DAVIS SERIES INC, 485BPOS, 1998-12-30

DAVIS SERIES INC
485BPOS, 1998-12-30

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
REGISTRATION NO. 2-57209
POST-EFFECTIVE AMENDMENT NO. 41
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-2679
AMENDMENT NO. 37
DAVIS SERIES, INC.

124 East Marcy Street
Santa Fe, New Mexico 87501
1-505-983-4335

Agents For Service: Thomas D. Tays, Esq.
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
1-505-820-3055

-or-

Sheldon R. Stein, Esq.
D'Ancona & Pflaum
111 E. Wacker Drive
Suite 2800
Chicago, Illinois 60601-4205
(1-312-580-2014)

It is proposed that this filing will become effective:

[ ] Immediately upon filing pursuant to paragraph (b)
[X] On December 31, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on _____, 1998 pursuant to paragraph (a) of Rule 485

Title of Securities Being Registered: Common Stock of:
----------------
1. Davis Growth Opportunity Fund
2. Davis Financial Fund

1
<PAGE>

3. Davis Real Estate Fund
4. Davis Convertible Securities Fund
5. Davis Government Bond Fund
6. Davis Government Money Market Fund

2
<PAGE>

FORM N-1A

DAVIS SERIES, INC. CLASS A, B AND C SHARES

POST-EFFECTIVE AMENDMENT NO. 41 TO REGISTRATION STATEMENT NO. 2-057209 UNDER
THE SECURITIES ACT OF 1933 AND AMENDMENT NO. 37 UNDER THE INVESTMENT COMPANY
ACT OF 1940 TO REGISTRATION STATEMENT NO. 811-2679.

CROSS REFERENCE SHEET
N-1A
ITEM NO. PART A CAPTION OR PLACEMENT: PROSPECTUS FOR CLASS ABC
SHARES

1. Front and Back Cover pages
2. Overview of the Fund:
Investment Objective and Strategy
Determining if this Fund is Right for You
Principal Risks
Past Performance
3. Overview of the Fund: Fees and Expenses of the Fund
4. How We Manage the Fund
5. Annual Report, Incorporated by Reference
6. Who is Responsible for Your Davis Account
7. Once You Invest in the Fund
How to Open an Account
How to Buy, Sell and Exchange Shares
8. How to Choose a Share Class
9. Overview of the Fund: Financial Highlights

N-1A
ITEM NO. PART A CAPTION OR PLACEMENT: PROSPECTUS FOR CLASS Y
SHARES

3
<PAGE>

6. Who is Responsible for Your Davis Account
7. Once You Invest in the Fund
How to Open an Account
How to Buy, Sell and Exchange Shares
8. Not Applicable
9. Overview of the Fund: Financial Highlights

N-1A
ITEM NO. PART B CAPTION OR PLACEMENT:
STATEMENT OF ADDITIONAL INFORMATION

10. Cover Page
11. Organization of the Company
12. Portfolio Securities
13. Other Investment Practices
14. Investment Restrictions
15. Directors and Officers
16. Directors Compensation Table
17. Certain Shareholders of the Fund
18. Investment Advisory Services
19. Distribution of Company Shares
20. Other Important Service Providers
21. Portfolio Transactions
22. Organization of the Company
23. Purchase of Shares
24. Special Services
25. Exchange of Shares
26. Redemption of Shares
27. Federal Income Taxes
28. Distribution of Company Shares
29. Performance Data
30. Annual Report, Incorporated by Reference

4
<PAGE>

[COVER PAGE]

DAVIS GROWTH OPPORTUNITY FUND
DAVIS FINANCIAL FUND
DAVIS REAL ESTATE FUND
DAVIS CONVERTIBLE SECURITIES FUND
DAVIS GOVERNMENT BOND FUND
DAVIS GOVERNMENT MONEY MARKET FUND
(PART OF DAVIS SERIES, INC.)

Prospectus and Application Form

Class A shares
Class B shares
Class C shares

December 31, 1998

The Securities and Exchange Commission has not approved or disapproved of these
securities. The Securities and Exchange Commission has not determined whether
this prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.

(Davis logo)

Over 25 Years of Reliable Investing

<PAGE>

TABLE OF CONTENTS

Overview of each Davis Series Fund
Davis Growth Opportunity Fund
Davis Financial Fund
Davis Real Estate Fund
Davis Convertible Securities Fund
Davis Government Bond Fund
Davis Government Money Market Fund

Overview of the Fund
Investment Objective and Strategy
Determining if this Fund is Right for You
Principal Risks
Past Performance
Fees and Expenses of the Fund
Financial Highlights

Who Is Responsible for Your Davis Account

How We Manage Davis Series Funds

Once You Invest in One of the Davis Funds

How to Choose a Share Class

How to Open an Account

How to Buy, Sell and Exchange Shares

The Davis Funds: Over 25 Years of Reliable Investing

Other Fund Documents

2
<PAGE>

OVERVIEW OF DAVIS GROWTH OPPORTUNITY FUND

INVESTMENT OBJECTIVE AND STRATEGY

Davis Growth Opportunity Fund's investment objective is growth of capital. The
Fund invests primarily in common stock of U.S. companies with small and medium
market capitalizations of less than $5 billion.

Our portfolio managers use the Davis investment philosophy to select common
stock of quality overlooked growth companies at value prices and to hold them
for the long-term. We look for companies with sustainable growth rates selling
at modest price-earnings multiples that we hope will expand as other investors
recognize the company's true worth. We believe that if you combine a
sustainable growth rate with a gradually expanding multiple, these rates
compound and can generate returns that could exceed average returns earned by
investing in small and medium market capitalization domestic stocks.

[SIDEBAR: ]
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.

DETERMINING IF THIS FUND IS RIGHT FOR YOU

YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:

o You are seeking long-term growth of capital.
o You prefer to invest in small and medium capitalization companies.
o You are willing to accept higher risk for the opportunity to pursue higher
returns.
o You are investing for the long-term (five years or more).

YOU SHOULD NOT INVEST IN THIS FUND IF:

o You are worried about the possibility of sharp price swings and dramatic
market declines.
o You are interested in earning current income.
o You prefer to invest in larger, more established companies.
o You are investing for the short-term (less than five years).

3
<PAGE>

PRINCIPAL RISKS

If you buy shares of Davis Growth Opportunity Fund, you may lose some or all of
the money that you invest. This section describes what we think are the two
most significant factors that can cause the Fund's performance to suffer.

o MARKET RISK. The market value of shares of common stock can change rapidly
and unpredictably as a result of political or economic events having little
or nothing to do with the issuer.

o COMPANY RISK. The price of a common stock varies with the success and
failure of its issuer. As a result, the success of the companies in which
the Fund invests largely determines the Fund's performance. Investing in
small and medium capitalization companies may be more risky than investing
in large capitalization companies and their share prices may be more
volatile.

An investment in Davis Growth Opportunity Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

PAST PERFORMANCE

The bar chart and the table below provide an indication of the risks of
investing in Davis Growth Opportunity Fund by showing changes in the Fund's
performance from year to year over a 10-year period and by showing how the
Fund's average annual returns for one year, five years, ten years, and since
inception compare to those of the S&P 500(R), a widely recognized unmanaged
index of stock performance. How the Fund has performed in the past is not
necessarily an indication of how the Fund will perform in the future.

4
<PAGE>

DAVIS GROWTH OPPORTUNITY FUND
TOTAL RETURN OVER THE LAST 10-YEAR PERIOD
(AS OF DECEMBER 31ST OF EACH YEAR)
CLASS B SHARES

1988 10.49%
1989 40.06%
1990 (4.72%)
1991 40.93%
1992 (2.86%)
1993 11.16%
1994 (8.45%)
1995 45.44%
1996 17.86%
1997 26.82%

Best Quarter: Q3 '97 25.44%
Worst Quarter: Q3 '90 -19.23%
Year-to-Date* Q3 '98 -15.45%

* Not annualized, for the period January 1, 1998 through September 30, 1998.

The chart does not reflect any sales charges. Total return would have been less
if it reflected those charges. The return for the other classes of shares
offered by this prospectus will differ from the Class B returns shown in the
chart, depending on the expenses of that class.

<TABLE>
<CAPTION>
DAVIS GROWTH OPPORTUNITY FUND
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1997)

- ------------------------------------------------------------------------------------------------
PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS LIFE OF FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES (since 12/1/94) 21.66% N/A N/A 26.37%
- ------------------------------------------------------------------------------------------------
S&P 500 INDEX 33.35% N/A N/A 31.32%
- ------------------------------------------------------------------------------------------------
CLASS B SHARES (since 5/1/84) 22.82% 16.99% 16.13% 15.91%
- ------------------------------------------------------------------------------------------------
S&P 500 INDEX 33.35% 20.23% 18.01% 17.63%
- ------------------------------------------------------------------------------------------------
CLASS C SHARES* (since 8/15/97) N/A N/A N/A (6.53%)
- ------------------------------------------------------------------------------------------------
S&P 500 INDEX* N/A N/A N/A 8.42%
- ------------------------------------------------------------------------------------------------
</TABLE>

* Not annualized.

5
<PAGE>

FEES AND EXPENSES OF THE FUND

<TABLE>
<CAPTION>
FEES YOU MAY PAY AS A DAVIS GROWTH OPPORTUNITY FUND SHAREHOLDER
(Paid Directly from Your Investment)

- ------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a 4.75% None None
percentage of offering price)
- ------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) 0.75% 4.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None
- ------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
DAVIS GROWTH OPPORTUNITY FUNDS
ANNUAL FUND OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
(Deducted from Davis Growth Opportunity Fund's Assets)

- ------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.21% 0.99% 1.00%
- ------------------------------------------------------------------------------------------------------------------
Other Expenses 0.31% 0.35% 0.44%
- ------------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.27% 2.09% 2.19%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

EXAMPLE

This example is intended to help you compare the cost of investing in Davis
Growth Opportunity Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in Davis Growth Opportunity Fund
for the time periods indicated. The example also assumes that your investment
has a 5% return each year and that Davis Growth Opportunity Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
your costs--based on these assumptions--would be:

6
<PAGE>

- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES $616 $967 $1,344 $2,167
- --------------------------------------------------------------------------------------------------------------
CLASS C SHARES $325 $694 $1,190 $2,554
- --------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES AFTER...
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $605 $879 $1,174 $2,011
- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES $216 $667 $1,144 $2,167
- --------------------------------------------------------------------------------------------------------------
CLASS C SHARES $225 $694 $1,190 $2,554
- --------------------------------------------------------------------------------------------------------------
</TABLE>

FINANCIAL HIGHLIGHTS

These tables are designed to show you the financial performance of Davis Growth
Opportunity Fund for the past five years. Some of the information reflects
financial results for a single fund share. The total returns represent the rate
that an investor would have earned (or lost) money on an investment in the
Fund. It assumes that all dividends and capital gains have been reinvested.

Financial information for the six-month period ended June 30, 1998 is
unaudited. Financial information for the year ended December 31, 1997, and
earlier periods has been audited by Tait, Weller & Baker, whose report, along
with the fund's financial statements are included in the annual report, which
is available upon request.

7
<PAGE>

<TABLE>
<CAPTION>
DAVIS GROWTH OPPORTUNITY FUND
CLASS A SHARES

SIX MONTHS DECEMBER 1, 1994
(COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 1994
ENDED YEAR ENDED ENDED
JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 1996 1995 1994
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $22.49 $18.93 $17.25 $12.83 $13.70
------ ------ ------ ------ ------
Income (Loss) From Investment Operations
Net Investment Loss............................ (0.04) (0.10) (0.13) (0.11) (0.01)
Net Gains or Losses on Securities
(both realized and unrealized)............. 1.57 5.34 3.37 6.08 (0.29)
------ ------ ------ ------ ------
Total From Investment Operations.......... 1.53 5.24 3.24 5.97 (0.30)
------ ------ ------ ------ ------
Less Distributions
Distributions (from capital gains)............. - (1.68) (1.55) (1.55) (0.57)
Distributions (from paid-in capital)........... - - (0.01) - -
------ ------ ------ ------ ------
Total Distributions........................ - (1.68) (1.56) (1.55) (0.57)
------ ------ ------ ------ ------
Net Asset Value, End of Period.................... $24.02 $22.49 $18.93 $17.25 $12.83
====== ====== ====== ====== ======
Total Return(1) .................................. 6.80% 27.70% 18.73% 46.65% (2.21)%

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)....... $63,877 $48,386 $27,158 $22,890 $12,455
Ratio of Expenses to Average Net Assets........ 1.34%* 1.27% 1.49%(2) 1.51% 1.42%*
Ratio of Net Loss to Average Net Assets.......(0.33)%* (0.58)% (0.76)% (0.71)% (0.08)%*
Portfolio Turnover Rate(3)..................... 0.61% 19.33% 30.55% 30.07% 37.31%
</TABLE>

(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.

(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.48% for 1996. Prior to 1996, such
reductions were reflected in the expense ratios.

(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.

* Annualized.

8
<PAGE>

DAVIS GROWTH OPPORTUNITY FUND
CLASS B SHARES

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 -----------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993(1)
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...... $21.88 $18.58 $17.08 $12.82 $14.67 $13.25
------ ------ ------ ------ ------ ------
Income (Loss) From Investment Operations
Net Investment Loss.................... (0.13) (0.25) (0.27) (0.26) (0.12) (0.07)
Net Gains or Losses on Securities
(both realized and unrealized)..... 1.51 5.23 3.33 6.07 (1.11) 1.54
------ ------ ------ ------ ------ ------
Total From Investment
Operations..................... 1.38 4.98 3.06 5.81 (1.23) 1.47
------ ------ ------ ------ ------ ------
Less Distributions
Dividends (from net investment income). - - - - - (0.05)
Distributions (from capital gains)..... - (1.68) (1.55) (1.55) (0.62) -
Distributions (from paid-in capital)... - - (0.01) - - -
------ ------ ------ ------ ------ ------
Total Distributions................ - (1.68) (1.56) (1.55) (0.62) (0.05)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period............ $23.26 $21.88 $18.58 $17.08 $12.82 $14.67
====== ====== ====== ====== ====== ======
Total Return(2) .......................... 6.31% 26.82% 17.86% 45.44% (8.45)% 11.16%

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $68,465 $61,383 $39,343 $35,326 $36,087 $51,762
Ratio of Expenses to Average Net Assets 2.13%*(3) 2.09%(3) 2.25%(3) 2.30% 2.15% 2.39%
Ratio of Net Loss to Average Net Assets (1.11)%* (1.40)% (1.52)% (1.50)% (0.81)% (0.55)%
Portfolio Turnover Rate(4)............. 0.61% 19.33% 30.55% 30.07% 37.31% 38.93%
</TABLE>

(1) Per share data has been restated to give effect to a 2 for 1 stock split to
shareholders of record as of the close of business of January 7, 1994.

(2) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total returns
are not annualized for periods of less than one full year.

(3) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.12% for the six months ended June
30, 1998 and 2.08% and 2.24% for 1997 and 1996, respectively. Prior to
1996, such reductions were reflected in the expenses ratios.

4 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.

* Annualized.

9
<PAGE>

DAVIS GROWTH OPPORTUNITY FUND
CLASS C SHARES

<TABLE>
<CAPTION>
AUGUST 15, 1997
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED THROUGH
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ----
<S> <C> <C>
Net Asset Value, Beginning of Period.... $22.43 $25.56
------ ------
Income (Loss) From Investment
Operations
Net Investment Loss.................. (0.13) (0.04)
Net Gains or Losses on Securities
(both realized and unrealized)... 1.55 (1.41)
------ ------
Total From Investment
Operations................... 1.42 (1.45)
------ ------
Less Distributions
Distributions (from capital gains)... - (1.68)
------ ------
Total Distributions.............. - (1.68)
------ ------
Net Asset Value, End of Period.......... $23.85 $22.43
====== ======
Total Return(1)......................... 6.33% (5.66)%

Ratios/Supplemental Data
Net Assets, End of Period (000
omitted)........................... $4,358 $2,585
Ratio of Expenses to Average Net
Assets............................. 2.22%*(2) 2.19%*
Ratio of Net Loss to Average Net
Assets............................. (1.20)%* (1.51)%*
Portfolio Turnover Rate(3)........... 0.61% 19.33%
</TABLE>

(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.21% for the six months ended June
30, 1998, for Class C shares. Prior to 1996, such reductions were reflected
in the expense ratios.

* Annualized.

10
<PAGE>

OVERVIEW OF DAVIS FINANCIAL FUND

INVESTMENT OBJECTIVE AND STRATEGY

Davis Financial Fund's investment objective is growth of capital. The Fund
invests primarily in common stock of financial companies. During normal market
conditions, at least half of the fund's assets are invested in companies that
are "principally engaged" in banking and financial services. Specifically, at
least 25% of the fund's assets are invested in the banking industry, and at
least another 25% are invested in the financial services industry.

A company is "principally engaged" in banking or financial services if it owns
banking or financial services-related assets that constitute at least 50% of
the value of all of its assets, or if it derives at least 50% of its revenues
from providing banking or financial services. Companies in the banking industry
include commercial banks, industrial banks and savings institutions. Companies
in the financial services industry include finance companies, diversified
financial services companies, investment banking firms, securities brokerage
houses, investment advisory companies, leasing companies, insurance companies
and companies providing similar services.

Our portfolio managers use the Davis investment philosophy to select common
stock of quality overlooked growth companies at value prices and to hold them
for the long-term. We look for banking and financial services companies with
sustainable growth rates selling at modest price-earnings multiples that we
hope will expand as other investors recognize the company's true worth. We
believe that if you combine a sustainable growth rate with a gradually
expanding multiple, these rates compound and can generate returns that could
exceed average returns earned by investing in a portfolio of banking and
financial services companies.

[SIDEBAR: ]
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.

DETERMINING IF THIS FUND IS RIGHT FOR YOU

YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:

o You are seeking long-term growth of capital.
o You believe that the banking and financial services sectors offer
attractive long-term growth opportunities.
o You are investing for the long-term (five years or more).

11
<PAGE>

YOU SHOULD NOT INVEST IN THIS FUND IF:

o You are worried about the possibility of sharp price swings and dramatic
market declines.
o You are interested in earning current income.
o You do not wish to invest in a concentrated portfolio of banking and
financial services companies.
o You are investing for the short-term (less than five years).

PRINCIPAL RISKS

If you buy shares of Davis Financial Fund, you may lose some or all of the
money that you invest. This section describes what we think are the three most
significant factors that can cause the Fund's performance to suffer.

o MARKET RISK. The market value of shares of common stock can change rapidly
and unpredictably as a result of political or economic events having little
or nothing to do with the issuer.

o CONCENTRATED FINANCIAL SERVICES PORTFOLIO. Davis Financial Fund invests
primarily in two industries. Any fund that has a concentrated portfolio is
particularly vulnerable to the risks of its target sector. Risks of
investing in the banking and financial services industries include:

o REGULATORY ACTIONS. Banks and financial services companies may suffer a
setback if regulators change the rules under which they operate.

o CHANGES IN INTEREST RATES. Unstable interest rates can have a
disproportionate effect on the financial services industry.

o CONCENTRATION OF LOANS. Banks whose securities Davis Financial Fund
purchases may themselves have concentrated portfolios, such as a high level
of loans to real estate developers, which makes them vulnerable to economic
conditions that affect that industry.

o COMPETITION. The financial services industry has become increasingly
competitive.

An investment in Davis Financial Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

12
<PAGE>

PAST PERFORMANCE

The bar chart and the table below provide an indication of the risks of
investing in Davis Financial Fund by showing changes in the Fund's performance
from year to year since inception and by showing how the Fund's average annual
returns for one year, five years and since inception compare to those of the
S&P 500(R), a widely recognized unmanaged index of stock performance. How the
Fund has performed in the past is not necessarily an indication of how the Fund
will perform in the future.

DAVIS FINANCIAL FUND
TOTAL RETURN SINCE 1992
(AS OF DECEMBER 31ST OF EACH YEAR)
CLASS A SHARES

1992 32.67%
1993 14.87%
1994 (4.55%)
1995 50.51%
1996 31.50%
1997 44.53%

Best Quarter: Q2 '97 17.11%
Worst Quarter: Q1 '94 -5.83%
Year-to-Date* Q3 '98 -4.95%

* Not annualized, for the period January 1, 1998 through September 30, 1998.

The chart does not reflect any sales charges. Total return would have been less
if it reflected those charges. The return for the other classes of shares
offered by this prospectus will differ from the Class A returns shown in the
chart, depending on the expenses of that class.

13
<PAGE>

DAVIS FINANCIAL FUND
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1997)

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PAST ONE YEAR PAST 5 YEARS LIFE OF FUND
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES (since 5/1/91) 37.67% 24.46% 26.84%
- ----------------------------------------------------------------------------------------------------
S&P 500 INDEX 33.35% 20.23% 18.12%
- ----------------------------------------------------------------------------------------------------
CLASS B SHARES (since 12/27/94) 39.25% NA 39.65%
- ----------------------------------------------------------------------------------------------------
S&P 500 INDEX 33.35% NA 30.97%
- ----------------------------------------------------------------------------------------------------
CLASS C SHARES* (since 8/12/97) N/A NA 8.45%
- ----------------------------------------------------------------------------------------------------
S&P 500 INDEX* N/A NA 5.44%
- ----------------------------------------------------------------------------------------------------
</TABLE>

* Not annualized.

FEES AND EXPENSES OF THE FUND

FEES YOU MAY PAY AS A DAVIS FINANCIAL FUND SHAREHOLDER
(Paid Directly from Your Investment)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a 4.75% None None
percentage of offering price)
- ------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) 0.75% 4.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None
- ------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

DAVIS FINANCIAL FUND
ANNUAL FUND OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER, 1997
(Deducted from Davis Financial Fund's Assets)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.73% 0.73% 0.73%
- ------------------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.17% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------
Other Expenses 0.17% 0.24% 0.20%
- ------------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.07% 1.97% 1.93%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

14
<PAGE>

EXAMPLE

This example is intended to help you compare the cost of investing in Davis
Financial Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in Davis Financial Fund for the
time periods indicated The example also assumes that your investment has a 5%
return each year and that Davis Financial Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, your costs--based on
these assumptions--would be:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $582 $808 $1,052 $1,752
- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES $598 $912 $1,252 $1,951
- --------------------------------------------------------------------------------------------------------------
CLASS C SHARES $294 $600 $1,032 $2,233
- --------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES AFTER...
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $582 $808 $1,052 $1,752
- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES $198 $612 $1,052 $1,951
- --------------------------------------------------------------------------------------------------------------
CLASS C SHARES $194 $600 $1,032 $2,233
- --------------------------------------------------------------------------------------------------------------
</TABLE>

FINANCIAL HIGHLIGHTS

These tables are designed to show you the financial performance of Davis
Financial Fund for the past five years. Some of the information reflects
financial results for a single fund share. The total returns represent the rate
that an investor would have earned (or lost) money on an investment in the
fund. It assumes that all dividends and capital gains have been reinvested.

15
<PAGE>

DAVIS FINANCIAL FUND
CLASS A SHARES

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1998 ----------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993(2)
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $25.68 $18.06 $14.50 $10.68 $11.70 $11.20
------ ------ ------ ------ ------ ------
Income (Loss) From Investment
Operations
Net Investment Income................ 0.05 0.13 0.14 0.07 0.08 0.07
Net Gains or Losses on Securities
(both realized and unrealized).. 3.31 7.92 4.44 5.32 (0.61) 1.59
------ ------ ------ ------ ------ ------
Total From Investment Operations. 3.36 8.05 4.58 5.39 (0.53) 1.66
------ ------ ------ ------ ------ ------
Less Distributions
Dividends (from net investment - (0.13) (0.15) (0.07) (0.08) (0.08)
income)............................
Distributions (from capital gains)... - (0.30) (0.87) (1.50) (0.39) (1.08)
Distributions (from paid-in capital). - - - - (0.02) -
------ ------ ------ ------ ------ ------
Total Distributions.............. - (0.43) (1.02) (1.57) (0.49) (1.16)
------ ------ ------ ------ ------ ------

Net Asset Value, End of Period.......... $29.04 $25.68 $18.06 $14.50 $10.68 $11.70
====== ====== ====== ====== ====== ======
Total Return (1)........................ 13.08% 44.53% 31.50% 50.51% (4.55)% 14.87%

Ratios/Supplemental Data
Net Assets, End of Period (000
omitted)........................... $451,278 $292,059 $107,579 $79,874 $57,670 $50,778
Ratio of Expenses to Average Net
Assets............................. 1.10%* 1.07% 1.15% 1.18% 1.24% 1.32%
Ratio of Net Income to Average Net
Assets............................. 0.41%* 0.77% 0.92% 0.53% 0.67% 0.57%

Portfolio Turnover Rate(3)........... 0.51% 6.23% 25.78% 41.89% 43.95% 70.33%
</TABLE>

(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total returns
are not annualized for periods of less than one full year.

(2) Per share data has been restated to give effect to a 2 for 1 stock split to
shareholders of record as of the close of business on January 7, 1994.

* Annualized.

16
<PAGE>

DAVIS FINANCIAL FUND
CLASS B SHARES

<TABLE>
<CAPTION>
DECEMBER 27, 1994
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED YEAR ENDED DECEMBER 31, THROUGH
JUNE 30, 1998 ------------------------------------ DECEMBER 31,
(UNAUDITED) 1997 1996 1995 1994
---------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $25.36 $17.91 $14.41 $10.68 $11.22
------ ------ ------ ------ ------
Income (Loss) From Investment Operations
Net Investment Income (Loss)......... (0.05) (0.01) 0.01 0.01 0.03
Net Gains or Losses on Securities
(both realized and unrealized)... 3.25 7.76 4.37 5.22 (0.13)
------ ------ ------ ------ ------
Total From Investment Operations 3.20 7.75 4.38 5.23 (0.10)
------ ------ ------ ------ ------
Less Distributions
Dividends (from net investment income) - - (0.01) - (0.03)
Distributions (from capital gains)... - (0.30) (0.87) (1.50) (0.39)
Distributions (from paid-in capital). - - - - (0.02)
------ ------ ------ ------ ------
Total Distributions.............. (0.30) (0.88) (1.50) (0.44)
------ ------ ------ ------ ------
Net Asset Value, End of Period.......... $28.56 $25.36 $17.91 $14.41 $10.68
====== ====== ====== ====== ======
Total Return (1)........................ 12.62% 43.25% 30.29% 49.00% (0.90)%

Ratios/Supplemental Data
Net Assets, End of Period (000 $$376,549 $193,257 $8,213 $1,762 $28
omitted).............................
Ratio of Expenses to Average Net Assets 1.95%* 1.97% 2.04% 2.09% 2.04%*
Ratio of Net Income (Loss)to Average
Net Assets........................... (0.44)%* (0.12)% 0.19% (0.38)% (0.13)%*

Portfolio Turnover Rate(2)........... 0.51% 6.23% 25.78% 41.89% 43.95%
</TABLE>

(2) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.

* Annualized.

17
<PAGE>

DAVIS FINANCIAL FUND
CLASS C SHARES

<TABLE>
<CAPTION>
AUGUST 12, 1997
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED THROUGH
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ----
<S> <C> <C>
Net Asset Value, Beginning of Period.... $25.71 $23.76
------ ------
Income (Loss) From Investment
Operations
Net Investment Income (Loss)......... (0.03) -
Net Gains on Securities
(both realized and unrealized)... 3.28 2.25
------ ------
Total From Investment Operations 3.25 2.25
------ ------
Less Distributions
Dividends (from net investment income) - -
Distributions (from capital gains)... - (0.30)
------ ------
Total Distributions.............. - (0.30)
------ ------
Net Asset Value, End of Period.......... $28.96 $25.71
====== ======
Total Return (1)........................ 12.64% 9.45%

Ratios/Supplemental Data
Net Assets, End of Period(000
omitted)............................. $74,339 $19,515
Ratio of Expenses to Average Net
Assets .............................. 1.91%* 1.93%*
Ratio of Net Income (Loss) to
Average Net Assets................... (0.40)%* (0.09)%*

Portfolio Turnover Rate(2)........... 0.51% 6.23%
</TABLE>

(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.

* Annualized.

