
CLASS C SHARES
Net assets....................................................................... $ 463,781
Shares outstanding............................................................... 42,271
Net asset value and redemption price per share................................... $ 10.97
========
CLASS Y SHARES
Net assets....................................................................... $ 931
Shares outstanding............................................................... 83
Net asset value and redemption price per share................................... $ 11.22
========
NET ASSETS CONSIST OF:
Par value of shares of capital stock................................................. $ 2,566
Additional paid-in capital........................................................... 26,238,973
Accumulated net investment loss...................................................... (115,089)
Net unrealized appreciation on investments and translation of assets and liabilities in
foreign currencies............................................................... 1,991,141
Accumulated net realized gains from investments and foreign currency transactions......... 440,096
-----------------
Net assets.................................................................. $ 28,557,687
=================
</TABLE>
* On purchases of $100,000 or more, the offering price is reduced.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
STATEMENT OF OPERATIONS - For the year ended September 30, 2000
================================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME (LOSS):
<S> <C> <C>
Income:
Dividends (Net of foreign withholding taxes of $66,816).......................... $ 204,472
Interest......................................................................... 169,486
-----------------
Total income................................................................ 373,958
-----------------
Expenses:
Management fees (Note 3)...................................... $ 354,934
Custodian fees................................................ 58,908
Transfer agent fees
Class A..................................................... 16,945
Class B..................................................... 7,280
Class C..................................................... 561
Class Y..................................................... -
Audit fees.................................................... 14,950
Legal fees.................................................... 11,937
Accounting fees (Note 3)...................................... 8,004
Reports to shareholders....................................... 51,294
Directors' fees and expenses.................................. 42,352
Registration and filing fees ................................. 56,585
Miscellaneous................................................. 8,055
Payments under distribution plan (Note 4)
Class A..................................................... 18,892
Class B..................................................... 48,027
Class C..................................................... 3,718
---------------
Total expenses.............................................................. 702,442
Reimbursement of expenses by adviser (Note 3).................................... (126,650)
Expenses paid indirectly (Note 7)................................................ (1,015)
-----------------
Net expenses................................................................ 574,777
-----------------
Net investment loss..................................................... (200,819)
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) from:
Investment transactions.......................................................... 3,246,767
Foreign currency transactions.................................................... (114,416)
Net decrease in unrealized appreciation of investments............................... (560,016)
-----------------
Net realized and unrealized gain on investments and foreign currency........ 2,572,335
-----------------
Net increase in net assets resulting from operations.................... $ 2,371,516
=================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<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,
2000 1999
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income (loss)................................... $ (200,819) $ 22,959
Net realized gain from investments and foreign currency
transactions............................................... 3,132,351 5,939,314
Decrease in unrealized appreciation on investments and
translation of assets and liabilities in foreign currencies (560,016) (1,007,482)
------------- -------------
Net increase in net assets resulting from
operations............................................ 2,371,516 4,954,791
CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets resulting from capital share
transactions (Note 5)
Class A ................................................... (5,322,412) (3,797,361)
Class B ................................................... (770,843) (1,654,561)
Class C ................................................... 138,567 10,020
Class Y ................................................... 908 -
------------- -------------
Total decrease in net assets............................... (3,582,264) (487,111)
NET ASSETS:
Beginning of period............................................ 32,139,951 32,627,062
------------- -------------
End of period (including net investment loss of $115,089 and
$1,143,399, respectively)............................. $ 28,557,687 $ 32,139,951
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
At September 30, 2000
================================================================================
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.
17
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At September 30, 2000
================================================================================
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
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, 2000, amounts have been reclassified to reflect a decrease in
undistributed net investment loss of $1,229,129 and a corresponding decrease in
additional paid-in capital.
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, 2000, were $35,505,269 and
$43,346,502, respectively.
18
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At September 30, 2000
================================================================================
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, 2000, 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, 2000, amounted to $4,516. State Street
Bank is the Fund's primary accounting provider. Fees for such services are
included in the custodian fee as State Street Bank also serves as the Fund's
custodian. The Adviser is also paid for certain accounting services. Such fee
amounted to $8,004 for the year ended September 30, 2000. The Adviser has agreed
to reimburse the Fund for certain expenses incurred in the current fiscal year
which amounted to $126,650. 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.
Effective March 1, 2000 Fiduciary Trust Company International (the
"Sub-Adviser") also acts as the Sub-Adviser of the Fund. The Sub-Adviser manages
the day-to-day investment operations for the Fund. The Fund pays no fees
directly to the Sub-Adviser. The Sub-Adviser receives from the Adviser 50% of
the total annual investment advisory fees paid by the Fund to the Adviser.
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, 2000, Davis Distributors, LLC, the
Fund's Underwriter (the "Underwriter" or "Distributor") received $20,520 from
commissions earned on sales of Class A shares of the Fund, of which $3,327 was
retained by the underwriter and the remaining $17,193 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, 2000, was $18,892.
19
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At September 30, 2000
================================================================================
NOTE 4 - DISTRIBUTION AND UNDERWRITING FEES - (CONTINUED)
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.