18
<PAGE>

OVERVIEW OF DAVIS REAL ESTATE FUND

INVESTMENT OBJECTIVE AND STRATEGY

Davis Real Estate Fund's investment objective is total return through a
combination of growth and income. During normal market conditions, at least 65%
of Davis Real Estate Fund's assets are invested in "real estate securities,"
which are securities issued by companies that are "principally engaged" in the
real estate industry. The fund does not invest directly in real estate.

A company is "principally engaged" in the real estate industry if it owns real
estate or real estate-related assets that constitute at least 50% of the value
of all of its assets, or if it derives at least 50% of its revenues or net
profits from owning, financing, developing, managing, or selling real estate,
or from offering products or services that are related to real estate. Issuers
of real estate securities include real estate investment trusts (known as
"REITs"), brokers, developers, lenders, and companies with substantial real
estate holdings such as paper, lumber, hotel, and entertainment companies.

Most of Davis Real Estate Fund's real estate securities are, and likely will
continue to be, interests in REITs. REITs pool investors' funds to make real
estate-related investments, such as buying interests in income-producing
property or making loans to real estate developers.

Davis Real Estate Fund focuses on REITs and other companies with first-class
management teams who view real estate as a means of producing steady increases
in income and strong returns on capital. We concentrate heavily on valuation,
looking for companies that sell at less than the present value of their
expected cash flow over the next few years.

[SIDEBAR: ]
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.

DETERMINING IF THIS FUND IS RIGHT FOR YOU

YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:

o You are seeking total return through a combination of growth and income.
o You believe that the real estate sector offer attractive long-term growth
opportunities.
o You want to diversify your traditional stock and bond portfolio with real
estate securities.
o You are investing for the long-term (five years or more).

YOU SHOULD NOT INVEST IN THIS FUND IF:

19
<PAGE>

o You are worried about the possibility of sharp price swings and dramatic
market declines.
o You do not wish to invest in a concentrated portfolio of real estate
companies.
o You are investing for the short-term (less than five years).

PRINCIPAL RISKS

If you buy shares of Davis Real Estate Fund, you may lose some or all of the
money that you invest. This section describes what we think are the three most
significant factors that can cause the Fund's performance to suffer.

o MARKET RISK. The market value of shares of common stock can change rapidly
and unpredictably as a result of political or economic events having little
or nothing to do with the issuer.

o CONCENTRATED REAL ESTATE PORTFOLIO. Davis Real Estate Fund invests
primarily in one industry. Any fund that has a concentrated portfolio is
particularly vulnerable to the risks of its selected industry. Real estate
securities are susceptible to the many risks associated with the direct
ownership of real estate, including:

o Declines in property values--because of changes in the economy or the
surrounding area or because a particular region has become less appealing
to tenants.
o Increases in property taxes, operating expenses, interest rates, or
competition.
o Overbuilding.
o Changes in zoning laws.
o Losses from casualty or condemnation.

An investment in Davis Real Estate Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

20
<PAGE>

PAST PERFORMANCE

The bar chart and the table below provide an indication of the risks of
investing in Davis Real Estate Fund by showing changes in the Fund's
performance from year to year since inception and by showing how the Fund's
average annual returns for one year and since inception compare to those of the
S&P 500(R), a widely recognized unmanaged index of stock performance. How the
Fund has performed in the past is not necessarily an indication of how the Fund
will perform in the future.

DAVIS REAL ESTATE FUND
TOTAL RETURN SINCE INCEPTION
(AS OF DECEMBER 31ST OF EACH YEAR)
CLASS A SHARES

1994 8.18%*
1995 17.70%
1996 37.05%
1997 25.08%

* This number reflects total return from January 3, 1994 (commencement of
operations) through December 31, 1994, and has not been annualized.

Best Quarter: Q4 '96 19.22%
Worst Quarter: Q3 '94 -2.34%
Year-to-Date* Q3 '98 -16.63%

* Not annualized, for the period January 1, 1998 through September 30, 1998.

The chart does not reflect any sales charges. Total return would have been less
if it reflected those charges. The return for the other classes of shares
offered by this prospectus will differ from the Class A returns shown in the
chart, depending on the expenses of that class.

21
<PAGE>

DAVIS REAL ESTATE FUND
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1997)

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
PAST ONE YEAR LIFE OF FUND
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES (since 1/3/94) 19.14% 20.11%
- ----------------------------------------------------------------------------------------------
S&P 500 INDEX 33.35% 23.05%
- ----------------------------------------------------------------------------------------------
CLASS B SHARES (since 12/27/94) 19.88% 24.98%
- ----------------------------------------------------------------------------------------------
S&P 500 INDEX 33.35% 30.97%
- ----------------------------------------------------------------------------------------------
CLASS C SHARES* (since 8/13/97) N/A 10.12%
- ----------------------------------------------------------------------------------------------
S&P 500 INDEX* N/A 5.93%
- ----------------------------------------------------------------------------------------------
</TABLE>

* Not annualized.

DAVIS REAL ESTATE FUND
YIELD, CLASS A SHARES
(AS OF SEPTEMBER 30, 1998)

30-DAY SEC YIELD 3.66%

You can obtain Davis Real Estate Fund's most recent 30-day SEC Yield by calling
us toll-free at 1-800-279-0279, Monday through Friday, 7 a.m. to 4 p.m.
Mountain Time.

22
<PAGE>

FEES AND EXPENSES OF THE FUND

FEES YOU MAY PAY AS A DAVIS REAL ESTATE FUND SHAREHOLDER
(Paid Directly from Your Investment)

23
<PAGE>

DAVIS REAL ESTATE FUND
ANNUAL FUND OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
(DEDUCTED FROM DAVIS REAL ESTATE FUND'S ASSETS)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.23% 0.99% 1.00%
- ------------------------------------------------------------------------------------------------------------------
Other Expenses 0.20% 0.30% 0.28%
- ------------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.18% 2.04% 2.03%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

EXAMPLE

This example is intended to help you compare the cost of investing in Davis
Real Estate Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in Davis Real Estate Fund for the
time periods indicated. The example also assumes that your investment has a 5%
return each year and that Davis Real Estate Fund's operating expenses remain
the same. Although your actual costs may be higher or lower, your costs--based
on these assumptions--would be:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $591 $838 $1,103 $1,860
- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES $606 $937 $1,293 $2,045
- --------------------------------------------------------------------------------------------------------------
CLASS C SHARES $304 $630 $1,083 $2,338
- --------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES AFTER...
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $591 $838 $1,103 $1,860
- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES $206 $637 $1,093 $2,045
- --------------------------------------------------------------------------------------------------------------
CLASS C SHARES $204 $630 $1,083 $2,338
- --------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS

These tables are designed to show you the financial performance of Davis Real
Estate Fund since inception. Some of the information reflects financial results
for a single fund share. The total returns represent the rate that an investor
would have earned (or lost) money on an investment in the fund. It assumes that
all dividends and capital gains have been reinvested.

25
<PAGE>

DAVIS REAL ESTATE FUND
CLASS A SHARES

<TABLE>
<CAPTION>
JANUARY 3, 1994
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED YEAR ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 1996(1) 1995 1994
----------- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $25.41 $21.24 $16.44 $14.72 $14.29
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income........................... 0.37 0.74 0.71 0.82 0.62
Net Gains or Losses on Securities (both realized
and unrealized) ............................... (1.85) 4.51 5.22 1.71 0.55
------ ------ ------ ------ ------
Total From Investment Operations........... (1.48) 5.25 5.93 2.53 1.17
------ ------ ------ ------ ------
Less Distributions
Dividends (from net investment income).......... (0.20) (0.74) (0.70) (0.81) (0.62)
Distributions (from capital gains).............. - (0.27) (0.25) - (0.12)
Distributions (from paid-in capital gains)...... - (0.07) (0.18) - -
------ ------ ------ ------ ------
Total Distributions......................... (0.20) (1.08) (1.13) (0.81) (0.74)
------ ------ ------ ------ ------
Net Asset Value, End of Period..................... $23.73 $25.41 $21.24 $16.44 $14.72
====== ====== ====== ====== ======
Total Return (2)................................... (5.87)% 25.08% 37.05% 17.70% 8.18%

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)........ $214,655 $147,488 $32,507 $29,320 $25,450

Ratio of Expenses to Average Net Assets......... 1.20%*(3) 1.18% 1.32%(3) 1.43% 1.86%*

Ratio of Net Income to Average Net Assets....... 3.33%* 3.40% 3.95% 5.44% 3.98%*

Portfolio Turnover Rate(4)...................... 6.33% 12.50% 18.60% 38.82% 35.80%
</TABLE>

(1) Per share calculations other than distributions were based on average
shares outstanding during the period.

(2) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.

(3) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.19% and 1.31% for the six months
ended June 30, 1998 and for 1996, respectively. Prior to 1996, such
reductions were reflected in the expenses ratios.

(4) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.

* Annualized.

26
<PAGE>

DAVIS REAL ESTATE FUND
CLASS B SHARES

<TABLE>
<CAPTION>
DECEMBER 27, 1994
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED YEAR ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 1996(1) 1995 1994
----------- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $25.32 $21.19 $16.41 $14.72 $14.73
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income........................ 0.28 0.54 0.56 0.68 0.02
Net Gains or Losses on Securities (both
realized and unrealized)..................... (1.85) 4.47 5.21 1.70 0.11
------ ------ ------ ------ ------
Total From Investment Operations........ (1.57) 5.01 5.77 2.38 0.13
------ ------ ------ ------ ------
Less Distributions
Dividends (from net investment income)....... (0.15) (0.54) (0.63) (0.69) (0.02)
Distributions (from capital gains)........... - (0.27) (0.25) - (0.12)
Dividends (from paid-in capital)............. - (0.07) (0.11) - -
------ ------ ------ ------ ------
Total Distributions...................... (0.15) (0.88) (0.99) (0.69) (0.14)
------ ------ ------ ------ ------
Net Asset Value, End of Period.................. $23.60 $25.32 $21.19 $16.41 $14.72
====== ====== ====== ====== ======
Total Return (2) ............................... (6.25)% 23.88% 35.99% 16.59% 0.89%

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)..... $168,212 $114,283 $10,919 $414 $34
Ratio of Expenses to Average Net Assets...... 2.03%*(2) 2.04% 2.22% 2.39% 2.64%*
Ratio of Net Income to Average Net Assets.... 2.50%* 2.60% 3.46% 4.48% 3.20%*
Portfolio Turnover Rate(4)................... 6.33% 12.50% 18.60% 38.82% 35.80%
</TABLE>

(1) Per share calculations other than distributions were based on average
shares outstanding during the period.

(3) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.02% for the six months ended June
30, 1998.

* Annualized.

27
<PAGE>

DAVIS REAL ESTATE FUND
CLASS C SHARES

<TABLE>
<CAPTION>
AUGUST 13, 1997
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED THROUGH
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ----
<S> <C> <C>
Net Asset Value, Beginning of Period............... $25.49 $23.41
------ ------

Income From Investment Operations
Net Investment Income........................... 0.27 0.18
Net Gains or Losses on Securities (both
realized and unrealized) ....................... (1.84) 2.42
------ ------
Total From Investment Operations........... (1.57) 2.60
------ ------
Less Distributions
Dividends (from net investment income).......... (0.15) (0.18)
Distributions (from Capital Gains).............. - (0.27)
Distributions (from Paid-in Capital)............ - (0.07)
------ ------
Total Distributions......................... (0.15) (0.52)
------ ------
Net Asset Value, End of Period..................... $23.77 $25.49
====== ======
Total Return(1) ................................... (6.19)% 11.12%

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)........ $28,494 $8,322
Ratio of Expenses to Average Net Assets......... 2.01%*(2) 2.03%*
Ratio of Net Income to Average Net Assets....... 2.52%* 2.56%*

Portfolio Turnover Rate(3)...................... 6.33% 12.50%
</TABLE>

(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.

(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.00% for the six months ended June
30, 1998.

* Annualized.

28
<PAGE>

OVERVIEW OF DAVIS CONVERTIBLE SECURITIES FUND

INVESTMENT OBJECTIVE AND STRATEGY

Davis Convertible Securities Fund's investment objective is total return
through a combination of growth and income. During normal market conditions, at
least 65% of the Fund's assets are invested in convertible securities.
Convertible securities are securities that can be converted into or exchanged
for other securities. The most common types of convertible securities are bonds
and preferred stock that the holder can exchange for common stock of the same
issuer.

Convertible securities offer both current income and growth potential. For
current income, we buy convertible debt instruments like bonds, notes and
debentures that entitle the Fund to receive regular interest payments.
Similarly, we buy preferred stock that entitles the Fund to receive regular
dividend payments. These interest and dividend payments generally exceed the
dividend payments that the issuers of our convertible securities make to
holders of their common stock. Convertible securities have growth potential
because if the underlying common stock begins to increase in value, the holder
of the convertible security can exchange it for common stock and enjoy the
benefits of that growth.

Many convertible debt securities are assigned ratings by agencies that evaluate
the quality of publicly offered debt. Our portfolio manager may use up to 35%
of Davis Convertible Securities Fund's net assets to buy debt securities with
low ratings, known as "high yield, high-risk debt securities." During normal
market conditions, our portfolio manager invests at least 65% of Davis
Convertible Securities Fund's net assets in money market instruments,
investment grade debt securities, preferred stock, common stock, other equity
securities, and other non-financial assets.

Davis Convertible Securities Fund first attempts to identify well-managed
growth companies whose securities are selling at attractive prices. Then we try
to identify securities issued by those companies that have the potential to
deliver 80% of the amount that the issuer's common stock appreciates when
market conditions are favorable, but will not drop in value by more than 50% of
the amount that the issuer's common stock declines when market conditions are
bad. Of course, there can not be any guarantee that the convertible securities
which we purchase will in fact perform in the manner which our models suggest.

[SIDEBAR:]
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.

29
<PAGE>

DETERMINING IF THIS FUND IS RIGHT FOR YOU

YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:

o You are seeking total return through a combination of growth and income.
o You want to diversify a common stock portfolio.
o You are primarily interested in growth-oriented investments, but want
current income.
o You are investing for the long-term (five years or more).

YOU SHOULD NOT INVEST IN THIS FUND IF:

o You are worried about the possibility of sharp price swings and dramatic
market declines.
o You do not wish to invest in a portfolio which has some of the
characteristics of both common stocks and bonds.
o You are investing for the short-term (less than five years).

PRINCIPAL RISKS

If you buy shares of Davis Convertible Securities Fund, you may lose some or
all of the money that you invest. Convertible securities have characteristics
of both equity and debt securities, so they present the risks of both common
stock ownership as well as the risks of bond ownership. This section describes
what we think are the most significant factors that can cause the Fund's
performance to suffer.

EQUITY RISKS

o MARKET RISK. The market value of shares of convertible securities can
change rapidly and unpredictably as a result of political or economic
events having little or nothing to do with the issuer.

o COMPANY RISK. The price of a convertible security varies with the success
and failure of its issuer. As a result, the success of the companies in
which the Fund invests largely determines the Fund's performance.

DEBT RISKS

o INTEREST RATE SENSITIVITY. If a security pays a fixed interest rate, and
market rates increase, the value of the fixed-rate security should decline.

o CHANGES IN DEBT RATING. If a rating agency gives a convertible security a
low rating, the value of the security will decline because investors will
demand a higher rate of return.

30
<PAGE>

o CREDIT RISK. Like any borrower, the issuer of a convertible debt security
may be unable to make its payments. The fund may invest up to 35% of total
assets in high yield, high-risk debt securities.

HIGH YIELD, HIGH-RISK DEBT SECURITIES. There are several agencies that evaluate
and rate debt securities. Two of the most prominent are Standard & Poor's and
Moody's Investors Service.

When they evaluate the quality of a debt instrument, rating agencies look at
factors like the issuer's current financial condition and business prospects,
the value of any collateral that secures the debt and the issuer's history of
paying other debt. Each agency has its own system for "grading" debt. Standard
& Poor's has eleven ratings, ranging from D for securities that are in default
to AAA for securities that are almost certain to be repaid. Moody's Investors
Service has nine ratings, with C being the lowest and Aaa being the highest.

A security is called "investment grade" if a respected agency assigns it a
favorable credit rating. In contrast, a debt security is considered "high
yield, high-risk" if it is rated BB or lower by Standard and Poor's or Ba or
lower by Moody's Investor Services. Securities with these low ratings are also
referred to as "junk bonds." Many institutional investors, such as pension
plans and municipal governments, are only permitted to buy investment grade
debt.

There are four principal risks of owning high yield, high-risk debt securities:

o OVERBURDENED ISSUERS. Many issuers only resort to offering high yield,
high-risk securities when they cannot get financing from more traditional
sources, like banks. These issuers are unlikely to have a cushion from
which to make their payments when their earnings are poor or when the
economy in general is in decline.

o PRIORITY. Issuers of high yield, high-risk securities are likely to have a
substantial amount of other debt. Most, if not all, of this other debt will
be "senior" to the high yield, high-risk securities; an issuer must be
current on its senior obligations before it can pay bondholders. In
addition, some of the other debt may be secured by the issuer's primary
operating assets. If the issuer defaults on those obligations, the lenders
may seize their collateral--possibly forcing the issuer out of business and
into bankruptcy.

o DIFFICULT TO RESELL. Many investors simply do not want high yield,
high-risk securities, and others are prohibited from buying them.

o VOLATILE PRICES. Prices of high yield, high-risk debt securities are more
volatile than prices of higher rated securities. In periods of economic
difficulty or rising interest rates, prices of high yield, high-risk
securities decline more than prices of investment grade securities.

31
<PAGE>

An investment in Davis Convertible Securities Fund is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

PAST PERFORMANCE

The bar chart and the table below provide an indication of the risks of
investing in Davis Convertible Securities Fund by showing changes in the Fund's
performance from year to year since inception and by showing how the Fund's
average annual returns for one year, five years and since inception compare to
those of the S&P 500(R), a widely recognized unmanaged index of stock
performance. How the Fund has performed in the past is not necessarily an
indication of how the Fund will perform in the future.

DAVIS CONVERTIBLE SECURITIES FUND
TOTAL RETURN SINCE 1993
(AS OF DECEMBER 31ST OF EACH YEAR)
CLASS A SHARES

1993 17.26%
1994 (6.72%)
1995 26.68%
1996 29.46%
1997 28.68%

Best Quarter: Q3 '97 14.33%
Worst Quarter: Q1 '94 -3.55%
Year-to-Date* Q3 '98 -8.92%

* Not annualized, for the period January 1, 1998 through September 30, 1998.

The chart does not reflect any sales charges. Total return would have been less
if it reflected those charges. The return for the other classes of shares
offered by this prospectus will differ from the Class A returns shown in the
chart, depending on the expenses of that class.

DAVIS CONVERTIBLE SECURITIES FUND
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1997)

32
<PAGE>

- ----------------------------------------------------------------------------------------------------
CLASS B SHARES (since 2/3/95) 23.35% NA 26.18%
- ----------------------------------------------------------------------------------------------------
S&P 500 INDEX 33.35% NA 30.31%
- ----------------------------------------------------------------------------------------------------
CLASS C SHARES* (since 8/12/97) N/A NA 6.38%
- ----------------------------------------------------------------------------------------------------
S&P 500 INDEX* N/A NA 5.44%
- ----------------------------------------------------------------------------------------------------
</TABLE>

* Not annualized.

DAVIS CONVERTIBLE SECURITIES FUND
YIELD, CLASS A SHARES
(AS OF SEPTEMBER 30, 1998)

30-DAY SEC YIELD 3.26%

You can obtain Davis Convertible Securities Fund's most recent 30-day SEC Yield
by calling us toll-free at 1-800-279-0279, Monday through Friday, 7 a.m. to 4
p.m. Mountain Time.

FEES AND EXPENSES OF THE FUND

FEES YOU MAY PAY AS A DAVIS CONVERTIBLE SECURITIES FUND SHAREHOLDER
(Paid Directly from Your Investment)

33
<PAGE>

DAVIS CONVERTIBLE SECURITIES FUND
ANNUAL FUND OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
(Deducted from Davis Convertible Securities Fund's Assets)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.14% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------
Other Expenses 0.19% 0.36% 0.33%
- ------------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.08% 2.11% 2.08%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

EXAMPLE

This example is intended to help you compare the cost of investing in Davis
Convertible Securities Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in Davis Convertible Securities
Fund for the time periods indicated. The example also assumes that your
investment has a 5% return each year and that Davis Convertible Securities
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, your costs--based on these assumptions--would be:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $591 $835 $1,098 $1,850
- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES $609 $946 $1,308 $2,062
- --------------------------------------------------------------------------------------------------------------
CLASS C SHARES $309 $646 $1,108 $2,390
- --------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES AFTER...
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $591 $835 $1,098 $1,850
- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES $209 $646 $1,108 $2,062
- --------------------------------------------------------------------------------------------------------------
CLASS C SHARES $209 $646 $1,108 $2,390
- --------------------------------------------------------------------------------------------------------------
</TABLE>

34
<PAGE>

FINANCIAL HIGHLIGHTS

These tables are designed to show you the financial performance of Davis
Convertible Securities Fund for the past five years. Some of the information
reflects financial results for a single fund share. The total returns represent
the rate that an investor would have earned (or lost) money on an investment in
the fund. It assumes that all dividends and capital gains have been reinvested.

35
<PAGE>

DAVIS CONVERTIBLE SECURITIES FUND
CLASS A SHARES

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 -------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $25.26 $21.22 $18.22 $15.57 $17.45 $15.73
------ ------ ------ ------ ------ ------
Income (Loss) From Investment Operations
Net Investment Income................ 0.34 0.67 0.71 0.67 0.67 0.67
Net Gains or Losses on Securities
(both realized and unrealized)... (0.27) 5.33 4.56 3.42 (1.83) 2.02
------ ------ ------ ------ ------ ------
Total From Investment
Operations................... 0.07 6.00 5.27 4.09 (1.16) 2.69
------ ------ ------ ------ ------ ------
Less Distributions
Dividends (from net investment income) (0.20) (0.67) (0.69) (0.66) (0.67) (0.67)
Distributions (from capital gains)... - (1.22) (1.54) (0.78) (0.05) (0.30)
Distributions (from paid-in capital). - (0.07) (0.04) - - -
------ ------ ------ ------ ------ ------
Total Distributions.............. (0.20) (1.96) (2.27) (1.44) (0.72) (0.97)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period.......... $25.13 $25.26 $21.22 $18.22 $15.57 $17.45
====== ====== ====== ====== ====== ======
Total Return (1)........................ 0.26% 28.68% 29.46% 26.68% (6.72)% 17.26%

Ratios/Supplemental Data
Net Assets, End of Period (000
omitted)............................. $147,430 $90,107 $42,841 $59,757 $47,844 $44,730
Ratio of Expenses to Average Net
Assets .............................. 1.19%*(2) 1.08%(2) 1.05% 1.14% 1.20% 1.21%
Ratio of Net Income to Average Net
Assets .............................. 3.05%* 3.00% 3.34% 3.87% 4.06% 3.89%

Portfolio Turnover Rate(3)........... 6.54% 23.68% 43.16% 53.58% 45.15% 62.17%
</TABLE>

(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in total returns. Total returns are
not annualized for periods of less than one full year.

(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.18% and 1.07% for the six months
ended June 30, 1998 and for 1997, respectively. Prior to 1996, such
reductions were reflected in the expenses ratios.

* Annualized.

36
<PAGE>

DAVIS CONVERTIBLE SECURITIES FUND
CLASS B AND C SHARES

<TABLE>
<CAPTION>
---------------------CLASS B----------------------- ----------CLASS C-------------
FEBRUARY 3, 1995 AUGUST 12, 1997
(COMMENCEMENT (COMMENCEMENT
SIX MONTHS OF OPERATIONS) SIX MONTHS OF OPERATIONS)
ENDED YEAR ENDED THROUGH ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, DECEMBER 31, JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997 1996 1995 (UNAUDITED) 1997
----------- ---- ---- ---- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period....... $25.03 $21.05 $18.14 $15.95 $25.36 $24.91
------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income...... 0.24 0.44 0.59 0.54 0.24 0.11
Net Gains or Losses on
Securities (both realized
and unrealized).......... (0.29) 5.26 4.45 2.97 (0.28) 1.72
------ ------ ------ ------ ------ ------
Total From Investment
Operations........... (0.05) 5.70 5.04 3.51 (0.04) 1.83
------ ------ ------ ------ ------ ------
Less Distributions
Dividends (from net
investment income)....... (0.13) (0.44) (0.56) (0.54) (0.14) (0.11)
Distributions (from
capital gains)........... - (1.22) (1.54) (0.78) - (1.22)
Distributions (from
paid-in capital)......... - (0.06) (0.03) - - (0.05)
------ ------ ------ ------ ------ ------
Total Distributions.... (0.13) (1.72) (2.13) (1.32) (0.14) (1.38)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period $24.85 $25.03 $21.05 $18.14 $25.18 $25.36
====== ====== ====== ====== ====== ======
Total Return (1).............. (0.21)% 27.35% 28.21% 25.31% (0.15)% 7.38%

Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted)............ $88,348 $35,536 $2,075 $378 $24,802 $6,296
Ratio of Expenses to
Average Net Assets....... 2.06%*(2) 2.11%(2) 2.01%(2) 2.01%* 2.03%* 2.08%*(2)
Ratio of Net Income
to Average Net Assets... 2.18%* 2.09% 2.40% 3.00%* 2.20%* 2.01%*

Portfolio Turnover Rate(3). 6.54% 23.68% 43.16% 53.58% 6.54% 23.68%
</TABLE>

(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.

(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.05% for Class B shares for the six
months ended June 30, 1998 and 2.10% and 2.00% for Class B shares for 1997
and 1996, respectively and 2.07% for Class C Shares for 1997. Prior to
1996, such reductions were reflected in the expenses ratios.

* Annualized.

37
<PAGE>

OVERVIEW OF DAVIS GOVERNMENT BOND FUND

INVESTMENT OBJECTIVE AND STRATEGY

Davis Government Bond Fund's investment objective is current income. Davis
Government Bond Fund invests primarily in "U.S. Government Securities."

There are two basic types of U.S. Government Securities: direct obligations of
the U.S. Treasury, and obligations issued or guaranteed by an agency or
instrumentality of the U.S. Government. U.S. Government Securities all
represent debt obligations (unlike equity securities, which represent ownership
of the issuer).

Obligations that the U.S. Treasury issues or guarantees are generally
considered to offer the highest credit quality available in any security. Many
securities issued by government agencies are not fully guaranteed by the U.S.
Government, and in unusual circumstances may present credit risk.

At times, a significant portion of Davis Government Bond Fund's securities are
mortgage-backed securities and collateralized mortgage obligations. A
"mortgage-backed security" represents ownership of a pool of mortgage loans. As
the mortgages are paid off, a portion of the principal and interest payments
are passed through to the owners of the securities. Davis Government Bond Fund
only buys mortgage-backed securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. A "collateralized mortgage
obligation" is a debt security that is secured by a pool of mortgages,
mortgage-backed securities, U.S. Government Securities, or corporate debt
obligations. Davis Government Bond Fund only invests in collateralized mortgage
obligations that are issued or guaranteed by the U.S. Government, its agencies
or instrumentalities.

Davis Government Bond Fund does not attempt to deliver the highest possible
current yield to its investors. Instead, the portfolio manager tries to deliver
competitive results with less risk or volatility than our competitors.

Davis Government Bond Fund typically holds many different types of U.S.
Government Securities with varying features. We try to buy securities with a
range of maturity dates, interest rates and call (prepayment) provisions. By
diversifying among these features, the fund seeks to capture the higher yield
of long-term securities and the flexibility of short-term securities.

[SIDEBAR:]
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.

38
<PAGE>

DETERMINING IF THIS FUND IS RIGHT FOR YOU

YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:

o You are seeking current income.
o You are most comfortable investing in high quality U.S. Government
Securities.
o You want to diversify a common stock portfolio.
o You are investing for the long-term (three years or more).

YOU SHOULD NOT INVEST IN THIS FUND IF:

o You cannot accept even moderate price swings or market declines.
o You are investing for the short-term (less than three years).