During the year ended September 30, 2000, Class B shares of the Fund made
distribution plan payments which included distribution fees of $36,123 and
service fees of $11,904.
Commission advances by the Distributor during the year ended September
30, 2000, on the sale of Class B shares of the Fund amounted to $15,667, of
which $13,265 was re-allowed to qualified selling dealers.
The Distributor intends to seek payment from Class B shares of the Fund
in the amount of $555,910, 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, 2000, the Distributor received contingent deferred sales charges
of $19,726 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, 2000, Class C shares of the Fund made
distribution payments of $3,718. During the year ended September 30, 2000, the
Distributor received $249 in contingent deferred sales charges from Class C
shares of the Fund.
20
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At September 30, 2000
================================================================================
NOTE 5 - CAPITAL STOCK
At September 30, 2000, the Fund had 500 million shares of capital stock
($0.001 par value per share) authorized. Transactions in capital stock were as
follows:
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED
SEPTEMBER 30, 2000
------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares subscribed............................. 3,473,746 $ 41,247,157
Shares redeemed............................... (3,872,609) (46,569,569)
------------- --------------
Net decrease............................. (398,863) $ (5,322,412)
============= ==============
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)
============= ==============
<CAPTION>
CLASS B
YEAR ENDED
SEPTEMBER 30, 2000
------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares subscribed............................. 112,904 $ 1,352,410
Shares redeemed............................... (186,907) (2,123,253)
------------- --------------
Net decrease............................. (74,003) $ (770,843)
============= ==============
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)
============= ==============
</TABLE>
21
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
At September 30, 2000
================================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<TABLE>
<CAPTION>
CLASS C
YEAR ENDED
SEPTEMBER 30, 2000
------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares subscribed.............................. 76,558 $ 877,496
Shares redeemed................................ (62,986) (738,929)
------------- --------------
Net increase.............................. 13,572 $ 138,567
============= ==============
YEAR ENDED
SEPTEMBER 30, 1999
------------------
SHARES AMOUNT
------ ------
Shares subscribed.............................. 9,748 $ 106,601
Shares redeemed................................ (8,962) (96,581)
------------- --------------
Net increase.............................. 786 $ 10,020
============= ==============
<CAPTION>
CLASS Y
MAY 5, 2000
(INCEPTION OF CLASS)
THROUGH
SEPTEMBER 30, 2000
------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares subscribed.............................. 83 $ 908
Shares redeemed................................ - -
------------- --------------
Net increase.............................. 83 $ 908
============= ==============
</TABLE>
NOTE 6 - MATTERS SUBMITTED TO A VOTE OF SHAREHOLDERS (UNAUDITED)
A special meeting of shareholders was held on February 29, 2000. The
only matter submitted for approval was consideration of a Sub-Advisory Agreement
between Davis Selected Advisers, L.P., the Investment Adviser of the Fund, and
Fiduciary International, Inc., a Sub-Adviser for the Fund. Proxies were not
solicited but a Notice of Special Meeting was mailed to all shareholders of
record. Of the eligible voting power, 1,533,591,191 votes or 50.75% voted to
approve the Sub-Advisory Agreement. No votes were received either against
approving the Sub-Advisory Agreement or abstaining.
NOTE 7 - 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 $1,015 during the year ended September 30, 2000.
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 A
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................. $ 10.69 $ 9.26 $ 11.38 $ 12.12 $ 11.85
-------- -------- -------- ------- ---------
Income (Loss) From
Investment Operations
Net Investment Income (Loss)....... (0.12) - - - 0.03
Net Realized and Unrealized
Gains (Losses).................... 0.64 1.43 (2.12) 0.25 0.85
------- ------- ------- ------- ---------
Total From Investment
Operations....................... 0.52 1.43 (2.12) 0.25 0.88
------- ------- ------- ------- ---------
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......... $ 11.21 $ 10.69 $ 9.26 $ 11.38 $ 12.12
======= ======= ======= ======= =========
Total Return (1)........................ 4.86% 15.44% (18.63)% 2.71% 7.87%
Ratios/Supplemental Data
Net Assets, End of
Period (000 omitted).............. $ 24,067 $ 27,202 $ 26,921 $ 39,740 $ 41,545
Ratio of Expenses
to Average Net Assets............. 1.47%(2) 1.47%(2) 1.45%(2) 1.67%(2),(3) 1.70%(2),(3)
Ratio of Net Investment Income
to Average Net Assets............. (0.42)% 0.24% 0.13% 0.03% 0.23%
Portfolio Turnover Rate(4)......... 109% 154% 63% 97% 78%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
(2) Had the Adviser not absorbed certain expenses, the ratio of expenses to
average net assets for the years ended September 30, 2000, 1999, 1998, 1997
and 1996 would have been 1.83%, 1.95%, 1.86%, 1.93% and 2.24%,
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 1996, 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.