PRINCIPAL RISKS

Because Davis Government Bond Fund principally holds high quality debt
securities, the primary risk of investing in the fund arises from interest rate
volatility. There are two principal ways that changes in interest rates affect
the U.S. Government Securities which the Fund invests in:

INTEREST RATE RISKS

o PRICE VOLATILITY RISK. Most of the Fund's U.S. Government Securities pay a
fixed interest rate. When market rates increase, the value (and price) of
the U.S. Government Securities usually decline. When interest rates are
falling, the value (and price) of the U.S. Government Securities usually
increase. As a result, an increase in market rates should reduce the value
of the fund's portfolio and a decrease in rates should have the opposite
effect.

o EXTENSION AND PREPAYMENT RISK. Market prices of the mortgage-backed
securities and collateralized mortgage obligations which Davis Government
Bond Fund owns are affected by how quickly borrowers elect to prepay the
mortgages underlying the securities. Changes in market interest rates
affect borrowers' decisions about whether or not to prepay their mortgages.
Rising interest rates lead to "extension risk," which occurs when borrowers
maintain their existing mortgages until they come due instead of choosing
to prepay them. Falling interest rates lead to "prepayment risk," which
occurs when borrowers prepay their mortgages more quickly than usual so
that they can refinance at a lower rate. A government agency that has the
right to "call" (prepay) a fixed rate security may respond the same way.
The pace at which borrowers prepay affects the yield and the cash flow to
holders of securities and the market value of those securities.

39
<PAGE>

An investment in Davis Government Bond Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

PAST PERFORMANCE

The bar chart and the table below provide an indication of the risks of
investing in Davis Government Bond Fund by showing changes in the Fund's
performance from year to year for the past ten years and by showing how the
Fund's average annual returns for one year, five years, ten years, and since
inception compare to those of the Lehman Brothers Intermediate Term U.S.
Treasury Securities Index, a recognized unmanaged index of U.S. Government
Securities performance. How the Fund has performed in the past is not
necessarily an indication of how the Fund will perform in the future.

DAVIS GOVERNMENT BOND FUND
TOTAL RETURN OVER THE LAST 10-YEAR PERIOD
(AS OF DECEMBER 31ST OF EACH YEAR)
CLASS B SHARES

1988 5.70%
1989 9.45%
1990 6.11%
1991 12.36%
1992 4.14%
1993 3.69%
1994 (0.97%)
1995 10.62%
1996 2.78%
1997 7.12%

Best Quarter: Q3 '91 4.85%
Worst Quarter: Q1 '90 -1.69%
Year-to-Date* Q3 '98 5.84%

* Not annualized, for the period January 1, 1998 through September 30, 1998.

DAVIS GOVERNMENT BOND FUND
AVERAGE ANNUAL TOTAL RETURNS

40
<PAGE>

(FOR THE PERIODS ENDING DECEMBER 31, 1997)

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS LIFE OF FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES (since 12/1/94) 2.75% N/A N/A 5.81%
- ----------------------------------------------------------------------------------------------------------------------------
LB TREASURY SECURITIES INDEX 7.67% N/A N/A 8.49%
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES (since 5/1/84) 3.12% 4.27% 6.03% 7.11%
- ----------------------------------------------------------------------------------------------------------------------------
LB TREASURY SECURITIES INDEX 7.67% 6.32% 8.10% 9.46%
- ----------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES (since 8/19/97) N/A N/A N/A 1.97%
- ----------------------------------------------------------------------------------------------------------------------------
LB TREASURY SECURITIES INDEX N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

DAVIS GOVERNMENT BOND FUND
YIELD, CLASS A SHARES
(AS OF SEPTEMBER 30, 1998)

30-DAY SEC YIELD 3.97%

You can obtain Davis Government Bond Fund's most recent 30-day SEC Yield by
calling us toll-free at 1-800-279-0279, Monday through Friday, 7 a.m. to 4 p.m.
Mountain Time.

FEES AND EXPENSES OF THE FUND

FEES YOU MAY PAY AS A DAVIS GOVERNMENT BOND FUND SHAREHOLDER
(Paid Directly from Your Investment)

41
<PAGE>

DAVIS GOVERNMENT BOND FUND
ANNUAL FUND OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
(Deducted from Davis Government Bond Fund's Assets)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50%
- ------------------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25% 0.99% 1.00%
- ------------------------------------------------------------------------------------------------------------------
Other Expenses 0.52% 0.52% 0.47%
- ------------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.27% 2.01% 1.97%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

EXAMPLE

This example is intended to help you compare the cost of investing in Davis
Government Bond Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in Davis Government Bond Fund for
the time periods indicated The example also assumes that your investment has a
5% return each year and that Davis Government Bond Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, your
costs--based on these assumptions--would be:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $641 $988 $1,359 $2,398
- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES $646 $1058 $1,496 $2,505
- --------------------------------------------------------------------------------------------------------------
CLASS C SHARES $334 $721 $1,235 $2,646
- --------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES AFTER...
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $641 $988 $1,359 $2,398
- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES $246 $758 $1,296 $2,505
- --------------------------------------------------------------------------------------------------------------
CLASS C SHARES $234 $721 $1,235 $2,646
- --------------------------------------------------------------------------------------------------------------
</TABLE>

FINANCIAL HIGHLIGHTS

These tables are designed to show you the financial performance of Davis
Government Bond Fund for the past five years. Some of the information reflects
financial results for a single fund share. The total returns represent the rate
that an investor would have earned

42
<PAGE>

(or lost) money on an investment in the fund. It assumes that all dividends and
capital gains have been reinvested.

DAVIS GOVERNMENT BOND FUND
CLASS A SHARES

<TABLE>
<CAPTION>
SIX MONTHS ONE MONTH
ENDED YEAR ENDED ENDED
JUNE 30, 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 1996 1995 1994
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...... $5.87 $5.76 $6.00 $5.79 $5.78
----- ----- ----- ----- -----
Income (Loss) From Investment Operations
Net Investment Income................. 0.15 0.33 0.33 0.39 0.02
Net Gains or Losses on Securities
(both realized and unrealized)....... 0.02 0.11 (0.14) 0.27 (0.01)
----- ----- ----- ----- -----
Total From Investment Operations.. 0.17 0.44 0.19 0.66 0.01
----- ----- ----- ----- -----
Less Distributions
Dividends (from net investment income). (0.17) (0.33) (0.33) (0.36) -
Distributions (from paid-in capital)... - - (0.10) (0.09) -
----- ----- ----- ----- -----
Total Distributions................ (0.17) (0.33) (0.43) (0.45) -
----- ----- ----- ----- -----
Net Asset Value, End of Period............ $5.87 $5.87 $5.76 $6.00 $5.79
===== ===== ===== ===== =====
Total Return(1)........................... 2.85% 7.92% 3.40% 11.82% (0.97)%

Ratios/Supplemental Data
Net Assets, End of Period (000
omitted)............................... $18,017 $17,589 $18,129 $21,485 $20,035
Ratio of Expenses to Average Net Assets 1.71%* 1.27%(2) 1.77% 1.74% 1.64%*
Ratio of Net Income to Average Net 5.17%* 5.82% 5.88% 6.54% 6.22%*
Assets ................................

Portfolio Turnover Rate(3)............. 0.63% 24.35% 45.50% 41.04% 62.17%
</TABLE>

(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.26% for 1997. Prior to 1996, such
reductions were reflected in the expenses ratios.

* Annualized.

43
<PAGE>

DAVIS GOVERNMENT BOND FUND
CLASS B SHARES

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 ----------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993(1)
----------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $5.86 $5.75 $5.98 $5.79 $6.33 $6.61
----- ----- ----- ----- ----- -----
Income (Loss) From Investment
Operations
Net Investment Income............... 0.13 0.29 0.29 0.34 0.31 0.36
Net Gains or Losses on Securities
(both realized and unrealized) .... 0.01 0.11 (0.13) 0.26 (0.37) (0.12)
----- ----- ----- ----- ----- -----
Total From Investment Operations 0.14 0.40 0.16 0.60 (0.06) 0.24
----- ----- ----- ----- ----- -----
Less Distributions
Dividends (from net investment
income)........................ (0.14) (0.29) (0.29) (0.33) (0.37) (0.42)
Distributions (from paid-in capital). - - (0.10) (0.08) (0.11) (0.10)
----- ----- ----- ----- ----- -----
Total Distributions.............. (0.14) (0.29) (0.39) (0.41) (0.48) (0.52)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period.......... $5.86 $5.86 $5.75 $5.98 $5.79 $6.33
===== ===== ===== ===== ===== =====
Total Return(2)......................... 2.47% 7.12% 2.78% 10.62% (0.97)% 3.69%

Ratios/Supplemental Data
Net Assets, End of Period (000
omitted)............................. $13,116 $12,703 $12,959 $15,976 $19,241 $50,080
Ratio of Expenses to Average Net
Assets............................... 2.43%*(3) 2.01%(3) 2.53%(3) 2.51% 2.38% 2.37%
Ratio of Net Income to Average Net
Assets .............................. 4.46%* 5.07% 5.13% 5.77% 5.48% 5.52%

Portfolio Turnover Rate(4)........... 0.63% 24.35% 45.50% 41.04% 62.17% 42.82%
</TABLE>

(1) Per share calculations other than distributions were based on average
shares outstanding during the period.

(3) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.42% for the six months ended June
30, 1998 and 2.00% and 2.52% for 1997 and 1996, respectively. Prior to
1996, such reductions were reflected in the expense ratios.

* Annualized.

44
<PAGE>

DAVIS GOVERNMENT BOND FUND
CLASS C SHARES

<TABLE>
<CAPTION>
AUGUST 19, 1997
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED THROUGH
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ----
<S> <C> <C>
Net Asset Value, Beginning of Period.................. $5.88 $5.79
----- -----
Income (Loss) From Investment Operations
Net Investment Income............................. 0.14 0.08
Net Gains on Securities (both realized and
unrealized) ....................................... - 0.09
----- -----
Total From Investment Operations.............. 0.14 0.17
----- -----
Less Distributions
Dividends (from Net Investment Income)............. (0.14) (0.08)
----- -----
Total Distributions............................ (0.14) (0.08)
----- -----
Net Asset Value, End of Period........................ $5.88 $5.88
===== =====
Total Return(1)....................................... 2.47% 2.97%
----- -----
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)
$908 $215
Ratio of Expenses to Average Net Assets............ 2.31%* 1.97%*(2)

Ratio of Net Income to Average Net Assets.......... 4.57%* 5.11%*

Portfolio Turnover Rate(3) ........................ 0.63% 24.35%
</TABLE>

(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.96% for 1997.

* Annualized.

45
<PAGE>

OVERVIEW OF DAVIS GOVERNMENT MONEY MARKET FUND

INVESTMENT OBJECTIVE AND STRATEGY

Davis Government Money Market Fund's investment objective is to achieve as high
a level of current income as is consistent with the principle of preservation
of capital and maintenance of liquidity. Davis Government Money Market Fund
invests exclusively in "U.S. Government Securities" and repurchase agreements
secured by U.S. Government Securities.

A "repurchase agreement" is a type of short-term investment that uses
securities as collateral. Like a short-term loan, the borrower sells securities
to the lender. The borrower agrees to buy back the securities at a certain
time--at a higher price that incorporates an "interest payment." Davis
Government Money Market Fund only invests in repurchase agreements when the
underlying securities are U.S. Government Securities.

Davis Government Money Market Fund favors securities issued or secured by U.S.
Government agencies because those securities typically pay a higher rate than
securities issued or secured directly by the U.S. Treasury. We maintain
liquidity and preserve capital by carefully monitoring the maturity of our
investments. Our portfolio has a dollar weighted average maturity of 90 days or
less.

[SIDEBAR:]
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.

DETERMINING IF THIS FUND IS RIGHT FOR YOU

YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:

o You are seeking current income.
o You are most comfortable investing in high quality U.S. Government
Securities.
o You want a safe-haven in times of market turmoil.
o You want easy access to your money.

YOU SHOULD NOT INVEST IN THIS FUND IF:

o You need a high total return to achieve your investment goals.
o Your primary investment goal is capital growth.

46
<PAGE>

PRINCIPAL RISKS

Because Davis Government Money Market Fund invests exclusively in short-term
U.S. Government Securities, it incurs a minimum of interest rate or credit
risk. U.S. Government Securities are among the safest investments you can make,
and are an excellent means of preserving principal. However, there is always
some risk that the issuer of a security held by the fund will fail to make a
payment when it is due. Some of the agency-issued securities in the fund's
portfolio are not fully guaranteed by the U.S. Government, and in unusual
circumstances may present credit risk.

The primary risk of investing in Davis Government Money Market Fund is that the
dividends which it pays to investors are not stable. When interest rates
increase the Fund's dividends should increase. When interest rates decrease the
Fund's dividends should decrease.

Although Davis Government Money Market Fund seeks to preserve the value of your
investment at $1.00 per share, investors can lose money. An investment in the
fund is not a bank deposit and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.

PAST PERFORMANCE

The bar chart and the table below provide an indication of the risks of
investing in Davis Government Money Market Fund by showing changes in the
Fund's performance from year to year for the past ten years and by presenting
the Fund's average annual returns for one year, five years, and ten years. How
the Fund has performed in the past is not necessarily an indication of how the
Fund will perform in the future.

47
<PAGE>

DAVIS GOVERNMENT MONEY MARKET FUND
TOTAL RETURN OVER THE LAST 10-YEAR PERIOD
(AS OF DECEMBER 31ST OF EACH YEAR)

1988 5.92%
1989 7.75%
1990 6.58%
1991 4.78%
1992 2.70%
1993 2.01%
1994 3.48%
1995 5.25%
1996 4.80%
1997 5.02%

Best Quarter: Q2 '89 2.02%
Worst Quarter: Q2 '93 .48%
Year-to-Date* Q3 '98 3.76%

* Not annualized, for the period January 1, 1998 through September 30, 1998.

DAVIS GOVERNMENT MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1997)
<TABLE>
<CAPTION>

- ----------------------------------------------------------------------------------------------------------
PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES 5.02% 4.10% 4.81%
- ----------------------------------------------------------------------------------------------------------
CLASS B SHARES 5.02% 4.10% 4.81%
- ----------------------------------------------------------------------------------------------------------
CLASS C SHARES 5.02% 4.10% 4.81%
- ----------------------------------------------------------------------------------------------------------
</TABLE>

DAVIS GOVERNMENT MONEY MARKET FUND
7-DAY SEC YIELD
CLASS A, B AND C SHARES
(AS OF SEPTEMBER 30, 1998)

7-DAY SEC YIELD 4.85

You can obtain Davis Government Money Market Fund's most recent 7-day SEC yield
by calling us toll-free at 1-800-279-0279, Monday through Friday, 7 a.m. to 4
p.m. Mountain Time.

48
<PAGE>

FEES AND EXPENSES OF THE FUND

FEES YOU MAY PAY AS A DAVIS GOVERNMENT MONEY MARKET FUND SHAREHOLDER
(Paid Directly from Your Investment)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a None None None
percentage of offering price)
- ------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None None None
- ------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None
- ------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

DAVIS GOVERNMENT MONEY MARKET FUND
ANNUAL FUND OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
(Deducted from Davis Government Money Market Fund's Assets)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.48% 0.48% 0.48%
- ------------------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees None None None
- ------------------------------------------------------------------------------------------------------------------
Other Expenses 0.09% 0.09% 0.09%
- ------------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 0.57% 0.57% 0.57%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

EXAMPLE

This example is intended to help you compare the cost of investing in Davis
Government Money Market Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in Davis Government Money Market
Fund for the time periods indicated. The example also assumes that your
investment has a 5% return each year and that Davis Government Money Market
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, your costs--based on these assumptions--would be:

49
<PAGE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $57 $179 $313 $701
- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES $57 $179 $313 $701
- --------------------------------------------------------------------------------------------------------------
CLASS C SHARES $57 $179 $313 $701
- --------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES AFTER...
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $57 $179 $313 $701
- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES $57 $179 $313 $701
- --------------------------------------------------------------------------------------------------------------
CLASS C SHARES $57 $179 $313 $701
- --------------------------------------------------------------------------------------------------------------
</TABLE>

50
<PAGE>

FINANCIAL HIGHLIGHTS

This table is designed to show you the financial performance of Davis
Government Money Market Fund for the past five years. Some of the information
reflects financial results for a single fund share. The total returns represent
the rate that an investor would have earned (or lost) money on an investment in
the fund. It assumes that all dividends and capital gains have been reinvested.

51
<PAGE>

DAVIS GOVERNMENT MONEY MARKET FUND
CLASS A, B AND C SHARES

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1998 -------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------
Income (Loss) From Investment Operations
Net Investment Income.............. .025 .049 .047 .051 .034 .020

Less Distributions
Dividends (from net investment
income)............................. (.025) (.049) (.047) (.051) (.034) (.020)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period.......... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ======
Total Return(1)......................... 2.49% 5.02% 4.80% 5.25% 3.48% 2.01%

Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted)...................... $472,002 $464,459 $411,416 $360,290 $240,727 $39,531
Ratio of Expenses to Average Net
Assets............................. 0.56%* 0.57% 0.66% 0.73% 0.64% 1.15%
Ratio of Net Income to Average Net
Assets............................. 5.02%* 4.92% 4.72% 5.13% 3.43% 0.00%
</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. Total returns are not annualized for periods of less than one full
year.

* Annualized.

52
<PAGE>

WHO IS RESPONSIBLE FOR YOUR DAVIS ACCOUNT

A number of entities provide services to Davis Series Funds. This section shows
how each Fund is organized, the entities that perform these services, and how
these entities are compensated. Additional information on the organization of
each Fund is provided in Davis Series' Funds Statement of Additional
Information. For information on how to receive this document, see the back
cover of this prospectus.

INVESTMENT ADVISER

DAVIS SELECTED ADVISERS, LP
Referred to throughout this prospectus as "Davis Selected Advisers"
124 East Marcy Street
Santa Fe, NM 87501

o Provides investment advice for each of the Davis Series Funds' portfolio.

o Manages Davis Series Funds' business affairs.

o Provides day-to-day administrative services.

o Serves as investment adviser for all of the Davis Funds, other mutual
funds, and other institutional clients.

o Annual Adviser Fee for the year ended December 31, 1997 (based on average
net assets): Davis Growth Opportunity Fund: 0.75%
Davis Financial Fund: 0.73%
Davis Real Estate Fund: 0.75%
Davis Convertible Securities Fund: 0.75%
Davis Government Bond Fund: 0.50%
Davis Government Money Market Fund: 0.48%

INVESTMENT SUB-ADVISER

DAVIS SELECTED ADVISERS-NY, INC.
Referred to throughout this prospectus as "Davis Selected Advisers-NY"
609 Fifth Avenue
New York, NY 10017

o Performs investment management and research services for each of the Davis
Series Funds and other institutional clients.
o Wholly owned subsidiary of Davis Selected Advisers.
o Annual Fee: Davis Selected Advisers pays the fee, not Davis Series Funds.

53
<PAGE>

CUSTODIAN AND TRANSFER AGENT

STATE STREET BANK AND TRUST COMPANY
Also referred to as "State Street Bank and Trust"
PO Box 8406
Boston, MA 02266-8406

o Prices Davis Funds daily.
o Holds share certificates and other assets of Davis Funds.
o Maintains records of shareholders.
o Issues and cancels share certificates.
o Supervises the payment of dividends.

BOARD OF DIRECTORS

The Fund's Board of Directors has general supervisory responsibilities of Davis
Funds and supervises the investment adviser's duties.

DISTRIBUTOR

DAVIS DISTRIBUTORS, LLC
Referred to throughout this prospectus as "Davis Distributors"
124 East Marcy Street
Santa Fe, NM 87501

o Oversees purchases of shares and promotional activities for Davis Funds.
o Wholly owned subsidiary of Davis Selected Advisers.
o Serves as distributor for all of the Davis Funds and other mutual funds
managed by Davis Selected Advisers.

FOUNDER AND CHIEF INVESTMENT OFFICER OF THE ADVISER

SHELBY M.C. DAVIS
Responsibilities:

o Chief Investment Officer of Davis Selected Advisers.
o President of all the Davis Funds.

Other Experience:

o Served as Davis New York Venture Fund's Portfolio Manager from its
inception in 1969 until February 1997.
o Served as Portfolio Manager of a growth and income fund managed by Davis
Selected Advisers from May 1993 until February 1997.

PORTFOLIO MANAGERS

54
<PAGE>

FOR DAVIS GROWTH OPPORTUNITY FUND
INVESTMENT TEAM

o The fund is managed by a team of senior portfolio managers and research
analysts from the research department of Davis Selected Advisers who share
ideas and responsibility for managing the fund's investments.

FOR DAVIS FINANCIAL FUND
CHRISTOPHER C. DAVIS

Responsibilities:

o Manager or Co-Portfolio Manager of the fund since inception.
o Also manages or co-manages other equity funds advised by Davis Selected
Advisers.

Other Experience:

o Assistant portfolio manager and research analyst working with Shelby M.C.
Davis from September 1989 to September 1995.

KENNETH CHARLES FEINBERG

Responsibilities:

o Co-Portfolio Manager of the fund since May 1997.
o Also co-manages other equity funds advised by Davis Selected Advisers.

Other Experience:

o Research analyst at Davis Selected Advisers since December 1994.
o Assistant Vice President of Investor Relations for Continental Corp. from
1988 to 1994.

FOR DAVIS REAL ESTATE FUND
ANDREW A. DAVIS

Responsibilities:

o Manager or Co-Portfolio Manager of the fund since inception.
o Also manages or co-manages other Davis equity funds.

Other Experience:

o Vice President and head of convertible securities research at PaineWebber,
Incorporated for six years.

55
<PAGE>

FOR DAVIS CONVERTIBLE SECURITIES FUND
ANDREW A. DAVIS

Mr. Davis has been Manager or Co-Portfolio Manager of the fund since inception.
The rest of Mr. Davis' background and experience are described above under the
heading "For Davis Real Estate Fund."

FOR DAVIS GOVERNMENT BOND FUND
CAROLYN H. SPOLIDORO

Responsibilities:

o Manager of the fund since 1995.
o Also manages other Davis bond funds.

Other Experience:

o Has worked for Davis Selected Advisers since 1985.

FOR DAVIS GOVERNMENT MONEY MARKET FUND
CAROLYN H. SPOLIDORO

Ms. Spolidoro has been Manager of the fund since 1987. The rest of Ms.
Spolidoro's background and experience are described above under the heading
"For Davis Government Bond Fund."

[BOXED]: OUR CODE OF ETHICS

We allow the officers and employees of Davis Funds and their affiliates to buy
and sell securities for their own personal accounts. However, in order to do so
they must agree to a number of restrictions, listed in our company Code of
Ethics.

56
<PAGE>

HOW WE MANAGE DAVIS SERIES FUNDS

EQUITY FUNDS: DAVIS INVESTMENT PHILOSOPHY

Each of the Davis Series Funds which invest in equity securities (Davis Growth
Opportunity Fund, Davis Financial Fund, Davis Real Estate Fund, and Davis
Convertible Securities Fund) is managed using the Davis investment philosophy.
The Davis investment philosophy stresses a back-to-basics approach: we use
extensive research to buy growing companies at value prices and hold on to them
for the long-term. Over the years, Davis Selected Advisers has developed a list
of ten characteristics that we believe foster sustainable long-term growth,
minimize risk and enhance the potential for superior long-term returns. While
very few companies have all ten, we search for companies that demonstrate
several of the characteristics that are listed in the following chart.

GOVERNMENT FUNDS: CONSERVATIVE INVESTING

The two Davis Series Funds which invest in U.S. Government Securities (Davis
Government Bond Fund and Davis Government Money Market Fund) do not attempt to
deliver the highest possible current yield to their investors. Instead, the
portfolio manager tries to deliver competitive results with less risk or
volatility than our competitors.

[SET OFF OR BOXED]

WHAT WE LOOK FOR IN A COMPANY

1. FIRST-CLASS MANAGEMENT. We believe that great companies are created by
great managers. In visiting companies, we look for managers with a record
of doing what they say they are going to do.
2. MANAGEMENT OWNERSHIP. Just as we invest heavily in our own funds, we look
for companies where individual managers own a significant stake.
3. STRONG RETURNS ON CAPITAL. We want companies that invest their capital
wisely and reap superior returns on those investments.
4. LEAN EXPENSE STRUCTURE. Companies that can keep costs low are able to
compete better, especially in difficult times. A low cost structure sharply
reduces the risk of owning a company's shares.
5. DOMINANT OR GROWING MARKET SHARE IN A GROWING MARKET. A company that is
increasing its share of a growing market has the best of both worlds.
6. PROVEN RECORD AS AN ACQUIRER. When an industry or market downturn occurs,
it is a good idea to own companies that can take advantage of attractive
prices to expand operations through inexpensive acquisitions.
7. STRONG BALANCE SHEET. Strong finances give a company staying power to
weather difficult economic cycles.
8. COMPETITIVE PRODUCTS OR SERVICES. We invest in companies with products that
are not vulnerable to obsolescence.

57
<PAGE>

9. SUCCESSFUL INTERNATIONAL OPERATIONS. A proven ability to expand
internationally reduces the risk of being tied too closely to the U.S.
economic cycle.
10. INNOVATION. The savvy use of technology in any business, from a food
company to an investment bank, can help reduce costs and increase sales.

OTHER SECURITIES AND INVESTMENT STRATEGIES

There are other securities which Davis Series Funds may invest in, and
investment strategies which the Funds may employ, but they are not principal
investment strategies. For example, the equity funds may invest a portion of
their assets in the common stock of foreign companies. Investing in foreign
companies provides additional opportunities to invest in quality overlooked
growth companies. Investment in foreign securities can also offer the Fund the
potential for economic diversification. However, investing in foreign markets
also involves special risks. These securities and investment strategies, and
others, are discussed in the Statement of Additional Information.

Each of the Funds (other than Davis Government Money Market Fund) use
short-term investments to earn interest and maintain flexibility while we
evaluate long-term opportunities. We also may use short-term investments for
temporary defensive purposes. In the event our portfolio managers anticipate a
market decline, we may reduce our risk by investing in short-term securities
until market conditions improve. Unlike common stocks or longer-term U.S.
Government Securities, these investments will not appreciate in value when the
market advances. In such a circumstance, the short-term investments will not
contribute to the capital growth component of a Fund's investment objective.

ADDITIONAL RISKS FOR THE FUNDS: YEAR 2000 AND EURO CONVERSION

Like all financial service providers, the Adviser, Sub-Adviser, Distributor,
and third parties providing investment advisory, administrative, transfer
agent, custodial and other services utilize systems that may be affected by
Year 2000 transition issues (many computer software systems in use today cannot
distinguish the year 2000 from the year 1900 because of the way dates are
encoded and calculated) and/or by Euro Conversion issues (accurate pricing of
the Company's assets depends upon accurate valuation of securities denominated
in foreign currencies. On January 1, 1999, eleven of the fifteen member states
of the European Union are scheduled to convert to a common currency, the
"euro").

58
<PAGE>

they deal with, will be adapted in time for these events. In addition, there
can be no assurance that the companies which the Funds invest in will not
experience difficulties with Year 2000 or Euro Conversion issues which may
negatively effect the market value of those companies.

RISK SPECTRUM

Davis Selected Advisers manages eleven mutual funds in the Davis family. Each
fund has a distinct investment objective and strategy. The following graph
shows how these funds compare to each other in terms of risk. The Davis Series
Funds range in risk level from "high" to "low."

- ------------------------------------------------------------------------------------------------------------
DAVIS INTERNATIONAL TOTAL RETURN FUND X
- ------------------------------------------------------------------------------------------------------------
DAVIS FINANCIAL FUND X
- ------------------------------------------------------------------------------------------------------------
DAVIS REAL ESTATE FUND X
- ------------------------------------------------------------------------------------------------------------
DAVIS NEW YORK VENTURE FUND X
- ------------------------------------------------------------------------------------------------------------
DAVIS GROWTH & INCOME FUND X
- ------------------------------------------------------------------------------------------------------------
DAVIS CONVERTIBLE SECURITIES FUND X
- ------------------------------------------------------------------------------------------------------------
DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND X
- ------------------------------------------------------------------------------------------------------------
DAVIS TAX-FREE HIGH INCOME FUND X
- ------------------------------------------------------------------------------------------------------------
DAVIS GOVERNMENT BOND FUND X
- ------------------------------------------------------------------------------------------------------------
DAVIS GOVERNMENT MONEY MARKET FUND X
- ------------------------------------------------------------------------------------------------------------
</TABLE>

[IN BLACK AREA BELOW GRAPHIC]
For more information about any of the other Davis Funds, including charges and
expenses, ask for a prospectus. Read it carefully before investing or sending
money.

59
<PAGE>

ONCE YOU INVEST IN ONE OF THE DAVIS FUNDS

This section describes: how your investment is valued, how you earn money on
your investment, and how the government may tax these earnings.

HOW YOUR SHARES ARE VALUED

Once you open an account in any Davis Fund, you are entitled to buy and sell
shares on any business day. The share price of your investment changes
depending on the total value of the Fund's investments.

Each business day, we determine the value of each Davis Fund shares by adding
up the total value of investments plus other assets (such as cash), subtracting
liabilities, and dividing the result by the total number of shares outstanding.
This share figure is known as the net asset value (NAV).

Net asset values for all the Davis Funds are determined each day the Funds are
open for business. A business day is defined as any day the New York Stock
Exchange is open for trading. We calculate net asset value either at the close
of the Exchange or at 4 p.m. Eastern Time, whichever comes first.

The net asset values of all Davis Fund shares are published daily in the
business section of most major newspapers. If you have access to the Internet,
you can also check net asset value on our web site (WWW.DAVISFUNDS.COM).

HOW SECURITIES IN THE PORTFOLIO ARE VALUED

We use current market valuations to value the securities in each Davis Fund:

o Securities that trade on an organized exchange are valued at the last
published sales price on the exchange. If no sales are recorded, the
securities are valued at the average of the closing bid and asked prices on
the exchange.
o Over-the-counter securities are valued at the average of closing bid and
asked prices.
o Debt securities maturing in 60 days or less are usually valued at amortized
(gradually reduced) cost.
o Longer-term debt securities may be valued by an independent pricing
service.
o Securities with unavailable market quotations and other assets are valued
at "fair value"--which is determined or directed by the Board of Directors.

If any of the Davis Fund's securities are traded in markets that close at
different times, events affecting portfolio values that occur between the time
that their prices are determined and the time the Davis Fund's shares are
priced will generally not be reflected

60
<PAGE>

in the Fund's share price. The net asset value of the Fund's shares may change
on days when shareholders will not be able to purchase or redeem the Fund's
shares.

The value of securities denominated in foreign currencies and traded in foreign
markets will have their value converted into the U.S. dollar equivalents at the
prevailing market rate as computed by State Street Bank and Trust. Fluctuation
in the value of foreign currencies in relation to the U.S. dollar may affect
the net asset value of the Fund's shares even if there has not been any change
in the foreign currency price of the Fund's investments.

HOW WE PAY EARNINGS

There are two ways you can receive payments from a Davis Fund:

o DIVIDENDS. Distributions to shareholders of net investment income and
short-term capital gains on investments.

o CAPITAL GAINS. Profits received by a fund from the sale of securities held
for the long-term, which are then distributed to shareholders.

If you would like information about when a particular Davis Fund pays dividends
and distributes capital gains, if any, please call 1-800-279-0279.

Unless you choose otherwise, each Davis Fund automatically reinvests your
dividends in additional fund shares. You can request to have your dividends and
capital gains paid to you by check, deposited directly into your bank account,
paid to a third party or sent to an address other than your address of record.

We also offer a Dividend Diversification Program, which allows you to have your
dividends and capital gains reinvested in shares of another Davis Fund.

You will receive a statement each year detailing the amount of all dividends
and capital gains paid to you during the previous year. To ensure that these
distributions are reported properly to the U.S. Treasury, you must certify on
your Application Form (or on Form W-9) that your Taxpayer Identification Number
is correct and you are not subject to backup withholding (which means that you
are paying back taxes for failing to report all interest and dividends).

If you fail to report a correct Taxpayer I.D. Number, under-reported dividend
or interest income, or are already subject to backup withholding, the Davis
Funds are required by law to withhold a portion of any distributions you may
receive-and send it to the U.S. Treasury.

61
<PAGE>

(SET OFF)
HOW TO PUT YOUR DIVIDENDS AND CAPITAL GAINS TO WORK

You can have all dividends and capital gains from any Davis Fund automatically
invested in the same share class of this or any other Davis Fund. To be
eligible for this DIVIDEND DIVERSIFICATION PROGRAM, all accounts involved must
be registered under the same name and have a minimum initial value of $250. All
future investments must total $25 or more. Shares are purchased at the chosen
fund's net asset value on the dividend payment date. You can make changes to
your selection or withdraw from the program with 60 days notice. To participate
in this program, fill out the cross-reinvest information in the appropriate
section of the Application Form.

HOW YOUR DIVIDENDS AND CAPITAL GAINS ARE TAXED

o If you invest in a fund that pays dividends, the dividends are taxable to
shareholders as ordinary income. Dividends include both net investment
income and short-term capital gains.
o If you invest in a fund that pays net capital gains, they generally will be
taxed as a long-term capital gains distribution.

Investment earnings (dividends and capital gains) are taxable in the year in
which they were declared, not paid--whether they are received in cash or
reinvested in shares.

Also, keep in mind that when you sell or exchange shares of any mutual fund, it
may result in a taxable gain or loss.

We recommend that you consult with a tax adviser about any dividends and
capital gains you may receive from any Davis Fund.

HOW TO CHOOSE A SHARE CLASS

Before you can buy shares in any Davis Fund, you need to decide which class of
shares best suits your needs. Each Davis Fund offers three classes of shares:
A, B and C. Each class is subject to different expenses and sales charges.

You may choose to buy one class of shares rather than another, depending on the
amount of the purchase and the expected length of time of investment. Long-term
shareholders of Class B or C shares may pay more than the maximum front-end
sales charge allowed by the National Association of Securities Dealers.

62
<PAGE>

SPECIAL NOTE: Institutions buying $5 million or more of any Davis Fund may be
eligible to buy Class Y shares of that fund, offered through a separate
prospectus. With Class Y shares, you pay no sales charges or distribution fees.
To find out more about Class Y shares, contact your sales representative or our
distributor, Davis Distributors.

[SET OFF]
DISTRIBUTION FEES. Each Davis Fund has adopted plans under Rule 12b-1 that
allow the Fund to pay distribution and other fees for the distribution of its
shares and for services provided to shareholders. Class A shares pay 0.25% of
average annual net assets while Class B and C shares pay 1.00% of average
annual net assets. Because these fees are paid out of the Fund's assets on an
on-going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.

CLASS A SHARES

Class A shares may be best for you if you are a long-term investor who is
willing to pay the entire sales charge at the time of purchase. In return, you
pay a lower distribution fee than the two other share classes.

o You buy Class A shares at their net asset value per share plus a sales
charge, which is 4.75% for any investment below $100,000 (see chart below).
The term "offering price" includes the front-end sales charge.
o There is no limit on how much you can invest in this share class.
o The Davis Funds (other than Davis Government Money Market Fund) pay a
distribution fee--up to 0.25% of the average daily net assets--each year
you hold the shares. This fee is lower than the fee you pay the other two
classes of shares. Lower expenses translate into higher annual return on
net asset value.

SIDEBAR: Investors who buy Class A shares of Davis Government Money Market Fund
do not pay front-end sales charges.

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<PAGE>

CLASS A SALES CHARGES
(FOR ALL DAVIS FUNDS EXCEPT DAVIS GOVERNMENT MONEY MARKET FUND)

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
AMOUNT OF PURCHASE SALES CHARGE SALES CHARGE (PERCENTAGE AMOUNT OF SALES CHARGE
(PERCENTAGE OF OF NET AMOUNT INVESTED) RETAINED BY THE DEALER
OFFERING PRICE) (PERCENTAGE OF OFFERING
PRICE)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNDER $100,000 4.75% 5.0% 4.0%
- -------------------------------------------------------------------------------------------------------------------
$100,000 - $250,000 3.5% 3.6% 3.0%
- -------------------------------------------------------------------------------------------------------------------
$250,000 -$500,000 2.5% 2.6% 2.0%
- -------------------------------------------------------------------------------------------------------------------
$500,000 - $750,000 2.0% 2.0% 1.75%
- -------------------------------------------------------------------------------------------------------------------
$750,000 - $1 MILLION 1.0% 1.0% 0.75%
- -------------------------------------------------------------------------------------------------------------------
$1 MILLION OR MORE* None None 0%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

*You pay no front-end sales charge on purchases of $1 million or more, but if
you sell those shares (in any Davis Fund other than Davis Government Money
Market Fund) within the first year you may pay a deferred sales charge of
0.75%. Davis Distributors may pay the dealer a commission during the first year
after purchase at the following rates:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PURCHASE AMOUNT COMMISSION
- ------------------------------------------------------------------------------------------------------------
<S> <C>
FIRST $3 MILLION 0.75%
- ------------------------------------------------------------------------------------------------------------
NEXT $2 MILLION 0.50%
- ------------------------------------------------------------------------------------------------------------
OVER $5 MILLION 0.25%
- ------------------------------------------------------------------------------------------------------------
</TABLE>

If a commission is paid for purchases of $1 million or more in any Davis Fund,
the dealer will be paid with distribution fees received from that fund. If
distribution fee limits have already been reached for the year, Davis
Distributors itself will pay the commissions.

As the chart above shows, the sales charge gets smaller as your purchase amount
increases. Here are several ways you may combine purchases to qualify for a
lower sales charge:

YOU CAN COMBINE PURCHASES OF CLASS A SHARES:

o WITH OTHER FAMILY MEMBERS. If you buy shares for yourself, your spouse and
any children under the age of 21, all the shares you buy will be counted as
a single purchase.
o WITH CERTAIN GROUPS. If you buy shares through a group organized for a
purpose other than to buy mutual fund shares, the purchases will be treated
as a single purchase.
o THROUGH EMPLOYEE BENEFIT PLANS. If you buy shares through trusteed or
fiduciary accounts and Individual Retirement Accounts (IRAs) of a single
employer, the purchases will be treated as a single purchase.
o UNDER A STATEMENT OF INTENTION. If you enter a Statement of Intention and
agree to buy Class A shares of $100,000 or more over a 13-month period, all
of the shares you

64
<PAGE>

buy during that period will be counted as a single purchase. Before entering
a Statement of Intention, please read the terms and conditions in the
Statement of Additional Information. Under a Statement of Intention, you
agree to permit our service provider, State Street Bank and Trust, to hold
fund shares in escrow to guarantee payment of any sales charges that may be
due if you ultimately invest less than you agreed to invest over the
covered 13-month period.
o UNDER RIGHTS OF ACCUMULATION. If you notify your dealer or our distributor,
Davis Distributors, you can include the Class A, B and C shares you already
own (except shares of Davis Government Money Market Fund) when calculating
the price for your current purchase.
o WITH CLASS A SHARES OF OTHER DAVIS FUNDS. If you buy Class A shares of this
or any other Davis Fund except Davis Government Money Market Fund, all of
the shares you buy will be counted as a single purchase. This includes
shares purchased under a Statement of Intention or Rights of Accumulation.

CLASS A SHARES FRONT-END SALES CHARGE WAIVERS

We will not charge a sales charge on purchases of Class A shares for:

o Investments in Davis Government Money Market Fund.
o Shareholders making purchases with dividends or capital gains that are
automatically reinvested.
o Purchases by directors, officers and employees of any Davis Fund, the
investment adviser of any Davis Fund or its affiliates, and their immediate
families.
o Purchases by employees and people affiliated with broker-dealer firms
offering shares in any Davis Fund.
o Financial institutions acting as fiduciaries making single purchases of
$250,000 or more.
o Employee benefit plans making purchases through a single account covering
at least 250 participants.
o Wrap accounts offered by securities firms, fee-based investment advisers or
financial planners.
o State and local governments.

[SIDEBAR]
Wrap accounts are investment programs offered by broker-dealers who place a
client's funds with one or more investment advisers and charge a fee for their
services.

65
<PAGE>

CLASS B SHARES

Class B shares may be best for you if you are willing to pay a higher
distribution fee than Class A shares for eight years in order to avoid paying a
front-end sales charge:

o You buy the shares at net asset value (no initial sales charge).
o You can invest up to $250,000 in Class B shares.
o If you sell Class B shares in any of the Davis Funds except Davis
Government Money Market Fund within six years of purchase, you must pay a
deferred sales charge. This charge decreases over time as you own the
shares (see chart below).
o After you hold Class B shares for eight years, they are automatically
converted into Class A shares without paying a front-end sales charge.
Class A shares pay a lower distribution fee.
o The Davis Funds (other than Davis Government Money Market Fund) pay a
distribution fee of 1% of the average daily net assets each year you hold
the shares. Higher expenses translate into lower annual return on net asset
value.

SIDEBAR: Investors who buy Class B shares of Davis Government Money Market Fund
will not pay deferred sales charges.

CLASS B SHARES DEFERRED SALES CHARGES
(FOR ALL DAVIS FUNDS EXCEPT DAVIS GOVERNMENT MONEY MARKET FUND)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SALES MADE AFTER PURCHASE AMOUNT OF DEFERRED SALES CHARGE
- ------------------------------------------------------------------------------------------------------------
<S> <C>
YEAR 1 4%
- ------------------------------------------------------------------------------------------------------------
YEARS 2-3 3%
- ------------------------------------------------------------------------------------------------------------
YEARS 4-5 2%
- ------------------------------------------------------------------------------------------------------------
YEAR 6 1%
- ------------------------------------------------------------------------------------------------------------
YEARS 7-8 NONE
- ------------------------------------------------------------------------------------------------------------
</TABLE>

CLASS C SHARES

Class C shares may be best for you if you are willing to pay a higher
distribution fee than Class A shares pay in order to avoid paying a sales
charge:

o You buy the shares at net asset value (no initial sales charge).
o You cannot invest more than $1 million in Class C shares.
o If you sell Class C shares in any of the Davis Funds other than Davis
Government Money Market Fund within one year of purchase, you must pay a
deferred sales charge of 1%.

66
<PAGE>

o The Davis Funds (other than Davis Government Money Market Fund) pay a
distribution fee of 1% of the average daily net assets each year you hold
the shares. Higher expenses translate into lower annual return on net asset
value.

SIDEBAR: Investors who buy Class C shares of Davis Government Money Market Fund
will not pay deferred sales charges.

DEFERRED SALES CHARGE

As an investor in any Davis Fund (other than Davis Money Market Fund), you may
pay a deferred sales charge as a percentage of the net asset value of the
shares you sell or the total cost of the shares, whichever is lower.
Davis Fund investors pay a deferred sales charge in the following cases:

o As a Class A shareholder, only if you buy shares valued at $1 million or
more without a sales charge and sell the shares within one year of
purchase.
o As a Class B shareholder, if you sell shares within six years of purchase.
The percentage decreases over the six-year period.
o As a Class C shareholder, if you sell shares within one year of purchase.

To keep deferred sales charges as low as possible, we will first sell shares in
your account that are not subject to deferred sales charges (if any). We do not
impose a deferred sales charge on shares acquired through dividend
reinvestments or capital gain distributions.

DEFERRED SALES CHARGE WAIVERS

We will waive deferred sales charges on sales of Class A, B and C shares of any
Davis Fund if:

o You sell shares that were acquired through reinvestment of dividends or
capital gains.
o You sell shares that were not subject to a commission at the time of
purchase (the amount of purchase totaled $1 million or more and the shares
were held for more than a year).
o You (or a registered joint owner) die or have been determined to be totally
disabled some time after the purchase of shares.
o You sell shares under the Automatic Withdrawals Plan amounting to, in a
12-month period, up to 12% of the value of the account when you began
participating in the Plan.
o You sell shares under a qualified retirement plan or IRA that constitute a
tax-free return of contributions to avoid a penalty.
o Your fund sells the remaining shares in your account under an Involuntary
Redemption.

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<PAGE>

o You qualify for an exception relating to defined contribution plans. These
exceptions are described in the Statement of Additional Information.
o You are a director, officer or employee of Davis Selected Advisers or one
of its affiliates (or a family member of a director, officer or employee).

If the net asset value of the shares that you sell has increased since you
purchased them, any deferred sales charge will be based on the original cost of
the shares.

[BOXED]
If you have any additional questions about choosing a share class, please call
us toll-free at 1-800-279-0279, Monday through Friday, 7 a.m. to 4 p.m.
Mountain Time. If you still are not sure about which class is best for you,
contact your financial adviser.

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<PAGE>

HOW TO OPEN AN ACCOUNT

You can open an account if you invest at least:

o $1,000 for a non-retirement plan account.
o $250 for a retirement plan account.

(chart)
THREE WAYS YOU CAN OPEN AN ACCOUNT

1. BY MAIL. Fill out the Application Form included in this prospectus and mail
it to our service provider, State Street Bank and Trust. Both you and your
dealer must sign the form. Include a check made payable to the DAVIS FUNDS
or, in the case of a retirement account, the custodian or trustee. All
purchases by check should be in U.S. dollars. The Davis Funds will not
accept third-party checks.

2. BY DEALER. You may have your dealer order and pay for the shares. In this
case, you must pay your dealer directly. Your dealer will then order the
shares from our distributor, Davis Distributors. Please note that your
dealer may charge a service fee or commission for buying these shares.

3. BY WIRE. You may wire federal funds directly to our service provider, State
Street Bank and Trust. Before you wire an initial investment, you must call
Davis Distributors to let them know the fund and share class you will be
buying. After the initial wire purchase is made, you will need to fill out
a Plan Adoption Agreement or Application Form and return it to State Street
Bank and Trust. To ensure that the purchase is credited properly, follow
these wire instructions:

State Street Bank and Trust Company
Boston, MA 02210
Attn.: Mutual Fund Services
[Name of Davis Fund that you are Buying]
Shareholder Name
Shareholder Account Number
Federal Routing Number 011000028
DDA Number 9904-606-2

Generally, the Davis Funds do not issue share certificates for purchases. You
can receive certificates for any fund other than Davis Government Money Market
Fund if you are a Class A shareholder who is not participating in the Automatic
Withdrawals Plan. If you are eligible and wish to receive certificates, you
must make the request at the time of purchase.

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<PAGE>

RETIREMENT PLAN ACCOUNTS

You can invest in any Davis Fund (other than Davis Tax-Free High Income Fund)
using any of these types of retirement plan accounts:

o Deductible IRAs
o Non-deductible IRAs
o Roth IRAs
o Educational IRAs
o Simple IRAs
o Profit-Sharing Plans
o Money-Purchase Plans
o Simplified Employee Pension Plans
o 403(b) Plans

State Street Bank and Trust acts as custodian (service provider) for the
retirement plans and charges the participant $10 to open each account and a
maintenance fee of $10 each year (per Social Security number). These fees are
automatically deducted from each account, unless you elect to pay the fee
directly. To open a retirement plan account, you must fill out a special
application form. You can request this form by calling Davis Distributors.

HOW TO BUY, SELL AND EXCHANGE SHARES

Once you have opened an account with Davis, you can add to--or subtract
from--your initial purchase. This section provides an overview of the types of
transactions you can perform as a shareholder of a Davis Fund. This includes
how to initiate these transactions and the charges that you may incur (if any)
when buying, selling and exchanging shares.

AN EXCHANGE IS WHEN YOU SELL SHARES IN ONE DAVIS FUND TO BUY SHARES IN ANOTHER
DAVIS FUND IN RESPONSE TO CHANGES IN YOUR GOALS OR IN MARKET CONDITIONS.

(CHART)
THREE WAYS TO BUY, SELL AND EXCHANGE SHARES

1. BY TELEPHONE. Call 1-800-279-0279. You can speak directly with a Davis
representative during our business hours or use our automated telephone system
any time, day or night.

70
<PAGE>

2. BY MAIL. Send the request to our service provider, State Street Bank and
Trust.

Regular Mail
State Street Bank and Trust Company
c/o Davis Funds
PO Box 8406
Boston, MA 02266-8406

Overnight Mail
State Street Bank and Trust Company
c/o Davis Funds
66 Brooks Drive
Braintree, MA 02184

3. BY DEALER. Contact a dealer, who will then make the transaction through our
distributor, Davis Distributors. Please note that your dealer may charge a
service fee or commission for each transaction.

Generally, Davis Funds do not issue share certificates for purchases. Each time
you add to or withdraw from your account, you will receive a statement showing
the details of the transaction--along with any other transactions you made
during the current year.

WHEN YOUR TRANSACTIONS ARE PROCESSED

The per-share price for purchases or sales made through our distributor, Davis
Distributors, will be processed on the same day if the order is received before
4 p.m. Eastern Time. If State Street Bank and Trust requires additional
documents to complete the purchase or sale, the transaction price will be
determined at the close of business after all required documents are received.

For your transaction to be counted on the day you place your order with your
broker-dealer or other financial institution, they must:

o Receive your order before 4 p.m. Eastern Time.
o Promptly transmit the order to State Street Bank and Trust.

BUYING MORE SHARES

You can buy more shares at any time, by mail or through a dealer. The minimum
purchase amount is $25.

When you purchase shares by mail, send a check made payable to the DAVIS FUNDS
for the amount of purchase to our service provider, State Street Bank and
Trust. If you have the purchase form from your most recent statement, include
it with the check. If you do

71
<PAGE>

not have a purchase form, include a letter with your check stating the name of
the fund and the class of shares you wish to buy. If you know your account
number, include it on the check.

When you buy shares through a dealer, you may be charged a service fee or
commission for performing the transaction.

[SET OFF ]
MAKING AUTOMATIC INVESTMENTS

An easy way to increase your investments in this or other Davis Funds is to
sign up for the AUTOMATIC INVESTMENT PLAN. Under this plan, you arrange for a
set amount of money to be taken from your bank account and invested in shares
of a Davis Fund. The minimum amount you can invest each month is $25. The
account minimums of $1,000 for non-retirement accounts and $250 for retirement
accounts will be waived if you meet the minimum requirement within a year.

Purchases can be processed electronically on any day of the month between the
fourth and 28th days if the institution that services your bank account is a
member of the Automated Clearing House system. After each automatic investment,
you will receive a transaction confirmation, and the debit should show up on
your next bank statement.

To sign up for the Automatic Investment Plan, fill out the appropriate section
of the Application Form. You can stop automatic investments at any time by
calling Davis Distributors.

You can also use our Dividend Diversification Program to buy more shares in any
Davis Fund. See ONCE YOU INVEST IN ONE OF THE DAVIS FUNDS.

[SIDEBAR]
The Automated Clearing House system is used by most banks for electronic
transfers of money into and out of your bank account-- and is regulated by the
Federal Reserve.

SELLING SHARES

You may sell back all or part of your shares in any Davis Fund in which you
invest (known as a redemption) at any time, at net asset value minus any sales
charges that may be due. You can sell the shares by telephone, by mail, or
through a dealer.

When you sell shares by mail, indicate the number of shares or dollar amount
you wish to redeem and send the request to our service provider, State Street
Bank and Trust. If more than one person owns the shares you wish to sell, all
owners must sign a request.

72
<PAGE>

When you sell shares through a dealer, you may be charged a service fee or
commission for performing the transaction.

Redemption proceeds are usually paid to you in cash within seven days after
State Street Bank and Trust receives your proper sale request. If any of the
shares redeemed were purchased within the last 15 days, payment to you will be
delayed until your purchase check has cleared (which may take up to 15 days
from the date of purchase).

[BOXED]
CHECK WRITING PRIVILEGE FOR DAVIS GOVERNMENT MONEY MARKET FUND. You can request
the ability to use your Davis Government Money Market Fund account as a
checking account if:

o You hold Class A shares.
o You are not investing through a retirement plan or an IRA.

Davis Government Money Market Fund investors with check writing privileges can
write checks for $100 or more from their accounts, subject to some rules
prescribed by State Street Bank and Trust.

Writing a check is a way of selling shares and directing the proceeds to a
third party. When a Davis Government Money Market Fund check is presented to
State Street Bank and Trust for payment, the bank will redeem a sufficient
number of shares in your account to cover the amount of the check. If you have
recently exchanged shares in any Davis Fund for shares in Davis Government
Money Market Fund, the full amount of your Davis Government Money Market Fund
account may not be available to cover your checks until the exchange is
complete and all related fees are paid. For more information, see "--Exchanging
Shares" below.

To qualify for CHECK WRITING PRIVILEGES, fill out the appropriate section in
your Application Form.

You can find more information about check writing privileges in the Davis
Series' Statement of Additional Information. The Davis Funds and State Street
Bank and Trust reserve the right to modify or terminate the check writing
service at any time.

73
<PAGE>

WHAT YOU NEED TO KNOW BEFORE YOU SELL YOUR SHARES

o You will always receive cash for sales that total less than $250,000 or 1%
of the Fund's net asset value during any 90-day period. Any sales above the
cash limit may be paid in securities and would mean you would have to pay
brokerage fees.
o Ordinarily, you only need a medallion signature guarantee on a share
certificate, stock power, or redemption request for sales of more than
$50,000. However, if you have made any changes to the Application Form
since your account was opened, or if your address of record has changed in
the last 30 days, you will need a medallion signature for all sales.
o If a certificate was issued for the shares you wish to sell, the
certificate must be signed by the owner(s) and sent to State Street Bank
and Trust along with the redemption request.
o A sale may produce a gain or loss. Gains may be subject to tax.

MEDALLION SIGNATURE GUARANTEE
A written confirmation from an eligible guarantor institution, such as a
securities broker-dealer or a commercial bank, that the signature(s) on the
account is(are) valid. Unfortunately, no other form of signature verification
can be accepted.

STOCK POWER
A letter signed by the owner of the shares that gives State Street Bank and
Trust permission to transfer ownership of the shares to another person or
group.

SPECIAL SALE SITUATIONS

o The Securities and Exchange Commission can suspend payment of sales under
certain emergency circumstances if the New York Stock Exchange is closed
for reasons other than customary closings and holidays.
o Any Davis Fund may make sales payments in securities if the Fund's Board of
Directors decides that making cash payments would harm the Fund.

74
<PAGE>

[SET OFF - SPECIAL PROGRAM]
MAKING AUTOMATIC WITHDRAWALS

If you hold more than $10,000 in your account, you can sell a set dollar amount
each month or quarter. When you participate in this program, known as the
AUTOMATIC WITHDRAWALS PLAN, shares are sold so that you will receive the
payment around the 25th day of the month. Note that because withdrawals are
sales, they may produce a gain or loss. If you purchase additional shares at
the same time that you make a withdrawal, you may have to pay taxes and a sales
load. Gains may be subject to tax. To sign up for the Automatic Withdrawals
Plan, fill out the appropriate section of the Application Form.

You may stop automatic withdrawals at any time without charge or penalty by
calling Davis Distributors.

SPECIAL NOTE: When you make a sale or withdrawal, a deferred sales charge may
be imposed if:

o You buy $1 million or more of Class A shares in any fund except Davis
Government Money Market Fund, and sell them within a year of purchase.
o You sell Class B shares in any fund except Davis Government Money Market
Fund within six years of purchase.
o You sell Class C shares in any fund except Davis Government Money Market
Fund within one year of purchase.

[SET OFF ]
WIRING SALE PROCEEDS TO YOUR BANK ACCOUNT

If you are an investor with a non-retirement account, you can have your sale
proceeds electronically transferred to a commercial bank account. This is known
as an ELECTRONIC WIRE PRIVILEGE. To sign up for this option, simply fill out
the appropriate section of the Application Form. There is a $5 charge by State
Street Bank and Trust for wire service, and receiving banks may also charge for
this service. Payment by Automated Clearing House will usually arrive at your
bank two banking days after your call. Payment by wire is usually credited to
your bank account on the next business day after you call. While State Street
Bank and Trust will also accept electronic wire sales by telephone, fax or
dealer, you still need to fill out and submit the information under the
Electronic Wire Privilege section of the Application Form.

IF YOU DECIDE TO BUY BACK SHARES YOU SOLD

If you decide to buy back some or all of the shares you sold in any Davis
Series Fund within 60 days of sale and notify us in writing, you can take
advantage of the SUBSEQUENT REPURCHASE PRIVILEGE. With this privilege, which
you can use only once, you will not be charged a sales charge, and any deferred
sales charge you paid on the original sale will be

75
<PAGE>

returned to your account. You must send a letter to our service provider, State
Street Bank and Trust, along with a check for the repurchased shares.