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 B
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................. $ 10.26 $ 8.98 $ 11.15 $ 12.00 $ 11.79
-------- -------- ---------- -------- --------
Income (Loss) From
Investment Operations
Net Investment Loss................. (0.24) - - (0.10) (0.03)
Net Realized and Unrealized
Gains (Losses).................... 0.64 1.28 (2.17) 0.24 0.82
-------- -------- -------- -------- --------
Total From Investment
Operations...................... 0.40 1.28 (2.17) 0.14 0.79
-------- -------- -------- -------- --------
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......... $ 10.66 $ 10.26 $ 8.98 $ 11.15 $ 12.00
======== ======= ======== ======== ========
Total Return (1)........................ 3.90% 14.25% (19.46)% 1.77% 7.10%
Ratios/Supplemental Data
Net Assets, End of
Period (000 omitted).............. $ 4,026 $ 4,636 $ 5,450 $ 8,230 $ 8,283
Ratio of Expenses
to Average Net Assets.......... 2.50%(2) 2.51%(2),(3) 2.60%(2) 2.51%(2),(3) 2.47%(2),(3)
Ratio of Net Investment Income
(Loss) to Average Net Assets..... (1.45)% (0.79)% (1.02)% (0.80)% (0.54)%
Portfolio Turnover Rate(4).......... 109% 154% 63% 97% 78%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
(2) Had the Adviser not absorbed certain expenses, the ratio of expenses to
average net assets for the years ended September 30, 2000, 1999, 1998, 1997
and 1996 would have been 2.86%, 2.98%, 3.01%, 2.98% and 3.01%,
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, 1997 and 1996, 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.
24
<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)
THROUGH
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
------------------------
2000(5) 1999 1998 1997
------- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............... $ 10.53 $ 9.17 $ 11.37 $ 11.50
-------- -------- -------- --------
Income (Loss) From
Investment Operations
Net Investment Loss............... (0.20) - - (0.02)
Net Realized and Unrealized
Gains (Losses).................. 0.64 1.36 (2.20) (0.11)
-------- -------- -------- --------
Total From Investment
Operations................... 0.44 1.36 (2.20) (0.13)
-------- -------- -------- --------
Net Asset Value, End of Period....... $ 10.97 $ 10.53 $ 9.17 $ 11.37
======== ======== ======== ========
Total Return(1)....................... 4.18% 14.83% (19.35)% (1.13)%
Ratios/Supplemental Data
Net Assets, End of
Period (000 omitted)............ $ 464 $ 302 $ 256 $ 61
Ratio of Expenses
to Average Net Assets......... 2.51%(2),(3) 2.52%(2),(3) 2.78%(2),(3) 2.62%(2)*
Ratio of Net Investment Income
(Loss) to Average Net Assets.. (1.45)% (0.80)% (1.19)% (2.27)%*
Portfolio Turnover Rate(4)....... 109% 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, 2000, 1999, 1998 and
the period ended September 30, 1997 would have been 2.86%, 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 2.50%, 2.51% and 2.77% for
the years ended September 30, 2000, 1999 and 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) Per share calculations were based on average shares outstanding for the
period.
* Annualized
25
<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 Y MAY 5, 2000
(INCEPTION OF CLASS)
THROUGH
SEPTEMBER 30,
2000
----
<S> <C>
Net Asset Value,
Beginning of Period.......................... $ 10.88
-------
Income (Loss) From
Investment Operations
Net Investment Income ....................... 0.02
Net Realized and Unrealized Gain............. 0.32
-------
Total From Investment
Operations................................ 0.34
-------
Net Asset Value, End of Period................... $ 11.22
=======
Total Return(1).................................. 3.13%
Ratios/Supplemental Data
Net Assets, End of
Period .................................... $ 931
Ratio of Expenses
to Average Net Assets...................... 1.39%(2),(3) *
Ratio of Net Investment Income
to Average Net Assets...................... (0.33)%*
Portfolio Turnover Rate(4).................. 109%
</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 year.
(2) Had the Adviser not absorbed certain expenses, the ratio of expenses to
average net assets would have been 1.74%.
(3) The ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement were 1.38%.
(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
26
<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, 2000, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the three-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 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 auditing standards generally
accepted in the United States of America. 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, 2000, 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, 2000, and
the results of its operations for the year then ended, the changes in its net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the three-year period then ended,
in conformity with accounting principles generally accepted in the United States
of America.
KPMG LLP
Denver, Colorado
November 3, 2000
27
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
DAVIS INTERNATIONAL TOTAL RETURN FUND
2949 East Elvira Road, Tucson, Arizona 85706
================================================================================
DIRECTORS OFFICERS
Jeremy H. Biggs Jeremy H. Biggs
Christopher C. Davis Chairman
G. Bernard Hamilton Christopher 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
Davis Selected Advisers, L.P.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
1-800-279-0279
DISTRIBUTOR
Davis Distributors, LLC
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
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, LLC
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.
2949 East Elvira Road
Suite 101
Tucson, AZ 85706
1-800-279-0279
www.davisfunds.com
[DAVIS FUNDS LOGO]