IF YOUR ACCOUNT FALLS BELOW $250

If your account balance in any Davis Fund falls below $250(as a result of
redemption or exchange), we may sell your remaining shares at net asset value.
We will first notify you by mail, giving you at least 60 days notice that an
INVOLUNTARY REDEMPTION may take place. If you can increase your account balance
to above $250 during the notice period, the involuntary redemption will be
canceled.

EXCHANGING SHARES

You can transfer shares of any Davis Fund to shares in the same class of any
other Davis Fund without having to pay a sales charge. This is known as an
exchange. You can exchange shares by telephone, by mail or through a dealer.
The initial exchange must be for at least $1,000 (unless you are participating
in the Automatic Exchange Program). Exchanges are normally performed on the
same day of the request if received by 4 p.m. Eastern Time. However, if your
exchange involves a large sale, the transfer may take one to seven days.

Shares in different Davis Funds may be exchanged at relative net asset value.
However, if any Davis Fund shares being exchanged are subject to a sales
charge, Statement of Intention, or other limitation, the limitation will
continue to apply to the shares received in the exchange. When you exchange
shares in a Davis Fund for shares in Davis Government Money Market Fund, the
holding period for any sales charge does not run during the time that you own
Davis Government Money Market Fund shares. For example, Class B shares are
subject to a declining sales charge for six years. Any period that you are
invested in shares of Davis Government Money Market Fund will be added to the
six year declining sales charge period.

When you exchange shares in a Davis Fund for shares in Davis Government Money
Market Fund, State Street Bank and Trust may segregate a portion of your Davis
Government Money Market Fund account to cover any sales charges that you may
owe for the original shares. Any part of your Davis Government Money Market
Fund account that is segregated will not be available to cover any checks that
you write on that account until all fees are paid.

When you exchange shares by mail, you must send our service provider, State
Street Bank and Trust, a written request for the exchange. If you hold share
certificates, the certificates must by signed by the owner(s) and sent to State
Street Bank and Trust along with the exchange request. No medallion signature
guarantee is required unless shares are also being sold for cash and would
otherwise require a medallion signature guarantee.

When you exchange shares through a dealer, you may be charged a service fee or
commission for performing the transaction.

76
<PAGE>

Before you decide to make an exchange, you must obtain the current prospectus
of the desired fund. For federal income tax purposes, exchanges between funds
are treated as a sale and a purchase. Therefore, there will usually be a
recognizable capital gain or loss due to an exchange.

There are limits to the number of exchanges you can make each year. Currently,
four exchanges are allowed during a 12-month period. Davis Distributors must
approve any exchanges above the limit in writing.

YOU CAN MAKE EXCHANGES AMONG ANY OF THE DAVIS FUNDS WITHOUT HAVING TO PAY ANY
SALES CHARGE.

EQUITY FUNDS
Davis New York Venture Fund
Davis Growth Opportunity Fund
Davis Financial Fund
Davis International Total Return Fund

GROWTH & INCOME FUNDS
Davis Growth & Income Fund
Davis Real Estate Fund
Davis Convertible Securities Fund

BOND FUNDS
Davis Intermediate Investment Grade Bond Fund
Davis Tax-Free High Income Fund
Davis Government Bond Fund

GOVERNMENT MONEY MARKET FUND
Davis Government Money Market Fund

For more information about any of the other Davis Funds, including charges and
expenses, ask for a prospectus. Read it carefully before investing or sending
money.

[SET OFF
MAKING AUTOMATIC EXCHANGES

77
<PAGE>

You can elect to make automatic monthly exchanges if all accounts involved are
registered under the same name and have a minimum initial value of $250. You
must exchange at least $25 to participate in this program, known as the
AUTOMATIC EXCHANGE PROGRAM. To sign up for this program, fill out the
appropriate section of the Application Form.

78
<PAGE>

TRANSACTIONS BY TELEPHONE

A benefit of investing through Davis Funds is that you can use our telephone
system to sell or exchange shares. If you do not wish to have this option
activated for your account, mark in the box in the appropriate section of the
Application Form.

When you call Davis Distributors you can perform a transaction with Davis Funds
in two ways:

o Speak directly with a representative during business hours (7 a.m. to 4
p.m. Mountain Time).
o If you have a TouchTone(TM) telephone, you can use the automated telephone
system, known as DAVIS DIRECT Access, 24 hours a day, seven days a week.

[SET OFF]
YOU CAN USE DAVIS DIRECT ACCESS TO:

o GET THE PRICE, TOTAL RETURN, AND FUND DESCRIPTION FOR ANY DAVIS FUND.
o CHECK YOUR ACCOUNT BALANCE AND OTHER ACCOUNT INFORMATION.
o BUY, SELL AND EXCHANGE SHARES.
o GET THE MAILING ADDRESS AND WIRE INSTRUCTIONS FOR ANY DAVIS FUND.
o REQUEST LITERATURE ABOUT ANY DAVIS FUND.

If you wish to sell shares by phone and receive a check in the mail:

o The maximum amount that can be issued is $25,000.
o The check can only be issued to the registered account owner.
o The check must be sent to the address on file with Davis Distributors.
o Your current address must be on file for 30 days.

When you buy, sell or exchange shares over the telephone, you agree that the
Davis Funds are not liable for following telephone instructions believed to be
genuine (that is, directed by the account holder). We use certain procedures to
confirm that your instructions are genuine, including a request for personal
identification and a tape recording of the conversation. If these procedures
are not used, the Davis Funds may be liable for unauthorized instructions.

Be aware that during unusual market conditions, Davis Funds may not be able to
accept all requests by phone.

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<PAGE>

[INSIDE BACK COVER]

THE DAVIS FUNDS:
OVER 25 YEARS OF RELIABLE INVESTING

Davis Selected Advisers, investment adviser of the Davis Funds, has a history
of investing for the long-term. Since our founding in 1969, we have been
dedicated to delivering superior investment performance and service to our
clients.

WE ARE LONG-TERM INVESTORS. We analyze high-quality growth companies that have
been overlooked, buy their stock at value prices, and hold the shares for the
long-term. This strategy was first developed by legendary Wall Street investor
Shelby Cullom Davis, a leading financial adviser to governors and presidents.

Our investment approach has been refined for more than 25 years by his son,
Shelby M.C. Davis, who is now Chief Investment Officer of Davis Selected
Advisers. The Davis strategy is still followed today by the third generation of
family members: Christopher C. Davis and Andrew A. Davis serve as Portfolio
Manager or Co-Portfolio Manager for many Davis Funds.

WE ARE FELLOW SHAREHOLDERS. The Davis family, directors and employees not only
manage the company's mutual funds but also invest in them. Together, we have
invested over $1 billion of our own money side-by-side with our shareholders.

Please take the time to read this prospectus carefully, and if you decide to
invest with us, keep it as a reference guide. If you need more information
about the Davis Funds, please call us or visit our Web site.

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ADDRESS AND PHONE GUIDE

OUR TELEPHONE NUMBER OUR SERVICE PROVIDER'S REGULAR MAILING
1-800-279-0279 ADDRESS
State Street Bank and Trust Company
c/o Davis Funds
PO Box 8406
Boston, MA 02266-8406

OUR MAILING ADDRESS
Davis Funds
124 East Marcy Street
Santa Fe, NM 87501

OUR INTERNET ADDRESS OUR SERVICE PROVIDER'S OVERNIGHT MAILING
http://www.davisfunds.com ADDRESS
State Street Bank and Trust Company
c/o Davis Funds
66 Brooks Drive
Braintree, MA 02184

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[BACK COVER]

OTHER FUND DOCUMENTS

For more information about any Davis Fund, request a free copy of the Statement
of Additional Information or the Annual and Semi-Annual Reports.

The STATEMENT OF ADDITIONAL INFORMATION provides more detailed information
about Davis Series Funds and their management and operations. An ANNUAL REPORT
discusses the market conditions and investment strategies that significantly
affected fund performance during the last year. A SEMI-ANNUAL REPORT updates
information provided in the Annual Report for the next six months. The
Statement of Additional Information and Annual Report for the six Davis Series
Funds have been filed with the Securities and Exchange Commission, are
incorporated by reference, and are legally a part of this prospectus.

Davis Series Funds' Statement of Additional Information and Annual Report have
been filed with the Securities and Exchange Commission, are incorporated by
reference, and are legally a part of this prospectus.

WHERE YOU CAN GET THESE DOCUMENTS:

o BY TELEPHONE. Call Davis Funds toll-free at 1-800-279-0279, Monday-Friday,
7 a.m. to 4 p.m. Mountain Time. You may also call this number for
shareholder inquiries.

o VIA THE INTERNET. Visit the SEC web site (WWW.SEC.GOV).

o FROM THE SEC. The SEC's Public Reference Room in Washington, D.C. For more
information call 1-800-SEC-0330. Additional copies of this information can
be obtained, for a duplicating fee, by writing the Public Reference Section
of the SEC, Washington, D.C., 20549-6009.

o BY MAIL. Specify the document you are requesting when writing to us.

DAVIS FUNDS
124 EAST MARCY STREET
SANTA FE, NM 87501
1-800-279-0279

Investment Company Act File No. 811-2679

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STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998, AS AMENDED DECEMBER 31, 1998

DAVIS GROWTH OPPORTUNITY FUND
DAVIS FINANCIAL FUND
DAVIS REAL ESTATE FUND
DAVIS CONVERTIBLE SECURITIES FUND
DAVIS GOVERNMENT BOND FUND
DAVIS GOVERNMENT MONEY MARKET FUND

PART OF
DAVIS SERIES, INC.
124 EAST MARCY STREET
SANTA FE, NEW MEXICO 87501
1-800-279-0279

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE CLASS A, CLASS B AND CLASS C PROSPECTUS DATED MAY 1,
1998, AS AMENDED DECEMBER 31, 1998, AND THE CLASS Y PROSPECTUS DATED MAY 1,
1998, AS AMENDED DECEMBER 31, 1998. THE PROSPECTUSES MAY BE OBTAINED FROM THE
FUND.

EACH FUND'S MOST RECENT ANNUAL REPORT AND SEMI-ANNUAL REPORT TO
SHAREHOLDERS ARE SEPARATE DOCUMENTS SUPPLIED WITH THIS STATEMENT OF ADDITIONAL
INFORMATION. THE ANNUAL REPORT, ACCOMPANYING NOTES, AND REPORT OF INDEPENDENT
AUDITORS APPEARING IN THE ANNUAL REPORT ARE INCORPORATED BY REFERENCE IN THIS
STATEMENT OF ADDITIONAL INFORMATION.

<PAGE>

TABLE OF CONTENTS

PAGE

Section I: Investment Strategies and Restrictions

Investment Objective and Policies
Portfolio Securities

Equity Securities
Banking and Financial Services Industries
Real Estate Securities and REITs
Convertible Securities
Foreign Securities
Bonds & Other Debt Securities
Government Securities
High Yield, High-risk Debt Securities

Other Investment Policies
Portfolio Transactions
Investment Restrictions

Section II: Key Persons

Organization of the Company
Directors and Officers
Directors Compensation Schedule
Certain Shareholders of the Fund
Investment Advisory Services
Distribution of Company Shares
Other Important Service Providers

Section III: Purchase, Exchange and Redemption of Shares

Purchase of Shares
General
Alternative Purchase Arrangements
Class A Shares
Class B Shares
Class C Shares
Class Y Shares

Special Services
Prototype Retirement Plans
Automatic Investment Privilege
Dividend Diversification Program
Telephone Privilege

Exchange of Shares
General
By Telephone
Automatic Exchange Program

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Redemption of Shares
General
Expedited Redemption Privilege
By Telephone
Automatic Withdrawal Plan
Involuntary Redemption
Subsequent Repurchase

Section IV: General Information

Determining the Price of Shares
Year 2000 and Euro Conversion Issues
Dividends and Distributions
Federal Income Taxes
Performance Data

Appendix A: Quality Ratings of Debt Securities
Appendix B: Term and Conditions for a Statement of Intention

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Section I: Investment Strategies and Restrictions

INVESTMENT OBJECTIVES AND POLICIES

DAVIS GROWTH OPPORTUNITY FUND. The investment objective of Davis
Growth Opportunity Fund is growth of capital. It invests primarily in common
stocks and other equity securities. The Fund's principal risks are the risk of
price fluctuations reflecting both market evaluations of the businesses
involved and general changes in the equity markets. The Fund may invest in
foreign securities and attempt to reduce currency fluctuation risks by engaging
in related hedging transactions. These investments involve special risk
factors.

DAVIS FINANCIAL FUND. The investment objective of Davis Financial Fund
is growth of capital. It invests primarily in common stocks and other equity
securities and will concentrate investments in companies principally engaged in
the banking and financial services industries. The banking industry includes
commercial and industrial banks, savings and loan associations and their
holding companies. The financial services industry includes consumer and
industrial finance companies, diversified financial services companies,
investment banking, securities brokerage and investment advisory companies,
leasing companies, and insurance companies. Davis Financial Fund generally will
invest a minimum of 25% of its total assets in investments in each of these two
industries. The Fund's principal risks are market risk and company risk.
Because Davis Financial Fund concentrates its investments in the banking and
financial services industries it may be affected by economic or regulatory
developments in, or related to, those market sectors. The Fund may also invest
in foreign securities.

DAVIS REAL ESTATE FUND. The investment objective of Davis Real Estate
Fund is total return through a combination of growth and income. It seeks to
achieve this objective by investing primarily in equity securities of companies
principally engaged in, or related to, the real estate industry or which own
significant real estate assets, or which primarily invest in real estate
financial instruments. Normally, at least 65% of its total assets will be so
invested. It does not invest directly in real estate. Davis Real Estate Fund's
principal risks are market risk, company risk, and the risk of having a
concentrated real estate portfolio. The Fund may invest in foreign securities
or in high yield, high-risk debt securities, which may involve additional risk.

DAVIS CONVERTIBLE SECURITIES FUND. The investment objective of Davis
Convertible Securities Fund is total return. It seeks this objective through a
combination of current income and capital appreciation. It invests in a
portfolio consisting primarily of convertible debt and equity securities.
Normally it will invest at least 65% of its total assets in convertible
securities. It may also invest in other securities, including common and
preferred stock, non-convertible corporate debt securities, U.S. Government
securities and short-term money market instruments (including repurchase
agreements). The Fund's principal risks are those of equity securities (market
and company risk) and fixed income risk (credit risk and interest rate risk).
Convertible securities have characteristics of both equity and debt, so they
present the risks of common stock ownership as well as the risks that
traditional lenders face. The Fund may invest in foreign securities or in high
yield, high-risk debt securities, which may involve additional risk.

DAVIS GOVERNMENT BOND FUND. The investment objective of Davis
Government Bond Fund is current income. It invests in debt securities which are
obligations of or guaranteed by the U.S. Government, its agencies and
instrumentalities ("U.S. Government Securities"). It also may invest in
repurchase agreements involving such securities. Davis Government Bond Fund's
principal risk is changes in interest rates. Investments held by Davis
Government Bond Fund generally reflect market fluctuations. In particular, the
value of the Fund's investments usually changes inversely to interest rate
changes. Mortgage related securities (including collateralized mortgage
obligations) may constitute a large or the largest portion of the Fund's
investments. Changes in the level of interest rates may effect extension risk
and prepayment risk of mortgage related securities.

DAVIS GOVERNMENT MONEY MARKET FUND. The investment objective of Davis
Government Money Market Fund is to achieve as high a level of current income as
is consistent with the principle of preservation of capital and maintenance of
liquidity. It invests in U.S. Government Securities and repurchase agreements
involving such securities. The Fund's principal risk is changes in interest
rates. The Fund minimizes this risk by maintaining an average maturity of 90
days or less. Davis Government Money Market Fund normally has a stable net
asset

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value with yield fluctuating with short-term interest rates. There is no
assurance that the Fund will be able to maintain a stable net asset value of
$1.00 per share.

An investment in the Funds may not be appropriate for all investors
and short-term investing is discouraged.

PORTFOLIO SECURITIES

The principal securities which the Funds invest in are described
below.

EQUITY SECURITIES. Davis Growth Opportunity Fund, Davis Financial
Fund, Davis Real Estate Fund, and Davis Convertible Securities Fund ("Davis
Equity Funds") invest primarily in equity securities. Equity securities
represent an ownership position in a company. These securities may include,
without limitation, common stocks, preferred stocks, and securities with equity
conversion or purchase rights. Davis Equity Funds (other than Davis Convertible
Securities Fund) usually purchase common stock. The prices of equity securities
fluctuate based on changes in the financial condition of their issuers and on
market and economic conditions. The Funds' results will be related to the
overall market for these securities. There is no limit on the percentage of its
assets which the Funds may invest in equity securities.

The equity of smaller companies are subject to additional risks.
Smaller companies are usually less established and less diversified than larger
companies, and have fewer resources available to take advantage of
opportunities or overcome challenges.

Davis Financial Fund and Davis Real Estate Fund concentrate their
investments in specific industries. This concentration is expected to cause the
performance of these funds to be closely tied to the performance of the
industries which they concentrate in.

Primary Risks. Events which have a negative impact on a business will
probably be reflected in a decline in their equity securities. Furthermore,
when the stock market declines most equity securities, even those issued by
strong companies, are likely to decline in value.

BANKING AND FINANCIAL SERVICES INDUSTRIES. During normal market
conditions Davis Financial Fund concentrates 25% or more of its total assets in
obligations of domestic and foreign companies in each of the banking and
financial services industries. The other Davis Equity Funds may also invest a
portion of their assets in the banking and financial services industries if the
Adviser believes that such investments will contribute to the Funds' investment
objectives. For purposes of defining concentration, Davis Financial Fund will
consider an issuer to be deemed "principally engaged" in the area of
concentration if operations in the identified areas comprise more than 50% of
the issuer's assets or revenues on a consolidated basis. Companies in the
banking industry include U.S. and foreign commercial and industrial banking and
savings institutions (including their parent holding companies). Companies in
the financial services industry include commercial and industrial finance
companies, diversified financial services companies, investment banking,
securities brokerage and investment advisory companies, leasing companies and
insurance companies (including multi-line, property, casualty and life
insurance companies) and insurance holding companies. As a result of such
concentration, the Fund's portfolio may be subject to greater risks than a
portfolio without such a concentration, especially with respect to those risks
associated with regulatory developments in or related to such industries.

Primary Risks. By concentrating its investments in the banking and
financial services industries, Davis Financial Fund is particularly vulnerable
to events effecting those industries.

Banking Industry. Commercial banks (including "money center," regional
and community banks), savings and loan associations, and holding companies of
the foregoing are especially subject to adverse effects of volatile interest
rates, concentrations of loans in particular industries (such as real estate or
energy), and significant competition. The profitability of these businesses is
to a significant degree dependent upon the availability and cost of capital
funds. Economic conditions in the real estate market may have a particularly
strong effect on certain banks and savings associations. Commercial banks and
savings associations are subject to extensive federal and, in

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<PAGE>

many instances, state regulation. Neither such extensive regulation nor the
federal insurance of deposits ensures the solvency or profitability of
companies in this industry, and there is no assurance against losses in
securities issued by such companies.

Broadening bank powers, including the ability to engage in multi-state
operations while permitting diversification of operations, also could expose
banks to well-established competitors in new areas of operations. The
broadening of regional and national interstate powers and the aggressive
expansion of larger publicly held foreign banks may result in increased
competition and a decline in the number of publicly traded regional banks.

Financial Services Industry. Many of the investment considerations
discussed in connection with banks and savings associations also apply to
financial services companies. These companies are all subject to extensive
regulation, rapid business changes, volatile performance dependent upon the
availability and cost of capital and prevailing interest rates, and significant
competition. General economic conditions significantly affect these companies.
Credit and other losses resulting from the financial difficulty of borrowers or
other third parties have a potentially adverse effect on companies in this
industry. Investment banking, securities brokerage and investment advisory
companies are particularly subject to government regulation and the risks
inherent in securities trading and underwriting activities. Insurance companies
are particularly subject to Government regulation and rate setting, potential
anti-trust and tax law changes, and industry-wide pricing and competition
cycles. Property and casualty insurance companies may also be affected by
weather and other catastrophes. Life and health insurance companies may be
affected by mortality and morbidity rates, including the effects of epidemics.
Individual insurance companies may be exposed to reserve inadequacies, problems
in investment portfolios (for example, due to real estate or "junk" bond
holdings), and failures of reinsurance carriers.

Other Considerations. Regulations of the Securities and Exchange
Commission limit investments in the securities of companies that derive more
than 15% of their gross revenues from the securities or investment management
business. The Competitive Equality Banking Act of 1987 requires that with
respect to at least 75% of the total assets of any fund investing in bank
securities, no more than 5% of total assets may be invested in a single issuer.
The Fund intends to comply with these restrictions.

REAL ESTATE SECURITIES AND REITS. During normal market conditions
Davis Real Estate Fund invests at least 65% of its total assets in real estate
securities and REITs. The other Davis Equity Funds may also invest a portion of
their assets in real estate securities and REITs if the Adviser believes that
such investments will contribute to the Funds' investment objectives.

Real estate securities are issued by companies which have at least 50%
of the value of their assets, gross income, or net profits attributable to
ownership, financing, construction, management or sale of real estate, or to
products or services that are related to real estate or the real estate
industry. None of the Funds invest directly in real estate. Real estate
companies include real estate investment trusts ("REITs"), or other securitized
real estate investments, brokers, developers, lenders and companies with
substantial real estate holdings such as paper, lumber, hotel and entertainment
companies. REITs pool investors' funds for investment primarily in income
producing real estate or real estate related loans or interests. A REIT is not
taxed on income distributed to shareholders if it complies with various
requirements relating to its organization, ownership, assets and income, and
with the requirement that it distribute to its shareholders at least 95% of its
taxable income (other than net capital gains) for each taxable year. REITs can
generally be classified as Equity REITs, Mortgage REITs and Hybrid REITs.
Equity REITs invest the majority of their assets directly in real property and
derive their income primarily from rents. Equity REITs can also realize capital
gains by selling property that has appreciated in value. Mortgage REITs invest
the majority of their assets in real estate mortgages and derive their income
primarily from interest payments. Hybrid REITs combine the characteristics of
both Equity REITs and Mortgage REITs.

Primary Risks. Real estate securities and REITs are subject to risks
associated with the direct ownership of real estate. The Funds could also be
subject to such risks by reason of direct ownership as a result of a default on
a debt security it may own. These risks include declines in the value of real
estate, risks related to general and local economic conditions, over building
and increased competition, increases in property taxes and operating expenses,
changes in zoning laws, casualty or condemnation losses, fluctuations in rental
income, changes in neighborhood values, the appeal of properties to tenants and
increases in interest rates.

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<PAGE>

Equity REITs may be affected by changes in the value of the underlying
property owned by the trusts, while mortgage REITs may be affected by the
quality of credit extended. Equity and mortgage REITs are dependent upon
management skill, may not be diversified, and are subject to project financing
risks. Such trusts are also subject to heavy cash flow dependency, defaults by
borrowers, self-liquidation and the possibility of failing to qualify for
tax-free pass-through of income under the Internal Revenue Code, and failing to
maintain exemption from registration under the Investment Company Act of 1940.
Changes in interest rates may also affect the value of the debt securities in
the Fund's portfolio. By investing in REITs indirectly through either of the
Funds, a shareholder will bear not only his proportionate share of the expense
of the Fund, but also, indirectly, similar expenses of the REITs, including
compensation of management. Some real estate securities may be rated less than
investment grade by rating services. Such securities may be subject to the
risks of high yield, high-risk securities discussed below.

CONVERTIBLE SECURITIES. During normal market conditions Davis
Convertible Securities Fund invests at least 65% of its total assets in
convertible securities. The other Davis Equity Funds may also invest a portion
of their assets in convertible securities if the Adviser believes that such
investments will contribute to the Funds' investment objectives.

Generally, convertible securities are bonds, debentures, notes,
preferred stocks, warrants or other securities that convert or are exchangeable
into shares of the underlying common stock at a stated exchange ratio. Usually,
the conversion or exchange is solely at the option of the holder. However, some
convertible securities may be convertible or exchangeable at the option of the
issuer or are automatically converted or exchanged at a time certain, or upon
the occurrence of certain events, or have a combination of these
characteristics. Usually a convertible security provides a long-term call on
the issuer's common stock and therefore tends to appreciate in value as the
underlying common stock appreciates in value. A convertible security may also
be subject to redemption by the issuer after a certain date and under certain
circumstances (including a specified price) established on issue. If a
convertible security held by one of the Funds is called for redemption, that
Fund could be required to tender it for redemption, convert it into the
underlying common stock, or sell it.

Primary Risks. Convertible bonds, debentures, and notes are varieties
of debt securities, and as such are subject to many of the same risks,
including interest rate sensitivity, changes in debt rating, and credit risk.
In addition, convertible securities are often viewed by the issuer as future
common stock subordinated to other debt and carry a lower rating than the
issuer's non-convertible debt obligations. Thus, convertible securities are
subject to many of the same risks as high yield, high-risk securities. A more
complete discussion of these risks is provided below in the sections entitled
"Bonds and Other Debt Securities" and "High Yield, High-risk Debt Securities."

Due to its conversion feature, the price of a convertible security
will normally vary in some proportion to changes in the price of the underlying
common stock. A convertible security will normally also provide a higher yield
than the underlying common stock (but generally lower than comparable
non-convertible securities). Due to their higher yield, convertible securities
generally sell above their "conversion value," which is the current market
value of the stock to be received upon conversion. The difference between this
conversion value and the price of convertible securities will vary over time
depending on the value of the underlying common stocks and interest rates. When
the underlying common stocks decline in value, convertible securities will tend
not to decline to the same extent because the yield acts as a price support.
When the underlying common stocks rise in value, the value of convertible
securities may also be expected to increase, but will generally not increase to
the same extent as the underlying common stocks.

Fixed-income securities are generally considered to be interest rate
sensitive. The market value of convertible securities will change in response
to changes in interest rates. During periods of falling interest rates, the
value of convertible bonds generally rises. Conversely, during periods of
rising interest rates, the value of such securities generally declines. Changes
by recognized rating services in their ratings of debt securities, and changes
in the ability of an issuer to make payments of interest and principal will
also affect the value of these investments. Due to its conversion feature, the
price of a convertible security will normally vary in some proportion to
changes in the price of the underlying common stock. A convertible security
will normally also provide a higher yield than the underlying common stock (but
generally lower than comparable non-convertible securities). Due to their
higher yield, convertible securities generally sell above their "conversion
value," which is the current market value of the stock to be received upon
conversion. The difference between this conversion value and the price of
convertible securities will vary over time depending on the value of the
underlying common stocks and interest rates. When the underlying common stocks
decline in value, convertible securities will tend not to decline to the same
extent

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because the yield acts as a price support. When the underlying common stocks
rise in value, the value of convertible securities may also be expected to
increase, but will generally not increase to the same extent as common stocks.

FOREIGN SECURITIES. Each of the Davis Equity Funds may invest in
foreign securities. Foreign securities are: (1) issued by companies organized
under the laws of a foreign country; (2) principally traded in securities
markets outside of the U.S.; (3) issued by companies earning at least 50% of
their revenues or profits outside of the U.S.; or (4) issued by companies
having at least 50% of their assets outside of the U.S. ("foreign securities").
Foreign securities include equity securities, real estate securities,
convertible securities, and bonds. Investments in foreign securities may be
made through the purchase of individual securities on recognized exchanges and
developed over-the-counter markets, through American Depository Receipts
("ADRs") or Global Depository Receipts ("GDRs") covering such securities, and
through U.S. registered investment companies investing primarily in foreign
securities. When the Funds invest in foreign securities, their operating
expenses are likely to be higher than that of an investment company investing
exclusively in U.S. securities, since the custodial and certain other expenses
are expected to be higher.

Primary Risks. Investments in foreign securities may involve a higher
degree of risk than investments in domestic issuers. Foreign securities are
often denominated in foreign currencies, which means that their value will be
affected by changes in exchange rates, as well as other factors that affect
securities prices. There is generally less information publicly available about
foreign securities and securities markets, and there may be less Government
regulation and supervision of foreign issuers and securities markets. Foreign
securities and markets may also be affected by political and economic
instabilities, and may be more volatile and less liquid than domestic
securities and markets. Investment risks may include expropriation or
nationalization of assets, confiscatory taxation, exchange controls and
limitations on the use or transfer of assets, and significant withholding
taxes. Foreign economies may differ from the United States favorably or
unfavorably with respect to inflation rates, balance of payments, capital
reinvestment, gross national product expansion, and other relevant indicators.
The Fund may attempt to reduce exposure to market and currency fluctuations by
trading in currency futures contracts or options on futures contracts for
hedging purposes only.

BONDS AND OTHER DEBT SECURITIES. Bonds and other debt securities may
be purchased by each of the Funds to increase current income or to diversify
their investment portfolios. The U.S. Government, corporations, and other
issuers sell bonds and other debt securities to borrow money. Issuers pay
investors interest and generally must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current interest,
but are purchased at a discount from their face values. The prices of debt
securities fluctuate depending on such factors as interest rates, credit
quality and maturity.

Primary Risks. Bonds and other debt securities are generally
considered to be interest rate sensitive. The market value of the Funds'
investments will change in response to changes in interest rates. During
periods of falling interest rates, the value of debt securities held by the
Funds generally rises. Conversely, during periods of rising interest rates, the
value of such securities generally declines. Changes by recognized rating
services in their ratings of debt securities and changes in the ability of an
issuer to make payments of interest and principal will also affect the value of
these investments.

GOVERNMENT SECURITIES. Davis Government Bond Fund invests principally
in debt securities which are obligations of or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Securities").
Davis Government Money Market Fund invests exclusively in U.S. Government
Securities and related repurchase agreements. Each of the other Funds may also
invest a portion of their assets in U.S. Government bonds if the Adviser
believes that such investments will contribute to the Funds' investment
objectives.

Davis Government Money Market Fund limits the average maturity of its
investment portfolio to 90 days or less. Davis Government Bond Fund is not
limited as to the maturities of its portfolio investments and may take full
advantage of the entire range of maturities available in U.S. Government
Securities. The Adviser may adjust the average maturity of Davis Government
Money Market Fund's portfolio and Davis Government Bond Fund's portfolio from
time to time, depending on the Adviser's assessment of the relative yields
available on securities of different maturities, and its assessment of future
interest rate patterns and market risk. Thus, at various times, the average
maturity of the portfolio may be relatively short (as short as one day for
Davis Government Money Market Fund and from one year to five years, for
example, for Davis Government Bond Fund), and at other times may be

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relatively long (up to 90 days for Davis Government Money Market Fund and over
10 years, up to 30 years, for Davis Government Bond Fund). Davis Government
Money Market Fund strives to maintain a constant net asset value per share of
$1.00. There is no guarantee that the Fund will be successful. Davis Government
Bond Fund does not attempt to maintain a fixed net asset value per share.
Fluctuations in portfolio values and therefore fluctuations in the net asset
value of its shares are more likely to be greater when Davis Government Bond
Fund's average portfolio maturity is longer. The portfolio is likely to be
primarily invested in securities with short-term maturities in periods when the
Adviser deems a more defensive position is advisable. For temporary periods,
for defensive purposes, or to accommodate inflows of cash awaiting more
permanent investment, it may also invest in short-term money market
instruments, including repurchase agreements.

There are two basic types of U.S. Government Securities: (1) direct
obligations of the U.S. Treasury, and (2) obligations issued or guaranteed by
an agency or instrumentality of the U.S. Government. Agencies and
instrumentalities include Federal Farm Credit System ("FFCS"), Student Loan
Marketing Association ("SLMA"), Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Home Loan Banks ("FHLB"), Federal National Mortgage
Association ("FNMA") and Government National Mortgage Association ("GNMA").
Some obligations issued or guaranteed by agencies or instrumentalities, such as
those issued by GNMA, are fully guaranteed by the U.S. Government. Others, such
as FNMA bonds, rely on the assets and credit of the instrumentality with
limited rights to borrow from the U.S. Treasury. Still other securities, such
as obligations of the FHLB, are supported by more extensive rights to borrow
from the U.S. Treasury.

When the Adviser deems that higher yields are obtainable through
investments in mortgage related securities and that the yield advantage offsets
the uncertainties of the timing of principal payments, Davis Government Bond
Fund may be significantly invested in mortgage related securities. GNMA
Certificates are mortgage-backed securities representing part ownership of a
pool of mortgage loans. These loans issued by lenders such as mortgage bankers,
commercial banks, and savings and loan associations are either insured by the
Federal Housing Administration or guaranteed by the Veterans Administration. A
"pool" or group of such mortgages is assembled and, after being approved by
GNMA, is offered to investors through securities dealers. Once approved by
GNMA, the timely payment of interest and principal on each mortgage is
guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. GNMA Certificates differ from bonds in that principal is paid back
monthly by the borrower over the term of the loan rather than returned in a
lump sum at maturity. GNMA Certificates are called "pass-through" securities
because both interest and principal payments (including prepayments) are passed
through to the holder of the Certificate. Upon receipt, principal payments will
be used by Davis Government Bond Fund to purchase additional GNMA Certificates
or other U.S. Government Securities.

Davis Government Bond Fund may also invest in pools of mortgages which
are issued or guaranteed by other agencies of the U.S. Government. The average
life of pass-through pools varies with the maturities of the underlying
mortgage instruments. In addition, a pool's term may be shortened or lengthened
by unscheduled or early payment, or by slower than expected prepayment of
principal and interest on the underlying mortgages. The occurrence of mortgage
prepayments is affected by the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. As prepayment rates of individual pools vary widely, it
is not possible to accurately predict the average life of a particular pool.

It may also invest in a collateralized mortgage obligation ("CMO"). A
CMO is a debt security issued by a corporation, trust or custodian, or by a
U.S. Government agency or instrumentality that is collateralized by a portfolio
or pool of mortgages, mortgage-backed securities, U.S. Government securities,
or corporate debt obligations. The issuer's obligation to make interest and
principal payments is secured by the underlying pool or portfolio of
securities. Davis Government Bond Fund invests only in CMOs which are
obligations of, or guaranteed by the U.S. Government, its agencies, or
instrumentalities such as the FNMA or the FHLMC.

CMOs are most often issued in two or more classes (each of which is a
separate security) with varying maturities and stated rates of interest.
Interest and principal payments from the underlying collateral (generally a
pool of mortgages) are not necessarily passed directly through to the holders
of the CMOs; these payments are typically used to pay interest on all CMO
classes and to retire successive class maturities in a sequence. Thus, the
issuance of CMO classes with varying maturities and interest rates may result
in greater predictability of maturity with one class and less predictability of
maturity with another class than a direct investment in a mortgage-backed
pass-through security (such as a GNMA Certificate). Classes with shorter
maturities typically have lower volatility

9
<PAGE>

and lower yield while those with longer maturities typically have higher
volatility and higher yield. Thus, investments in CMOs provide greater or
lesser control over the investment characteristics than mortgage pass-through
securities and offer more defensive or aggressive investment alternatives.

Investment by the Funds in mortgage-related U.S. Government
Securities, such as GNMA Certificates, and CMOs also involves other risks. The
yield on a pass-through security is typically quoted based on the maturity of
the underlying instruments and the associated average life assumption. Actual
prepayment experience may cause the yield to differ from the assumed average
life yield. Accelerated prepayments adversely impact yields for pass-throughs
purchased at a premium; the opposite is true for pass-throughs purchased at a
discount. During periods of declining interest rates, prepayment of mortgages
underlying pass-through certificates can be expected to accelerate. When the
mortgage obligations are prepaid, the Funds reinvest the prepaid amounts in
securities, the yields of which reflect interest rates prevailing at that time.
Therefore, the Funds' ability to maintain a portfolio of high-yielding,
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgages. Moreover, prepayments of mortgages which
underlie securities purchased at a premium could result in capital losses.
Investment in such securities could also subject the Funds to "maturity
extension risk" which is the possibility that rising interest rates may cause
prepayments to occur at a slower than expected rate. This particular risk may
effectively change a security which was considered a short or intermediate-term
security at the time of purchase into a long-term security. Long-term
securities generally fluctuate more widely in response to changes in interest
rates than short or intermediate-term securities.

In selecting CMOs, the Adviser seeks a favorable yield relative to
risk and considers purchase price, interest rates, total rates of return,
prepayment rates, average life, duration and volatility, and compares these
with other mortgage-backed investments and U.S. Government Securities.

The guarantees of the U.S. Government, its agencies and
instrumentalities, are guarantees of the timely payment of principal and
interest on the obligations purchased. The value of the shares issued by the
Funds are not guaranteed and will fluctuate with the value of the Funds'
portfolios. Generally when the level of interest rates rise, the value of a
Fund's portfolio is likely to decline and when the level of interest rates
decline, the value of a Fund's portfolio is likely to rise.

The Funds may engage in portfolio trading primarily to take advantage
of yield disparities. Such trading strategies may result in minor temporary
increases or decreases in a Fund's current income, and in its holding of debt
securities which sell at substantial premiums or discounts from face value. If
expectations of changes in interest rates or the price of two securities prove
to be incorrect, a Fund's potential income and capital gain will be reduced or
its potential loss will be increased.

HIGH YIELD, HIGH-RISK DEBT SECURITIES. The real estate securities,
convertible securities, bonds, and other debt securities which the Funds may
invest in may include high yield, high-risk debt securities rated BB or lower
by Standard & Poor's Corporation ("S&P") or Ba or lower by Moody's Investor
Services ("Moody's") or unrated securities. Securities rated BB or lower by S&P
and Ba or lower by Moody's are referred to in the financial community as "junk
bonds" and may include D rated securities of issuers in default. Ratings
assigned by credit agencies do not evaluate market risks. The Adviser considers
the ratings assigned by S&P or Moody's as one of several factors in its
independent credit analysis of issuers. A brief description of the quality
ratings of these two services is contained in the section entitled "Quality
Ratings of Debt Securities."

Davis Real Estate Fund will not purchase securities rated BB or Ba or
lower if the debt securities are in default at the time of purchase, or if such
purchase would then cause 30% or more of the Fund's net assets to be invested
in such lower rated debt securities. Davis Convertible Securities Fund will not
purchase debt securities rated BB or Ba or lower if the debt securities are in
default at the time of purchase or if such purchase would then cause more than
35% of the Fund's net assets to be invested in such lower rated debt
securities. Davis Growth Opportunity Fund and Davis Financial Fund generally
restrict investments in high yield, high-risk debt securities to 5% of the
Fund's net assets or less. Some preferred stocks are assigned credit ratings by
Standard & Poors, Moody's and other third party rating services. For the
purposes of these investment limitations, only debt securities are considered.
If market action should cause high yield, high-risk debt securities to
represent more than the above stated limit of a Fund's net assets, then the
Fund's portfolio manager will take advantage of market opportunities to reduce
the Fund's

10
<PAGE>

investment in high yield, high-risk debt securities in an orderly fashion until
they represent less than or equal to the stated limit of the Fund's net assets.
The Fund's portfolio manager will not be required to dump high yield, high-risk
securities on the market at fire sale prices.

Primary Risks. While likely to have some quality and protective
characteristics, high yield, high-risk debt securities, whether or not
convertible into common stock, usually involve increased risk as to payment of
principal and interest. Issuers of such securities may be highly leveraged and
may not have available to them traditional methods of financing. Therefore, the
risks associated with acquiring the securities of such issuers generally are
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, issuers of
high yield securities may be more likely to experience financial stress,
especially if such issuers are highly leveraged. During such periods, such
issuers may not have sufficient revenues to meet their principal and interest
payment obligations. The issuer's ability to service its debt obligations also
may be adversely affected by specific issuer developments, or the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing. The risk of loss due to default by the issuer is
significantly greater for the holders of high yield securities because such
securities may be unsecured and may be subordinated to other creditors of the
issuer.

High yield, high-risk debt securities are subject to greater price
volatility than higher rated securities, tend to decline in price more steeply
than higher rated securities in periods of economic difficulty or accelerating
interest rates, and are subject to greater risk of non-payment in adverse
economic times. There may be a thin trading market for such securities. This
may have an adverse impact on market price and the ability of the Funds to
dispose of particular issues and may cause the Funds to incur special
securities registration responsibilities, liabilities and costs, and liquidity
and valuation difficulties. Unexpected net redemptions may force the Funds to
sell high yield, high-risk debt securities without regard to investment merit,
thereby possibly reducing return rates. Such securities may be subject to
redemptions or call provisions which, if exercised when investment rates are
declining, could result in the replacement of such securities with lower
yielding securities, resulting in a decreased return. To the extent that the
Funds invest in bonds that are original issue discount, zero coupon,
pay-in-kind or deferred interest bonds, the Funds may have taxable interest
income in excess of the cash actually received on these issues. In order to
avoid taxation to the Funds, the Funds may have to sell portfolio securities to
meet taxable distribution requirements.

The market values of such securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Such lower rated securities also tend to be more sensitive to economic and
industry conditions than are higher rated securities. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis regarding
individual lower rated bonds, and the high yield, high-risk market may depress
the prices for such securities. If the negative factors such as the
aforementioned adversely impact the market value of high yield, high-risk
securities, net asset value will be adversely affected.

The high yield, high-risk bond market comprised a small piece of the
general bond market until the middle 1980's when issuance increased
dramatically. Since that time, the high yield, high-risk bond market has
experienced only one recessionary environment, but has never been exposed to a
significant increase in interest rates. During the economic downturn that was
experienced, prices of high yield, high-risk bonds declined and defaults rose.
Future economic downturns and/or significant increases in interest rates are
likely to have a negative effect on the high yield, high-risk bond market, and
consequently on the value of these bonds, as well as increase the incidence of
defaults on such bonds.

High yield, high-risk bonds may be issued in a variety of
circumstances. Some of the more common circumstances are issuance by
corporations in the growth stage of their development, in connection with a
corporate reorganization or as part of a corporate takeover. Companies that
issue such high yielding, high-risk bonds often are highly leveraged and may
not have available to them more traditional methods of financing. Therefore,
the risk associated with acquiring the bonds of such issuers generally is
greater than is the case with higher rated bonds. For example, during an
economic downturn or recession, highly leveraged issuers of high yield,
high-risk bonds may experience financial stress. During such periods, such
issuers may not have sufficient revenues to meet their principal and interest
payment obligations. The issuer's ability to service its debt obligations may
also be adversely affected by specific corporate developments, or the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing. The risk of loss due to default by the issuer is
significantly greater for the holders of high yielding bonds because such bonds
are generally unsecured and are often subordinated to other

11
<PAGE>

creditors of the issuer. The costs associated with recovering principal and
interest once a security has defaulted may impact the return to holders of the
security. If the Funds experience unexpectedly large net redemptions, it may be
forced to sell high yield, high-risk bonds out of the portfolio without regard
to the investment merits of such sales. This could decrease the Fund's net
assets. Since some of the Fund's expenses are fixed, this could also reduce the
Fund's rate of return.

The Funds may have difficulty disposing of certain high yield,
high-risk bonds because there may be a thin trading market for such bonds.
Because not all dealers maintain markets in all high yield, high-risk bonds,
the Funds anticipate that such bonds could be sold only to a limited number of
dealers or institutional investors. The lack of a liquid secondary market may
have an adverse impact on market price and the ability to dispose of particular
issues and may also make it more difficult to obtain accurate market quotations
or valuations for purposes of valuing the Funds' assets. Market quotations
generally are available on many high yield issues only from a limited number of
dealers and may not necessarily represent firm bid prices of such dealers or
prices for actual sales. In addition, adverse publicity and investor
perceptions may decrease the values and liquidity of high yield, high-risk
bonds regardless of a fundamental analysis of the investment merits of such
bonds. To the extent that the Funds purchase illiquid or restricted bonds, it
may incur special securities registration responsibilities, liabilities and
costs, and liquidity and valuation difficulties relating to such bonds.

Bonds may be subject to redemption or call provisions. If an issuer
exercises these provisions when investment rates are declining, the Funds will
be likely to replace such bonds with lower yielding bonds resulting in a
decreased return. Zero coupon, pay-in-kind and deferred interest bonds involve
additional special considerations. Zero coupon bonds are debt obligations that
do not entitle the holder to any periodic payments of interest prior to
maturity or a specified cash payment date when the securities begin paying
current interest (the "cash payment date") and therefore are issued and traded
at a discount from their face amount or par value. The market prices of zero
coupon securities are generally more volatile than the market prices of
securities that pay interest periodically, and are likely to respond to changes
in interest rates to a greater degree than do securities paying interest
currently, having similar maturities, and credit quality. Pay-in-kind bonds pay
interest in the form of other securities rather than cash. Deferred interest
bonds defer the payment of interest to a later date. Zero coupon, pay-in-kind
or deferred interest bonds carry additional risk in that, unlike bonds which
pay interest in cash throughout the period to maturity, the Funds will realize
no cash until the cash payment date unless a portion of such securities are
sold. There is no assurance of the value or the liquidity of securities
received from pay-in-kind bonds. If the issuer defaults, the Funds may obtain
no return at all on its investment. To the extent that the Funds invest in
bonds that are original issue discount, zero coupon, pay-in-kind or deferred
interest bonds, the Funds may have taxable interest income in excess of the
cash actually received on these issues. In order to distribute such income to
avoid taxation to the Funds, the Funds may have to sell portfolio securities to
meet its taxable distribution requirements under circumstances that could be
adverse.

Federal tax legislation limits the tax advantages of issuing certain
high yield, high-risk bonds. This could have a materially adverse effect on the
market for high yield, high-risk bonds.

Portfolio Composition. As of June 30, 1998 Davis Real Estate Fund had
less than 5% of its total assets invested in high yield, high risk debt
securities and does, not presently intend to have over 5% of its assets
invested in such securities in the near future. The table below reflects Davis
Convertible Securities Fund's portfolio quality rating in debt securities as of
June 30, 1998. The table reflects the percentage of total net assets
represented by debt securities rated by Moody's or S&P, by unrated debt
securities and by other assets. The percentages shown reflect the higher of the
Moody's or S&P rating. U.S. Government Securities, whether or not rated, are
reflected as Aaa and AAA (highest quality). Other assets may include money
market instruments, repurchase agreements, equity securities, net payables and
receivables and cash. The allocations in the table are not necessarily
representative of the composition of the Fund's portfolio at other times.
Portfolio quality rating will change over time.

12
<PAGE>

PORTFOLIO COMPOSITION OF THE DAVIS CONVERTIBLE SECURITIES FUND PORTFOLIO BY
QUALITY RATING OF DEBT SECURITIES AS A PERCENTAGE
OF TOTAL ASSETS AT JUNE 30, 1998
<TABLE>
<CAPTION>

MOODY'S S&P RATING CATEGORY PERCENTAGE FUND'S ASSESSMENT GENERAL DEFINITION
- --------------------------- ---------- OF UNRATED SECURITIES OF BOND QUALITY
--------------------- ---------------
<S> <C> <C> <C>
Aaa/AAA ......................... 0.50% - Highest quality
Aa/AA ......................... 3.36% - High quality
A/A ......................... 2.65% - Upper medium grade
Baa/BBB ......................... 7.84% - Medium grade
Ba/BB ......................... 5.37% 4.15% Some speculative elements
B/B ......................... 4.33% - Speculative
Caa/CCC ......................... 0.27% - More speculative
Ca,C/CC,C,D...................... - - Very speculative, may be in default
Not Rated........................ 4.15% - Not rated by Moody's or S&P
Common and Convertible
Preferred Stock............... 51.85% -
Short-term Investments........... 19.05%
Other assets less liabilities.... 0.63%
------
100% 4.15%
</TABLE>

The description of each bond quality category set forth in the table
above is intended to be a general guide and not a definitive statement as to
how Moody's and S&P define such rating category. A more complete description of
the rating categories is set forth in the Appendix. The ratings of Moody's and
S&P represent their opinions as to the quality of the securities that they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality. There is no assurance
that a rating assigned initially will not change. The Fund may retain a
security whose rating has changed or has become unrated.

OTHER INVESTMENT POLICIES

The Funds have adopted the following investment policies.

TEMPORARY DEFENSIVE INVESTMENTS. For defensive purposes or to
accommodate inflows of cash awaiting more permanent investment, the Funds may
temporarily and without limitation hold high-grade short-term money market
instruments, cash and cash equivalents, including repurchase agreements. Davis
Government Money Market Fund continuously invests exclusively in short-term
U.S. Government securities and repurchase agreements.

REPURCHASE AGREEMENTS. The Funds may enter into repurchase agreements,
but normally will not enter into repurchase agreements maturing in more than
seven days. A repurchase agreement, as referred to herein, involves a sale of
securities to a Fund, with the concurrent agreement of the seller (a bank or
securities dealer which the Adviser or Sub-Adviser determines to be financially
sound at the time of the transaction) to repurchase the securities at the same
price plus an amount equal to accrued interest at an agreed-upon interest rate,
within a specified time, usually less than one week, but, on occasion, at a
later time. The repurchase obligation of the seller is, in effect, secured by
the underlying securities. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, the Funds could experience both delays in
liquidating the underlying securities and losses, including (a) possible
decline in the value of the collateral during the period while the Funds seek
to enforce their rights thereto; (b) possible loss of all or a part of the
income during this period; and (c) expenses of enforcing its rights.

The Funds will enter into repurchase agreements only when the seller
agrees that the value of the underlying securities, including accrued interest
(if any), will at all times be equal to or exceed the value of the repurchase
agreement. The Funds may enter into tri-party repurchase agreements in which a
third party custodian bank issues the cash upon purchase of the securities used
as collateral, and also holds the securities. The Funds will not enter into a
repurchase agreement maturing in more than seven days if it would cause more
than 15% of the

13
<PAGE>

value of their net assets (10% for Davis Government Money Market Fund) to be
invested in such transactions. Repurchase agreements maturing in less than
seven days are not deemed illiquid securities for the purpose of the Funds'
limitation on illiquid securities.

HEDGING FOREIGN CURRENCY RISKS. Davis Equity Funds may invest a
portion of their assets in foreign securities. To attempt to reduce exposure to
currency fluctuations due to investments in foreign securities, the Davis
Equity Funds may trade in forward foreign currency exchange contracts (forward
contracts), currency futures contracts and options thereon and securities
indexed to foreign securities. These techniques may be used to lock in an
exchange rate in connection with transactions in securities denominated or
traded in foreign currencies, to hedge the currency risk in foreign securities
held by the Davis Equity Funds and to hedge a currency risk involved in an
anticipated purchase of foreign securities. Cross-hedging may also be utilized,
that is, entering into a hedge transaction in respect to a different foreign
currency than the one in which a trade is to be made or in which a portfolio
security is principally traded. There is no limitation on the amount of assets
that may be committed to currency hedging. However, no Davis Equity Fund will
engage in a futures transaction if it would cause the aggregate of initial
margin deposits and premiums paid on outstanding options on futures contracts
to exceed 5% of the value of its total assets (excluding in calculating such 5%
any in-the-money amount of any option). Currency hedging transactions may be
utilized as a tool to reduce currency fluctuation risks due to a current or
anticipated position in foreign securities. The successful use of currency
hedging transactions usually depends on the Adviser's or the Sub-Adviser's
ability to forecast interest rate and currency exchange rate movements. Should
interest or exchange rates move in an unexpected manner, the anticipated
benefits of futures contracts, options or forward contracts may not be
achieved, or losses may be realized, and thus the Davis Equity Funds could be
in a worse position than if such strategies had not been used. Unlike many
exchange-traded futures contracts, there are no daily price fluctuation limits
with respect to options on currencies and forward contracts, and adverse market
movements could therefore continue to an unlimited extent over a period of
time. In addition, the correlation between movements in the prices of such
instruments and movements in the price of the securities and currencies hedged
or used for cover will not be perfect and could produce unanticipated losses.
Unanticipated changes in currency prices may result in poorer overall
performance for the Davis Equity Funds than if they had not entered into such
contracts. When taking a position in an anticipatory hedge (when the Davis
Equity Funds purchase a futures contract or other similar instrument to gain
market exposure in anticipation of purchasing the underlying securities at a
later date), the Davis Equity Funds are required to set aside cash or
high-grade liquid securities to fully secure the obligation.

A forward contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date which is individually negotiated
and privately traded by currency traders and their customers. Such a contract
gives the Davis Equity Funds a position in a negotiated, currently
non-regulated market. A Davis Equity Fund may enter into a forward contract,
for example, when it enters into a contract for the purchase or sale of a
security denominated in a foreign currency in order to "lock in" the U.S.
dollar price of the security ("transaction hedge"). Additionally, when the
Adviser or Sub-Adviser believes that a foreign currency may suffer a
substantial decline against the U.S. dollar, either Fund may enter into a
forward sale contract to sell an amount of that foreign currency approximating
the value of some or all of the Fund's portfolio securities denominated in such
foreign currency. When the Adviser or Sub-Adviser believes that the U.S. dollar
may suffer a substantial decline against a foreign currency, either Fund may
enter into a forward purchase contract to buy that foreign currency for a fixed
dollar amount in anticipation of purchasing foreign traded securities
("position hedge"). In this situation the Davis Equity Funds may, in the
alternative, enter into a forward contract in respect to a different foreign
currency for a fixed U.S. dollar amount ("cross hedge"). This may be done, for
example, where the Adviser or Sub-Adviser believes that the U.S. dollar value
of the currency to be sold pursuant to the forward contract will fall whenever
there is a decline in the U.S. dollar value of the currency in which portfolio
securities of the Fund are denominated.

The Davis Equity Funds may purchase and write put and call options on
foreign currencies for the purpose of protecting against declines in the U.S.
dollar value of foreign currency-denominated portfolio securities and against
increases in the U.S. dollar cost of such securities to be acquired. As in the
case of other kinds of options, however, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received, and the Davis Equity Funds could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on a foreign currency may constitute an effective
hedge against fluctuations in exchange rates although, in the event of rate
movements adverse to a Fund's position, it may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies to be
written or purchased by the Davis Equity Funds are traded on U.S. and foreign
exchanges or

14
<PAGE>

over-the-counter. Currently, a significant portion or all of the value of an
over-the-counter option may be treated as an illiquid investment and subject to
the restriction on such investments as long as the SEC requires that
over-the-counter options be treated as illiquid. Generally, the Davis Equity
Funds would utilize options traded on exchanges where the options are
standardized.

The Davis Equity Funds may enter into contracts for the purchase or
sale for future delivery of foreign currencies ("currency futures contracts")
and may purchase and write put and call options to buy or sell currency futures
contracts. A "sale" of a currency futures contract means the acquisition of a
contractual obligation to deliver the foreign currencies called for by the
contract at a specified price on a specified date. A "purchase" of a currency
futures contract means the incurring of a contractual obligation to acquire the
foreign currencies called for by the contract at a specified price on a
specified date. Options on currency futures contracts to be purchased by the
Davis Equity Funds will be traded on U.S. or foreign exchanges or
over-the-counter.

The Davis Equity Funds may also purchase securities (debt securities
or deposits) which have their coupon rate or value at maturity determined by
reference to the value of one or more foreign currencies. These strategies will
be used for hedging purposes only. The Davis Equity Funds will hold securities
or other options or futures positions whose values are expected to offset its
obligations under the hedge strategies. Neither Fund will enter into a currency
hedging position that exposes the Fund to an obligation to another party unless
it owns either (i) an offsetting position in securities, options or futures
positions, or (ii) cash, receivables, and short-term debt securities with a
value sufficient to cover its potential obligations. The Davis Equity Funds
will comply with requirements established by the SEC with respect to coverage
of options and futures strategies by mutual funds, and, if so required, will
set aside liquid securities in a segregated account with its custodian bank in
the amount prescribed. The Davis Equity Funds' custodian will maintain the
value of such segregated account equal to the prescribed amount by adding or
removing additional liquid securities to account for fluctuations in the value
of securities held in such account. Securities held in a segregated account
cannot be sold while the futures or option strategy is outstanding, unless they
are replaced with similar securities.

The Davis Equity Funds' ability to dispose of its positions in futures
contracts, options and forward contracts will depend on the availability of
liquid markets in such instruments. Markets in options and futures with respect
to currencies are still developing. It is impossible to predict the amount of
trading interest that may exist in various types of futures contracts, options
and forward contracts. If a secondary market does not exist with respect to an
option purchased or written by the Davis Equity Funds over-the-counter, it
might not be possible to effect a closing transaction in the option (i.e.,
dispose of the option) with the result that (i) an option purchased by the
Davis Equity Funds would have to be exercised in order for the Davis Equity
Funds to realize any profit, and (ii) the Davis Equity Funds may not be able to
sell currencies covering an option written by the Davis Equity Funds until the
option expires, or it delivers the underlying futures currency upon exercise.
Therefore, no assurance can be given that the Davis Equity Funds will be able
to utilize these instruments effectively for the purposes set forth above. The
Davis Equity Funds' ability to engage in currency hedging transactions may be
limited by tax considerations.

The Davis Equity Funds' transactions in forward contracts, options on
foreign currencies and currency futures contracts will be subject to special
tax rules under the Internal Revenue Code that, among other things, may affect
the character of any gains or losses of the Davis Equity Funds as ordinary or
capital, and the timing and amount of any income or loss to the Davis Equity
Funds. This, in turn, could affect the character, timing and amount of
distributions by the Davis Equity Funds to shareholders. The Davis Equity Funds
may be limited in its foreign currency transactions by tax considerations.

RESTRICTED AND ILLIQUID SECURITIES. The Funds may invest in restricted
securities which are subject to contractual restrictions on resale. The Funds'
policy is to not purchase or hold illiquid securities (which may include
restricted securities) if more than 15% of the Funds' net assets (10% of Davis
Government Money Market Fund) would then be illiquid.

The restricted securities which the Funds may purchase include
securities which have not been registered under the 1933 Act, but are eligible
for purchase and sale pursuant to Rule 144A ("Rule 144A Securities"). This Rule
permits certain qualified institutional buyers, such as the Funds, to trade in
privately placed securities even though such securities are not registered
under the 1933 Act. The Adviser or Sub-Adviser, under criteria established by
the Funds' Board of Directors, will consider whether Rule 144A Securities being
purchased or held by the Funds are

15
<PAGE>

illiquid, and, thus subject to the Funds' policy limiting investments in
illiquid securities. In making this determination, the Adviser or Sub-Adviser
will consider the frequency of trades and quotes, the number of dealers and
potential purchasers, dealer undertakings to make a market, and the nature of
the security and the market place trades (for example, the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). The liquidity of Rule 144A Securities will also be monitored by the
Adviser and Sub-Adviser and, if as a result of changed conditions, it is
determined that a Rule 144A Security is no longer liquid, the Funds' holding of
illiquid securities will be reviewed to determine what, if any, action is
required in light of the policy limiting investments in such securities.
Investing in Rule 144A Securities could have the effect of increasing the
amount of investments in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities.

WRITING COVERED OPTIONS. For income or hedging purposes, the Funds
(other than Davis Government Money Market Fund) may write covered call options
on their portfolio securities and purchase call options in closing
transactions. The Funds may suffer an opportunity loss if the value of the
underlying security should rise above the strike price of the call option
before the option expires. The Funds do not currently intend to engage in any
such transaction if it would cause more than 10% of total assets to be subject
to options.

A covered call option gives the purchaser of the option the right to
buy the underlying security at the price specified in the option (the "exercise
price") at any time until the option expires, generally within three to nine
months, in return for the payment to the writer upon the issuance of the option
of an amount called the "premium." A commission may be charged in connection
with the writing of the option. The premium received for writing a call option
is determined by the option markets. The premium paid, plus the exercise price,
will always be greater than the market price of the underlying securities at
the time the option is written. By writing a covered call option, a Fund
foregoes, in exchange for the premium, the opportunity to profit from an
increase in the market value of the underlying security above the exercise
price, if the option is exercised. The call obligation is terminated upon
exercise of the call option, expiration of the call, or when the Fund effects a
closing purchase transaction. A closing purchase transaction is one in which
the writer purchases another call option in the same underlying security
(identical as to exercise price, expiration date and number of shares). The
writer thereby terminates its obligation and substitutes the second writer as
the obligor to the original option purchaser. A closing purchase transaction
would normally involve payment of a brokerage commission. During the remaining
term of the option, if a Fund cannot enter into a closing purchase transaction,
that Fund would lose the opportunity for realizing any gain over and above the
premium through sale of the underlying security, and if the security is
declining in price that Fund would continue to experience such decline.

PORTFOLIO TRANSACTIONS

Davis Selected Advisers, L.P. ("Adviser") and Davis Selected
Advisers-NY, Inc. ("Sub-Adviser") are responsible for the placement of
portfolio transactions for Davis Growth Opportunity Fund. The Adviser and
Sub-Adviser are responsible for the placement of portfolio transactions for
each of the other Funds. The Adviser's and Sub-Adviser's actions are subject to
the supervision of the Board of Directors. The Funds have adopted a policy to
seek to place portfolio transactions with brokers or dealers who will execute
transactions as efficiently as possible and at the most favorable price.
Subject to this policy, research services and placement of orders by securities
firms for Fund shares may be taken into account as a factor in placement of
portfolio transactions. In seeking the Funds' investment objectives, the Funds
may trade to some degree in securities for the short-term if the Adviser or
Sub-Adviser believes that such trading is advisable.

In placing executions and paying brokerage commissions, the Adviser
and Sub-Adviser considers the financial responsibility and reputation of the
broker or dealer, the range and quality of the services made available to the
Funds and the professional services rendered, including execution, clearance
procedures, wire service quotations and ability to provide supplemental
performance, statistical and other research information for consideration,
analysis and evaluation by the Adviser's and Sub-Adviser's staff. In accordance
with this policy, brokerage transactions may not be executed solely on the
basis of the lowest commission rate available for a particular transaction.
Research services provided to the Adviser or Sub-Adviser, by or through brokers
who effect portfolio transactions for the Funds, may be used in servicing other
accounts managed by the Adviser, and likewise research services provided by
brokers used for transactions of other accounts may be utilized by the Adviser
or Sub-Adviser in performing services for the Funds. Subject to the
requirements of best execution, the placement of orders by

16
<PAGE>

securities firms for shares of the Funds may be taken into account as a factor
in the placement of portfolio transactions.

On occasions when the Adviser or Sub-Adviser deems the purchase or
sale of a security to be in the best interests of a Fund as well as other
fiduciary accounts, the Adviser or Sub-Adviser may aggregate the securities to
be sold or purchased for a Fund with those to be sold or purchased for other
accounts in order to obtain the best net price and most favorable execution. In
such event, the allocation will be made by the Adviser or Sub-Adviser in the
manner considered to be most equitable and consistent with its fiduciary
obligations to all such fiduciary accounts, including the Fund involved. In
some instances, this procedure could adversely affect a Fund, but the Adviser
or Sub-Adviser deem that any disadvantage in the procedure would be outweighed
by the increased selection available and the increased opportunity to engage in
volume transactions.

The Adviser and Sub-Adviser believe that research from brokers and
dealers is desirable, although not essential, in carrying out their functions,
in that such outside research supplements the efforts of the Adviser and
Sub-Adviser by corroborating data and enabling the Adviser and Sub-Adviser to
consider the views, information, and analyses of other research staffs. Such
views, information, and analyses include such matters as communicating with
persons having special expertise on certain companies, industries, areas of the
economy and/or securities prices, obtaining written materials on these or other
areas which might affect the economy and/or securities prices, obtaining
quotations on securities prices, and obtaining information on the activities of
other institutional investors. The Adviser and Sub-Adviser research, at their
own expense, each security included in, or being considered for inclusion in,
the Funds' portfolios. As any particular research obtained by the Adviser or
Sub-Adviser may be useful to the Funds, the Board of Directors or its Committee
on Brokerage, in considering the reasonableness of the commissions paid by the
Funds, will not attempt to allocate, or require the Adviser or Sub-Adviser to
allocate, the relative costs or benefits of research.

The Funds paid the following brokerage commissions:

<TABLE>
<CAPTION>
Six months
ended Fiscal year ended
June 30 December 31
1998 1997 1996
<S> <C> <C> <C>
Davis Growth Opportunity Fund
brokerage commissions paid $ 22,763 $ 44,081 $ 14,490
amount paid to brokers providing research 100.00% 83.81% 92.75%
brokerage commissions paid
to Shelby Cullom Davis & Co.(1) $ 0 $ 0 $ 0

Davis Financial Fund
brokerage commissions paid $329,742 $250,113 $ 58,435
amount paid to brokers providing research 98.18% 98.94% 73.89%
brokerage commissions paid
to Shelby Cullom Davis & Co. (1) $ 23,800 $ 28,260 $ 1,200

Davis Real Estate Fund
brokerage commissions paid $378,798 $291,541 $ 49,848
amount paid to brokers providing research 100.00% 100.00% 55.28%
brokerage commissions paid
to Shelby Cullom Davis & Co. (1) $ 7,020 $ 2,454 $ 0

Davis Convertible Securities Fund
brokerage commissions paid $ 50,005 $ 68,913 $ 58,057
amount paid to brokers providing research 98.80% 98.26% 49.98%
brokerage commissions paid
to Shelby Cullom Davis & Co. (1) $ 0 $ 0 $ 372
</TABLE>

17
<PAGE>

(1) Shelby Cullom Davis & Co. is a broker-dealer who may be considered an
affiliated person of the Adviser. During the six months ended June 30,
1998 Shelby Cullom Davis & Co. executed the following percentages of the
funds total transactions involving commissions:

% of Total % of Aggregate Transactions
Commissions Involving Commissions

Davis Growth Opportunity Fund N/A N/A
Davis Financial Fund 7.22% 11.97%
Davis Real Estate Fund 1.85% 1.91%
Davis Convertible Securities Fund N/A N/A

Because of the Funds' investment policies, portfolio turnover rate
will vary. At times it could be high, which could require the payment of larger
amounts in brokerage commissions. The Adviser and Sub-Adviser are authorized to
place portfolio transactions with Shelby Cullom Davis & Co., a member of the
New York Stock Exchange, which may be deemed to be an affiliate of the Adviser,
if the commissions are fair and reasonable and comparable to commissions
charged by non-affiliated qualified brokerage firms for similar services. The
Funds anticipate that, during normal market conditions, their annual portfolio
turnover rate will be less than 100%.

Davis Government Bond Fund and Davis Government Money Market Fund have
not paid brokerage commissions during any of these fiscal years. Generally,
securities these two Funds are purchased from and sold to securities dealers on
a principal basis without commissions. Such transactions may involve profit to
the dealer involved.

INVESTMENT RESTRICTIONS

The fundamental investment restrictions set forth below may not be
changed without the approval of the holders of the lesser of (i) 67% of the
eligible votes, if the holders of more than 50% of the eligible votes are
represented, or (ii) more than 50% of the eligible votes. All
percentage limitations set forth in these restrictions apply as of the time of
an investment without regard to later increases or decreases in the value of
securities or total or net assets. Securities received upon conversion, or
exercise of warrants, or subscription rights and securities remaining upon the
breakup of units or detachment of warrants may be retained to permit
advantageous disposition.

The Funds share certain fundamental investment restrictions. In
addition, certain Funds also have special fundamental investment restrictions.

FUNDAMENTAL INVESTMENT RESTRICTIONS COMMON TO ALL OF THE FUNDS

1. Commodities and Commodities Contracts. The Funds may not purchase or
sell commodities or commodity contracts, except that the Funds other
than the Davis Government Bond Fund and Davis Government Money Market
Fund may invest in contracts in respect to foreign currencies for
hedging (risk reduction) purposes.

2. Real Estate. The Funds other than the Davis Government Money Market Fund
may invest in securities secured by real estate or interests therein or
securities issued by companies which invest in real estate or interests
therein, but will not otherwise invest in real estate. (This does not
prevent a Fund from owning and liquidating real estate or real estate
interests incident to a default on portfolio securities.) The Davis
Government Money Market Fund may not invest in real estate, interests
therein, or real estate investment trusts.

3. Diversification. The Funds other than the Davis Government Money Market
Fund may not purchase more than 10% of any one class of an issuer's
securities, other than securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities ("U.S. Government
Securities"), repurchase agreements

18
<PAGE>

relating thereto, certificates of deposit or the like, bankers'
acceptances or bank repurchase agreements. For purposes of this
restriction, all debt securities of an issuer are deemed to comprise a
single class. The Davis Government Money Market Fund, may not purchase
more than 10% of the outstanding debt securities (other than U.S.
Government Securities and repurchase agreements related thereto) of any
one issuer.

The Funds may not purchase the securities (other than U.S. Government
Securities or repurchase agreements related thereto) of any issuer if
immediately after such purchase more than 5% of the value of a Fund's
total assets would be invested in such issuer; except that up to 25% of
the value of the total assets of Davis Financial Fund, Convertible
Securities Fund and Davis Real Estate Fund may be invested without
regard to this 5% limitation. This restriction does not apply to the
Davis Government Money Market Fund.

4. Options. The Funds may not invest in or write puts, calls or
combinations thereof ("option transactions"), except that a Fund other
than the Davis Government Money Market Fund may (a) write calls so long
as at the time of so doing the security underlying the call is listed on
a national securities exchange, the call is issued by the Options
Clearing Corporation and is traded on a registered securities exchange,
such calls do not exceed 10% of that Fund's total assets and are covered
calls, (b) make closing purchase transactions in order to close out
outstanding call options previously written by a Fund and, (c) engage in
option transactions in respect of foreign currencies for hedging
purposes. (The convertible feature of convertible securities are not
deemed to be puts, calls or combinations thereof.) With respect to the
Davis Government Money Market Fund, it may not invest in puts, calls,
straddles, spreads or any combination thereof.

7. Unseasoned Issuers. The Funds may not buy the securities of companies in
continuous operation for less than three years (including predecessors)
if more than 5% of a Fund's total assets would then be invested in such
securities. This does not apply to the Davis Government Bond Fund or the
Davis Government Money Market Fund which both invest in U.S. Government
Securities or to investments made by the Davis Real Estate Fund in real
estate investment trusts ("REITs").

8. Other Registered Investment Companies. The Funds may not buy securities
of other registered investment companies, except that Funds other than
Davis Government Bond Fund and Davis Government Money Market Fund may
invest in (i) shares of investment companies investing primarily in
foreign securities provided that such purchase does not cause a Fund to
(a) have more than 5% of the value of its total assets invested in any
one such company, (b) have more than 10% of the value of its total
assets invested in the aggregate of all such companies, or (c) own more
than 3% of the total outstanding voting stock of any such company. All
Funds may acquire securities of other registered companies as a part of
a merger, consolidation, reorganization or acquisition of assets.

9. Purchases on Margin, Short Sales. The Funds may not purchase securities
on margin, make short sales of securities or maintain a short position,
except that (i) all Funds except the Davis Growth Opportunity Fund and
Davis Government Money Market Fund may engage in such investments when
at the time of sale a Fund has, by reason of its ownership of other
securities, the right to obtain securities equivalent in kind and amount
to the securities sold without payment of additional consideration, and
such other securities are retained so long as the Fund is in a short
position, and (ii) These restrictions do not apply to transactions in
respect to foreign currencies for hedging purposes.

10. Investing for Control. The Funds may not invest for the purpose of
exercising control or management of other companies.

11. Borrowing Money, Pledging Assets. The Funds, other than the Davis
Government Money Market Fund, may not borrow money except from banks for
extraordinary or emergency purposes in amounts not exceeding 10% of the
value of a Fund's total assets (excluding the amount borrowed) at the
time of such borrowing. The Funds may not pledge or hypothecate any of
their assets, except in connection with permitted borrowing in amounts
not exceeding 15% of the value of a Fund's total assets (excluding the
amount borrowed) at the time of such borrowing. These restrictions do
not apply to the use of margin deposits in connection with transactions
in foreign currencies for hedging purposes. The Davis Government Money
Market Fund may not borrow, except from banks for extraordinary
emergency

19
<PAGE>

purposes in amounts not exceeding 25% of the value of its total assets
(including the amount borrowed), and may pledge or hypothecate assets
not exceeding 10% of the value of its net assets (including any amount
borrowed) in connection with such borrowing. Both limits are calculated
as of the time of such borrowing.

12. Affiliated Ownership. The Funds may not buy or continue to hold
securities if any officers or directors of the Company, the Adviser, or
the Adviser's General Partner own too many of the same securities. This
would happen if any of these individuals own 1/2 of 1% or more of the
securities and all such individuals who own that much or more own 5% of
such securities.

13. Underwriting Securities. The Funds do not engage in the underwriting of
securities; however, the Funds may technically be considered
"underwriters" if they sell restricted securities.

14. Loans. The Funds may not make loans except through the purchase of debt
obligations (including entering into repurchase agreements) in
accordance with the Fund's investment objectives and policies.

15. Concentration.

(a) Concentration, Davis Growth Opportunity Fund and Davis Government
Bond Fund. Neither Davis Growth Opportunity Fund nor Davis Government
Bond Fund may purchase the securities of issuers conducting their
principal business activities in the same industry, if immediately after
such purchase the value of a Fund's investments in such industry would
exceed 25% of the value of its total assets, provided that (a) as to
utility companies, the gas, electric, water and telephone businesses
will be considered separate industries and, as to finance companies,
personal credit and business credit will be considered separate
industries, and (b) there is no limitation with respect to or arising
out of investments in U.S. Government Securities and repurchase
agreements with respect thereto, certificates of deposit or the like,
bankers' acceptances and bank repurchase agreements.

(b) Concentration, Davis Financial Fund. The Davis Financial Fund may
not invest less than 25% of its total assets (except investments for
temporary defensive periods) in companies principally engaged in each of
the banking and financial services industries. Companies in the banking
industry include U.S. and foreign commercial and industrial banking and
savings institutions (including their parent holding companies).
Companies in the financial services industry include commercial and
industrial finance companies, diversified financial services companies,
investment banking, securities brokerage and investment advisory
companies, leasing companies and insurance and insurance holding
companies.

Except for companies in the industries identified above, the Davis
Financial Fund may not purchase the securities of issues conducting
their principal business activities in the same industry if immediately
after such purchase the value of the Davis Financial Fund's investments
in such industry would constitute 25% or more of the value of the Fund's
total assets, provided that (a) as to utility companies, the gas,
electric, water and telephone businesses will be considered separate
industries, and (b) there is no limitation with respect to or arising
out of investments in U.S. Government Securities and repurchase
agreements fully collateralized by such Government Securities.

(c) Concentration, Davis Convertible Securities Fund. Davis Convertible
Securities Fund may not purchase the securities of issuers conducting
their principal business activities in the same industry if immediately
after such purchase the value of the Davis Convertible Securities Fund's
investments in such industry would constitute 25% or more of the value
of the Fund's total assets, provided that (a) as to utility companies,
the gas, electric, water and telephone businesses will be considered
separate industries, and (b) there is no limitation with respect to or
arising out of investments in U.S. Government Securities and repurchase
agreements fully collateralized by such Government securities.

(d) Concentration, Davis Real Estate Fund. Davis Real Estate Fund may
not purchase the securities of issuers conducting their principal
business activities in the same industry if immediately after such
purchase the value of the Fund's investments in such industry would
constitute 25% or more of the value of the Fund's total assets, provided
that (a) as to utility companies, the gas, electric, water and telephone
businesses will be considered separate industries, and (b) there is no
limitation with respect to or arising out

20
<PAGE>

of investments in U.S. Government Securities and repurchase agreements
fully collateralized by such government securities or investments in
securities of companies in the real estate industry or which own
significant amounts of real estate or have products or services relating
to the real estate industry.

SPECIAL FUNDAMENT INVESTMENT RESTRICTIONS:

1. Arbitrage. Neither Davis Growth Opportunity Fund nor Davis Government
Bond Fund may engage in arbitrage transactions.

2. Maturity. The Davis Government Money Market Fund may not purchase any
security which has a maturity date exceeding that prescribed in Rule
2a-7 under the Investment Company Act of 1940.

3. Restricted Securities. The Davis Government Money Market Fund may not
invest in restricted securities; provided, however, that this
restriction shall not apply to repurchase agreements.

4. Oil, Gas, Minerals. The Davis Government Money Market Fund may not
invest in oil, gas or other mineral exportations or development
programs.

NON-FUNDAMENTAL POLICIES COMMON TO ALL OF THE FUNDS. In addition to the
foregoing restrictions, the Funds have adopted certain non-fundamental
investment policies, which may be changed without shareholder approval
including the following:

1. Senior Securities. The Funds may not issue senior securities.

2. Illiquid Securities. The Funds may not purchase illiquid securities if
more than 15% of the value of the Fund's net assets (10% of Davis
Government Money Market Fund) would be invested in such securities.

Section II: Key Persons

ORGANIZATION OF THE COMPANY

THE COMPANY. Davis Series Fund, Inc. ("Company") is an
open-end, diversified, management investment company incorporated in Maryland
in 1976 and registered under the Investment Company Act of 1940. The Company is
a series investment company which may issue multiple series, each of which
would represent an interest in its separate portfolio. The Company currently
offers six series, Davis Growth Opportunity Fund, Davis Financial Fund, Davis
Real Estate Fund, Davis Convertible Securities Fund, Davis Government Bond
Fund, and Davis Government Money Market Fund (a "Fund" or the "Funds"). On
November 1, 1995, the Company changed its name from Retirement Planning Funds
of America, Inc., to Davis Series, Inc.

FUND SHARES. The Funds may issue shares in different classes. The
Funds shares are currently divided into four classes, Class A, Class B, Class
C, and Class Y shares. The Board of Directors may offer additional classes in
the future and may at any time discontinue the offering of any class of shares.
Each share, when issued and paid for in accordance with the terms of the
offering, is fully paid and non-assessable. Shares have no preemptive or
subscription rights and are freely transferable. Each of the funds' shares
represent an interest in the assets of the fund issuing the share and have
identical voting, dividend, liquidation and other rights and the same terms and
conditions as any other shares except that (i) each dollar of net asset value
per share is entitled to one vote, (ii) the expenses related to a particular
class, such as those related to the distribution of each class and the transfer
agency expenses of each class are borne solely by each such class, and (iii)
each class of shares votes separately with respect to provisions of the Rule
12b-1 Distribution Plan, which pertains to a particular class, and other
matters for which separate class voting is appropriate under applicable law.
Each fractional share has the same rights, in proportion, as a full share.
Shares do not have cumulative voting rights; therefore, the holders of more
than 50% of the voting power of the Company can elect all of the directors of
the Company. Due to the differing expenses of the classes, dividends of Class B
and Class C shares are likely to be lower than for Class A shares, and are
likely to be

21
<PAGE>

higher for Class Y shares than for any other class of shares. For more
information about Class Y shares, call the Distributor at 1-800-279-0279 to
obtain the Class Y prospectus.

Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the shareholders of the outstanding voting securities of an
investment company, such as the Company, will not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each series affected by such matter. Rule 18f-2 further
provides that a series shall be deemed to be affected by a matter unless it is
clear that the interests of each series in the matter are identical or that
that the matter does not affect any interest of such series. Rule 18f-2 exempts
the selection of independent accountants and the election of Board members from
the separate voting requirements of the Rule.

In accordance with Maryland law and the Company's By-laws, the Company
does not hold regular annual shareholder meetings. Shareholder meetings are
held when they are required under the Investment Company Act of 1940 or when
otherwise called for special purposes. Special shareholder meetings may be
called upon the written request of shareholders of at least 25% of the voting
power that could be cast at the meeting.

DIRECTORS AND OFFICERS

The Company's Board of Directors is responsible for the management and
supervision of the Funds. The Board approves all significant agreements between
the Company, on behalf of the Funds, and those companies that furnish services
to the Funds. The names and addresses of the directors and officers of
the Funds are set forth below, together with their principal business
affiliations and occupations for the last five years. The asterisk following
the names of Jeremy H. Biggs, Andrew A. Davis and Christopher C. Davis
indicates that they are considered to be "interested persons" of the Company,
as defined in the Investment Company Act. As indicated below, certain directors
and officers of the Company hold similar positions with the following funds
that are managed by the Adviser: Davis New York Venture Fund, Inc., Davis
Intermediate Investment Grade Bond Fund, Inc., Davis Tax-Free High Income Fund,
Inc., and Davis International Series, Inc. (collectively the "Davis
Funds").

WESLEY E. BASS, JR. (8/21/31), 710 Walden Road, Winnetka, IL 60093. Director of
the Company and each of the Davis Funds except Davis International Series,
Inc.; President, Bass & Associates (a financial consulting firm); formerly,
First Deputy City Treasurer, City of Chicago, and Executive Vice President,
Chicago Title and Trust Company.

JEREMY H. BIGGS (8/16/35),* Two World Trade Center, 94th Floor, New York, NY
10048. Director and Chairman of the Company and each of the Davis Funds;
Director of the Van Eck Funds; Consultant to the Adviser. Vice Chairman, Head
of Equity Research Department, Chairman of the U.S. Investment Policy Committee
and member of the International Investment Committee of Fiduciary Trust Company
International.

MARC P. BLUM (9/9/42), 233 East Redwood Street, Baltimore, MD 21202. Director
of the Company and each of the Davis Funds except Davis International Series,
Inc.; Chief Executive Officer, World Total Return Fund, L.P.; Member, Gordon,
Feinblatt, Rothman, Hoffberger and Hollander, LLC (attorneys); Director,
Mid-Atlantic Realty Trust.

JERRY D. GEIST (5/23/34), 931 San Pedro Dr. S.E., Albuquerque, NM 87108.
Director of the Company and each of the Davis Funds except Davis International
Series, Inc.; Chairman, Santa Fe Center Enterprises; President and Chief
Executive Officer, Howard Energy International Utilities; Director, CH2M-Hill,
Inc.; Retired Chairman and President, Public Service Company of New Mexico.

D. JAMES GUZY (3/7/36), 508 Tasman Drive, Sunnyvale, CA 94089. Director of the
Company and each of the Davis Funds except Davis International Series, Inc.;
Chairman, PLX Technology, Inc. (a manufacturer of semi-conductor circuits);
Director, Intel Corp. (a manufacturer semi-conductor circuits), Cirrus Logic
Corp. (a manufacturer of semi-conductor circuits) and Alliance Technology Fund
(a mutual fund).

22
<PAGE>

G. BERNARD HAMILTON (3/18/37), Avanti Partners, P.O. Box 1119, Richmond, VA
23218. Director of the Company and each of the Davis Funds; Managing General
Partner, Avanti Partners, L.P.

LEROY E. HOFFBERGER (6/8/25), The Exchange - Suite 215, 1112 Kenilworth Drive,
Towson, MD 21204. Director of the Company and each of the Davis Funds except
Davis International Series, Inc.; of Counsel to Gordon, Feinblatt, Rothman,
Hoffberger and Hollander, LLC (attorneys); Chairman, Mid-Atlantic Realty Trust;
Director and President, CPC, Inc. (a real estate company); Director and Vice
President, Merchant Terminal Corporation; formerly, Director of Equitable
Bancorporation, Equitable Bank and Maryland National Bank, and formerly,
Director and President, O-W Fund, Inc. (a private investment fund).

LAURENCE W. LEVINE (4/9/31), Walsh & Levine 40 Wall Street, 21st, Floor, New
York, NY 10005. Director of the Company and each of the Davis Funds except
Davis International Series, Inc.; Partner, Bigham, Englar, Jones and Houston
(attorneys); United States Counsel to Aerolineas Argentina; Director, various
private companies.

CHRISTIAN R. SONNE (5/6/30), P.O. Box 777, Tuxedo Park, NY 10987. Director of
the Company and each of the Davis Funds except Davis International Series,
Inc.; General Partner of Tuxedo Park Associates (a land holding and development
firm); President and Chief Executive Officer of Mulford Securities Corporation
(a private investment fund) until 1990; formerly, Vice President of Goldman
Sachs & Company (investment banker).

SHELBY M.C. DAVIS (3/20/37), ** 4135 North Steers Head Road, Jackson Hole, WY
83001. President of the Company and each of the Davis Funds; President of
Selected American Shares, Inc., Selected Special Shares, Inc. and Selected
Capital Preservation Trust; Director, Chairman and Chief Executive Officer,
Venture Advisers, Inc.; Director, Davis Selected Advisers-NY, Inc.; Employee of
Capital Ideas, Inc. (financial consulting firm); Consultant to Fiduciary Trust
Company International; Director, Shelby Cullom Davis Financial Consultants,
Inc.

ANDREW A. DAVIS (6/25/63),* ** 124 East Marcy Street, Santa Fe, NM 87501.
Director and Vice President of the Company and each of the Davis Funds (except
Davis International Series, Inc.), Selected American Shares, Inc., Selected
Special Shares, Inc. and Selected Capital Preservation Trust; Director and
President, Venture Advisers, Inc.; Director and Vice President, Davis Selected
Advisers-NY, Inc.; Consultant to Capital Ideas, a private financial consultant.
Former Vice President and head of convertible security research, PaineWebber,
Incorporated.

CHRISTOPHER C. DAVIS (7/13/65),* ** 609 Fifth Ave, New York, NY 10017. Director
and Vice President of the Company and each of the Davis Funds; Selected
American Shares, Inc., Selected Special Shares, Inc. and Selected Capital
Preservation Trust; Director, Vice Chairman, Venture Advisers, Inc.; Director,
Chairman, Chief Executive Officer, Davis Selected Advisers-NY, Inc.; Chairman
and Director, Shelby Cullom Davis Financial Consultants, Inc.; employee of
Shelby Cullom Davis & Co., a registered broker/dealer; Director, Rosenwald,
Roditi and Company, Ltd., an offshore investment management company.

KENNETH C. EICH (8/14/53), 124 East Marcy Street, Santa Fe, NM 87501. Vice
President of the Company and each of the Davis Funds, Selected American Shares,
Inc., Selected Special Shares, Inc. and Selected Capital Preservation Trust;
Chief Operating Officer, Venture Advisers, Inc.; Vice President, Davis Selected
Advisers-NY, Inc.; President, Davis Distributors, L.L.C. Former President and
Chief Executive Officer of First of Michigan Corporation. Former Executive Vice
President and Chief Financial Officer of Oppenheimer Management Corporation.

CAROLYN H. SPOLIDORO (11/19/52), 124 East Marcy Street, Santa Fe, NM 87501.
Vice President of the Company and each of the Davis Funds; Vice President,
Venture Advisers, Inc.

SHARRA L. REED (9/25/66), 124 East Marcy Street, Santa Fe NM 87501. Vice
President, Treasurer and Assistant Secretary of the Company and each of the
Davis Funds, Selected American Shares, Inc., Selected Special Shares, Inc. and
Selected Capital Preservation Trust; Vice President of Venture Advisers, Inc.
Former Unit Manager with Investors Fiduciary Trust Company.

THOMAS D. TAYS (3/7/57), 124 East Marcy Street, Santa Fe NM 87501. Vice
President and Secretary of the Company and each of the Davis Funds, Selected
American Shares, Inc., Selected Special Shares, Inc. and Selected Capital
Preservation Trust. Vice President and Secretary, Venture Advisers, Inc., Davis
Selected Advisers-NY, Inc., and Davis Distributors, L.L.C., Former Vice
President and Special Counsel of U.S. Global Investors, Inc.

23
<PAGE>

SHELDON R. STEIN (11/29/28), 111 E. Wacker Drive, Suite 2800, Chicago, IL
60601-4205, Assistant Secretary of the Company and each of the Davis Funds,
Selected American Shares, Inc., Selected Special Shares, Inc. and Selected
Capital Preservation Trust; Partner D'Ancona & Pflaum, the Company's legal
counsel.

ARTHUR DON (9/24/53), 111 E. Wacker Drive, Suite 2800, Chicago, IL 60601-4205,
Assistant Secretary of the Company and each of the Davis Funds, Selected
American Shares, Inc., Selected Special Shares, Inc. and Selected Capital
Preservation Trust; Partner D'Ancona & Pflaum, the Company's legal counsel.

** Shelby M.C. Davis is the father of Andrew A. Davis and Christopher C. Davis

The Company does not pay salaries to any of its officers. The Adviser performs
certain services on behalf of the Company and is reimbursed by the Company for
the costs of providing these services.

DIRECTORS COMPENSATION SCHEDULE

During the fiscal year ended December 31, 1997, the compensation paid
to the directors who are not considered to be interested persons of the Company
was as follows:

AGGREGATE COMPANY TOTAL
NAME COMPENSATION COMPLEX COMPENSATION*
---- ------------ ---------------------

Wesley E. Bass $10,980 $31,675
Marc P. Blum 10,300 29,400
Jerry D. Geist 10,200 29,050
D. James Guzy 10,350 29,550
G. Bernard Hamilton 10,250 33,200
LeRoy E. Hoffberger 10,300 29,350
Laurence W. Levine 10,300 29,350
Christian R. Sonne 10,300 29,400
**Edwin R. Werner 10,250 29,200

* Complex compensation is the aggregate compensation paid, for services as a
Director, by all mutual funds with the same investment adviser. There are eight
registered investment companies in the complex.

** Mr. Werner retired from the Board of Directors effective 12/31/97.

CERTAIN SHAREHOLDERS OF THE FUND

As of September 2, 1998, officers and directors owned the following
percentages of each Class of shares issued by the Funds
Class A Class B Class C Class Y
Davis Growth Opportunity Fund 2.196% * * *
Davis Government Bond Fund * * * *
Davis Government Money Market Fund 2.137% * * *
Davis Financial Fund 4.030% * * *
Davis Convertible Securities Fund 3.176% * * *
Davis Real Estate Fund 3.210% * * *

* indicates that officers and directors owned less than 1% of the outstanding
shares of the indicated Class of shares.

24
<PAGE>

The following table sets forth, as of September 2, 1998, the name and
holdings of each person known by the Company to be a record owner of more than
5% of the outstanding shares of any Class of either of its Funds. The Fund is
not aware of any shareholder that beneficially owns in excess of 25% of the
Fund's total outstanding shares.

CLASS A SHARES
PERCENT OF CLASS
NAME AND ADDRESS OUTSTANDING
- ---------------- -----------

DAVIS FINANCIAL FUND

Shelby Cullom Davis & Co. 17.41%
Investment #3
609 5th Avenue, 11th Floor
New York, NY 10017-1021

Merrill Lynch Pierce Fenner & Smith 9.18%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS REAL ESTATE FUND

Charles Schwab and Co., Inc. 15.06%
101 Montgomery St.
San Francisco, CA 94104-4122

Merrill Lynch Pierce Fenner & Smith 6.47%
Mutual Fund Operations
4800 Deerlake Dr. East, 2nd Floor
Jacksonville, FL 32264-6484

Prudential Securities, Inc. 5.63%
Attn: Mutual Funds
One New York Plaza
New York, NY 10004-1902

DAVIS CONVERTIBLE SECURITIES FUND

Shelby Cullom Davis & Co. 15.89%
Investment #3
609 5th Avenue, 11th Floor
New York, NY 10017-1021

Charles Schwab and Co., Inc. 6.56%
Special Custody Account
For the Benefit of its Customers
101 Montgomery Street
San Francisco, CA 94104-4122

The Bank of New York, TRS for 5.19%
Shelby Cullom Davis
FBO the Bank of New York as Pledgee
One Wall Street
New York, NY 10005-2501

25
<PAGE>

DAVIS GOVERNMENT BOND FUND

Merrill Lynch Pierce Fenner & Smith 8.40%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS GOVERNMENT MONEY MARKET FUND

Shelby Cullom Davis & Co. 69.32%
Investment #3
609 5th Avenue, 11th Floor
New York, NY 10017-1021

CLASS B SHARES

DAVIS GROWTH OPPORTUNITY FUND

Merrill Lynch Pierce Fenner & Smith 8.10%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS FINANCIAL FUND

Merrill Lynch Pierce Fenner & Smith 33.48%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS REAL ESTATE FUND

Merrill Lynch Pierce Fenner & Smith 26.81%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS CONVERTIBLE SECURITIES FUND

Merrill Lynch Pierce Fenner & Smith 31.41%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS GOVERNMENT BOND FUND

Merrill Lynch Pierce Fenner & Smith 38.39%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

26
<PAGE>

CLASS C SHARES

DAVIS GROWTH OPPORTUNITY FUND

Merrill Lynch Pierce Fenner & Smith 15.67%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS FINANCIAL FUND

Merrill Lynch Pierce Fenner & Smith 49.24%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS REAL ESTATE FUND

Merrill Lynch Pierce Fenner & Smith 27.89%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS CONVERTIBLE SECURITIES FUND

Merrill Lynch Pierce Fenner & Smith 41.07%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS GOVERNMENT BOND FUND

Merrill Lynch Pierce Fenner & Smith 69.74%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS GOVERNMENT MONEY MARKET FUND

State Street Bank & Trust Co. 6.77%
Cust. for the 403B Plan of
Joyce B. Aiken
3774 W. Buena Vista Avenue
Fresno, CA 93711-0110

CLASS Y SHARES

DAVIS GROWTH OPPORTUNITY FUND

Merrill Lynch Pierce Fenner & Smith 99.98%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

27
<PAGE>

DAVIS FINANCIAL FUND

Merrill Lynch Pierce Fenner & Smith 98.05%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS REAL ESTATE FUND

Naidot & Co. 66.09%
c/o Bessemer Trust Company
100 Woodbridge Center Drive
Woodbridge, NJ 07095

Kuwait Fund for ARAB Economic Development 25.94%
P.O. Box 2921
Safat, Kuwait 13030

Merrill Lynch Pierce Fenner & Smith 6.90%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS CONVERTIBLE SECURITIES FUND

Naidot & Co. 93.15%
c/o Bessemer Trust Company
100 Woodbridge Center Drive
Woodbridge, NJ 07095

Merrill Lynch Pierce Fenner & Smith 6.46%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS GOVERNMENT BOND FUND

Merrill Lynch Pierce Fenner & Smith 100.00%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

INVESTMENT ADVISORY SERVICES

Davis Selected Advisers, L.P. (the "Adviser") whose principal office
is at 124 East Marcy Street, Santa Fe, New Mexico 87501, serves as the
investment adviser for each of the Funds. Venture Advisers, Inc. is the
Adviser's sole general partner. Shelby M.C. Davis is Chief Investment Officer
of the Adviser and the controlling shareholder of the general partner.
Subject to the direction and supervision of the Board of Directors, the Adviser
manages the investment and business operations of the Funds. Davis
Distributors, LLC ("the Distributor"), a subsidiary of the Adviser, serves as
the distributor or principal underwriter of the Funds' shares. Davis Selected
Advisers-NY, Inc., ("DSA-NY") a wholly owned subsidiary of the Adviser,
performs investment management, research and other services for the Funds on
behalf of the Adviser under a Sub-Advisory Agreement with the Adviser.
The Adviser also acts as investment adviser for Davis New York Venture Fund,
Inc., Davis Intermediate Investment Grade Bond Fund, Inc., Davis Tax-Free High
Income Fund, Inc., Davis International Series, Inc., (collectively with the
Fund, the "Davis Funds"), Selected American Shares, Inc., Selected Special
Shares, Inc. and Selected Capital Preservation

28
<PAGE>

Trust (collectively the "Selected Funds"). The Distributor also acts as the
principal underwriter for the Davis Funds and the Selected Funds.

From January 1987 until December 31, 1998 Tanaka Capital Management,
Inc. served as sub-adviser to Davis Growth Opportunity Fund, responsible for
the daily management of the fund's investment portfolio.

ADVISORY AGREEMENT. Pursuant to the Advisory Agreement, each Fund pays
the Adviser a fee according to the following schedule:

Davis Growth Opportunity Fund, Davis Financial Fund, Davis Real Estate
Fund, and Davis Convertible Securities Fund each pay the Adviser a monthly fee
at an annual rate based on average net assets, as follows: 0.75% on the first
$250 million of average net assets; 0.65% on the next $250 million of average
net assets; and 0.55% on average net assets in excess of $500 million.

Davis Government Bond Fund pays the Adviser a fee at the annual rate
of 0.50% of total net assets. Davis Government Money Market Fund pays the
Adviser 0.50% on the first $250 million of average net assets; 0.45% on the
next $250 million of average net assets; and 0.40% on average net assets in
excess of $500 million.

These fees may be higher than that of most other mutual funds, but is
not necessarily higher than that paid by funds with similar objectives. Under
the Sub-Advisory Agreement with DSA-NY, the Adviser pays all of DSA-NY's direct
and indirect costs of operations. All the fees paid to DSA-NY are paid by the
Adviser and not the Funds.

Advisory fees are allocated among each Class of shares in proportion
to each Classes' relative total net assets.

The Funds paid the following aggregate advisory fees to the
Adviser:

Year Ended December 31

1997 1996 1995
---- ---- ----
Davis Growth Opportunity Fund $660,606 $465,709 $413,012
Davis Financial Fund 1,930,789 700,862 516,765
Davis Real Estate Fund 1,217,004 286,302 197,296
Davis Convertible Fund 800,976 494,195 399,922
Davis Government Bond Fund 144,613 200,005 283,797
Davis Government Money Market Fund 2,085,736 1,825,917 1,480,642

The Advisory Agreement also makes provisions for portfolio
transactions and brokerage policies of the Funds which are discussed above
under "Portfolio Transactions."

In accordance with the provisions of the Investment Company Act of
1940, the Advisory Agreement will terminate automatically upon assignment and
is subject to cancellation upon 60 days' written notice by the Company's Board
of Directors, the vote of the holders of a majority of the Funds outstanding
shares, or the Adviser. The continuance of the Advisory Agreement must be
approved at least annually by the Funds Board of Directors or by the vote of
holders of a majority of the outstanding shares of the Fund. In addition, any
new agreement or the continuation of the existing agreement must be approved by
a majority of directors who are not parties to the agreement or interested
persons of any such party.

Pursuant to the Advisory Agreement, the Adviser, subject to the
general supervision of the Funds' Board of Directors, provides management and
investment advice, and furnishes statistical, executive and clerical personnel,
bookkeeping, office space, and equipment necessary to carry out its investment
advisory functions and such corporate managerial duties as requested by the
Board of Directors of the Funds. The Funds bear all expenses other than those
specifically assumed by the Adviser under the Advisory Agreement, including
preparation of its tax returns, financial reports to regulatory authorities,
dividend determinations, transaction and accounting matters related to its
custodian bank, transfer agency, custodial and shareholder services, and
qualification of its shares

29
<PAGE>

under federal and state securities laws. Each fund reimburses the Adviser for
providing certain services. Such reimbursements are detailed below:

<TABLE>
<CAPTION>
Year ended December 31:
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Davis Growth Opportunity Fund
accounting and administrative services $17,835 $15,996 $15,498
qualifying shares for sale with state agencies 9,996 9,000 8,250
shareholder services 5,963 6,058 8,713

Davis Financial Fund
accounting and administrative services $18,543 $15,996 $13,998
qualifying shares for sale with state agencies 9,996 9,000 8,250
shareholder services 22,076 4,328 3,276

Davis Real Estate Fund
accounting and administrative services $21,418 $12,000 $11,001
qualifying shares for sale with state agencies 9,996 9,000 8,250
shareholder services 15,130 2,702 1,992

Davis Convertible Securities Fund
accounting and administrative services $20,414 $15,996 $13,998
qualifying shares for sale with state agencies 9,996 9,000 8,250
shareholder services 6,557 1,421 1,284

Davis Government Bond Fund
accounting and administrative services $11,665 $17,004 $17,004
qualifying shares for sale with state agencies 9,996 9,000 8,250
shareholder services 14,364 4,291 7,567

Davis Government Money Market Fund
accounting and administrative services $27,086 $12,000 $11,499
qualifying shares for sale with state agencies 9,996 9,000 8,250
shareholder services 19,072 12,905 11,580
</TABLE>

CODE OF ETHICS. The Adviser has adopted a Code of Ethics which
regulates the personal securities transactions of the Adviser's investment
personnel, other employees, and affiliates, with access to information
regarding securities transactions of the Funds. The Code of Ethics requires
investment personnel to disclose personal securities holdings upon commencement
of employment and all subsequent trading activity to the Adviser's Compliance
Officer. Investment personnel are prohibited from engaging in any securities
transactions, including the purchase of securities in a private offering,
without the prior consent of the Compliance Officer. Additionally, such
personnel are prohibited from purchasing securities in an initial public
offering and are prohibited from trading in any securities (i) for which the
fund has a pending buy or sell order, (ii) which the fund is considering buying
or selling, or (iii) which the fund purchased or sold within seven calendar
days.

30
<PAGE>

DISTRIBUTION OF COMPANY SHARES

DISTRIBUTION PLANS. Class A, Class B, and Class C shares have each
adopted Distribution Plans under which each fund (other than Davis Government
Money Market Fund) 966504436reimburses the Distributor for some of its
distribution expenses. The Distribution Plans were approved by the Funds' Board
of Directors in accordance with Rule 12b-1 under the Investment Company Act of
1940. Rule 12b-1 regulates the manner in which a mutual fund may assume costs
of distributing and promoting the sale of its shares. Payments pursuant to a
Distribution Plan are included in the operating expenses of the Class.

CLASS A SHARES. Payments under the Class A Distribution Plan are
limited to an annual rate of 0.25% of the average daily net asset value of the
Class A shares. Such payments are made to reimburse the Distributor for the
fees it pays to its salespersons and other firms for selling the Funds' Class A
shares, servicing its shareholders and maintaining its shareholder accounts.
Where a commission is paid for purchases of $1 million or more of Class A
shares and as long as the limits of the Distribution Plan have not been
reached, such payment is also made from 12b-1 distribution fees received from
the Funds. Normally, such fees are at the annual rate of 0.25% of the average
net asset value of the accounts serviced and maintained on the books of each
fund. Payments under the Class A Distribution Plan may also be used to
reimburse the Distributor for other distribution costs (excluding overhead) not
covered in any year by any portion of the sales charges the Distributor
retains.

CLASS B SHARES. Payments under the Class B Distribution Plan are
limited to an annual rate of 1% of the average daily net asset value of the
Class B shares. In accordance with current applicable rules, such payments are
also limited to 6.25% of gross sales of Class B shares plus interest at 1% over
the prime rate on any unpaid amounts. The Distributor pays broker/dealers up to
4% in commissions on new sales of Class B shares. Up to an annual rate of 0.75%
of the average daily net assets is used to reimburse the Distributor for these
commission payments. Most or all of such commissions are reallowed to
salespersons and to firms responsible for such sales. No commissions are paid
by the Company with respect to sales by the Distributor to officers, directors,
and full-time employees of the fund, the Distributor, the Adviser, the
Adviser's general partner, or DSA-NY. Up to 0.25% of average net assets is used
to reimburse the Distributor for the payment of service and maintenance fees to
its salespersons and other firms for shareholder servicing and maintenance of
its shareholder accounts.

CLASS C SHARES. Payments under the Class C Distribution Plan are also
limited to an annual rate of 1% of the average daily net asset value of the
Class C shares, and are subject to the same 6.25% and 1% limitations applicable
to the Class B Distribution Plan. The entire amount of payments may be used to
reimburse the Distributor for the payments of commissions, service, and
maintenance fees to its salespersons and other firms for selling new Class C
shares, shareholder servicing and maintenance of its shareholder accounts.

CARRYOVER PAYMENTS. If, due to the foregoing payment limitations, any
Fund is unable to pay the Distributor the 4% commission on new sales of Class B
shares, or the 1% commission on new sales of Class C shares, the Distributor
intends, but is not obligated, to accept new orders for shares and pay
commissions in excess of the payments it receives from the fund. The
Distributor intends to seek full payment from the Funds of any excess amounts
with interest at 1% over the prime rate at such future date, when and to the
extent such payments on new sales would not be in excess of the limitations.
The Funds are not obligated to make such payments; the amount (if any), timing
and condition of any such payments are solely within the discretion of the
directors of the Company, who are not interested persons of the Distributor or
the Company and have no direct or indirect financial interest in the Class B or
C Distribution Plans (the "Independent Directors"). If either Fund terminates
its Class B share or Class C share Distribution Plan, the Distributor will ask
the Independent Directors to take whatever action they deem appropriate with
regard to the payment of any excess amounts. As of December 31, 1997 the
cumulative totals of these carryover payments were:

<TABLE>
<CAPTION>
Class B shares Class C shares
-------------- --------------
Dollars % of Net Assets Dollars % of Net Assets
------- --------------- ------- ---------------
<S> <C> <C> <C> <C>
Davis Growth Opportunity Fund $ 585,849 0.95% $ 20,361 0.79%
Davis Financial Fund 6,274,938 3.25 150,916 0.77%
Davis Real Estate Fund 3,704,502 3.24 66,532 xxx?
Davis Convertible Securities Fund 1,233,089 3.47 51,667 0.82
Davis Government Bond Fund 416,424 3.28 170 0.08
</TABLE>

31
<PAGE>

DAVIS GOVERNMENT MONEY MARKET FUND. With respect to Davis Government
Money Market Fund, the Distribution Plan for each class of shares does not
provide for any amounts to be paid by the Fund directly to the Distributor as
either compensation or reimbursement for distributing shares of the Fund, but
does authorize the use of the advisory fee for distribution to the extent such
fee may be considered to be indirectly financing any activity or expense which
is primarily intended to result in the sale of Fund shares.

ADDITIONAL INFORMATION CONCERNING THE DISTRIBUTION PLANS. In addition,
to the extent that any investment advisory fees paid by the Company may be
deemed to be indirectly financing any activity which is primarily intended to
result in the sale of Company shares within the meaning of Rule 12b-1, the
Distribution Plans authorize the payment of such fees.

The Distribution Plans continue annually so long as they are approved
in the manner provided by Rule 12b-1 or unless earlier terminated by vote of
the majority of the Independent Directors or a majority of a Fund's outstanding
Class of shares. The Distributor is required to furnish quarterly written
reports to the Board of Directors detailing the amounts expended under the
Distribution Plans. The Distribution Plans may be amended provided that all
such amendments comply with the applicable requirements then in effect under
Rule 12b-1. Currently, Rule 12b-1 provides that as long as the Distribution
Plans are in effect, the Company must commit the selection and nomination of
candidates for new Independent Directors to the sole discretion of the existing
Independent Directors.

DEALER COMPENSATION. As described herein, dealers or others may
receive different levels of compensation depending on which class of shares
they sell. The Distributor may make expense reimbursements for special training
of a dealer's registered representatives or personnel of dealers and other
firms who provide sales or other services in respect to the funds and/or its
shareholders, or to defray the expenses of meetings, advertising or equipment.
Any such amounts may be paid by the Distributor from the fees it receives under
the Class A, Class B and Class C Distribution Plans.

In addition, the Distributor may, from time to time, pay additional
cash compensation or other promotional incentives to authorized dealers or
agents who sell shares of the Funds. In some instances, such cash compensation
or other incentives may be offered only to certain dealers or agents who employ
registered representatives who have sold or may sell significant amounts of
shares of the Funds and/or the other Davis Funds managed by the Adviser during
a specified period of time.

Shares of the Funds may also be sold through banks or bank-affiliated
dealers. Any determination that such banks or bank-affiliated dealers are
prohibited from selling shares of the Funds under the Glass-Steagall Act would
have no material adverse effects on the funds. State securities laws may
require such firms to be licensed as securities dealers in order to sell shares
of the Fund.

KRC INVESTMENT ADVISERS, LLC. KRC Investment Advisers, LLC
("KRC"), a registered investment adviser owned and managed by members
of the immediate and extended family of LeRoy E. Hoffberger, a Director of the
Company, has entered into a service agreement (the "Services Agreement") with
the Distributor which provides payments to KRC under the Funds Rule 12b-1 Plan.
Under the Services Agreement, KRC will provide shareholder maintenance services
to clients, in respect of shares of the Company, and the Distributor will pay
KRC a fee at the annual rate of 0.25% of average net assets of the accounts of
clients maintained and serviced by KRC. Payments made by the Distributor under
the Services Agreement will be reimbursed by the Company under its Rule 12b-1
Plan. Those payments will be made in connection with shareholder maintenance
services provided by that investment adviser to its clients who are
shareholders of the Company which include, among others, Mr. Hoffberger and
members of his immediate and extended family and trusts of which they are
beneficiaries or trustees. The cost of these services and advisory services
provided by KRC are borne by the clients. Mr. Hoffberger does not have any
ownership interest in or otherwise have any control of KRC.

THE DISTRIBUTOR. Davis Distributors, LLC, ("the Distributor"), 124
East Marcy, Santa Fe, New Mexico, 87501 is a wholly owned subsidiary of the
Adviser and pursuant to a Distributing Agreement acts as principal underwriter
of the funds shares on a continuing basis pursuant to a Distributing
Agreement. Pursuant to the Distributing Agreement, the Distributor
pays for all expenses in connection with the preparation, printing, and

32
<PAGE>

distribution of advertising and sales literature for use in offering the funds
shares to the public, including reports to shareholders to the extent they are
used as sales literature. The Distributor also pays for the preparation and
printing of prospectuses other than those forwarded to existing shareholders.
The continuance and assignment provisions of the Distributing Agreement are the
same as those of the Advisory Agreement.

The Distributor or the Adviser, in its capacity as distributor,
received total sales charges (which the Funds do not pay) on the sale of Class
A shares:

Fiscal year ended December 31:
1997 1996 1995
---- ---- ----

Davis Growth Opportunity Fund $442,713 $74,530 $33,104
Amount reallowed to dealers 376,768 57,376 27,799

Davis Financial Fund 3,657,273 167,334 81,236
Amount reallowed to dealers 3,081,777 134,887 68,404

Davis Real Estate Fund 2,339,674 317,436 16,112
Amount reallowed to dealers 1,973,114 262,083 13,561

Davis Convertible Securities Fund 691,313 52,343 41,669
Amount reallowed to dealers 583,729 41,837 32,782

Davis Government Bond Fund 39,183 18,190 11,063
Amount reallowed to dealers 33,094 14,870 9,298

Davis Government Money Market Fund does not charge a sales load for any class
of shares.

The Distributor or the Adviser, in its capacity as distributor,
received compensation on redemptions and repurchases of shares. For the year
ended December 31, 1997, the Distributor received the following amounts as
compensation on redemptions and repurchases:

Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------

Davis Growth Opportunity Fund N/A $39,106 $ 52
Davis Financial Fund N/A 86,917 2,468
Davis Real Estate Fund N/A 47,264 N/A
Davis Convertible Fund N/A 4,715 160
Davis Government Bond Fund N/A 17,294 N/A

Davis Government Money Market Fund does not receive compensation on redemptions
and repurchases.

The Distributor or the Adviser, in its capacity as distributor,
received the following amounts as reimbursements under the Distribution
Plans. Most of these sums were reallowed to selling
broker-dealers.

Year ended December 31:
1997 1996 1995
---- ---- ----
Davis Growth Fund
Class B Shares 368,796 277,701 270,982
Class C Shares 5,131 N/A N/A

Davis Financial Fund
Class B Shares 580,951 32,304 3,473
Class C Shares 34,391 N/A N/A

Davis Real Estate Fund

33
<PAGE>

Class B Shares 415,127 20,407 1,102
Class C Shares 13,032 N/A N/A

Davis Convertible Securities Fund
Class B Shares 87,537 8,209 660
Class C Shares 11,296 N/A N/A

Davis Government Bond Fund
Class B Shares 89,889 104,536 126,585
Class C Shares 460 N/A N/A

With respect to shares of Davis Government Money Market Fund, for the
years ended December 31, 1996 and 1995, the Adviser paid $3,507 and $11,871,
respectively, to qualified dealers out of its own resources, as provided in the
current Distribution Plan.

OTHER IMPORTANT SERVICE PROVIDERS

CUSTODIAN. State Street Bank and Trust Company ("State
Street" or "Custodian"), One Heritage Drive, North Quincy, Massachusetts 02171,
serves as custodian of the Company's assets. The Custodian maintains all of the
instruments representing the Company's investments and all cash. The Custodian
delivers securities against payment upon sale and pays for securities against
delivery upon purchase. The Custodian also remits the Company assets in payment
of the Fund's expenses, pursuant to instructions of officers or resolutions of
the Board of Directors. The Custodian also provides certain fund accounting and
transfer agent services.

AUDITORS. KPMG Peat Marwick LLP ("KPMG"), 707 17th
St. Suite 2300, Denver, Colorado 80202, serves as independent auditors for each
of the funds. The auditors consult on financial accounting and reporting
matters, and meet with the Audit Committee of the Board of Directors. In
addition, KPMG reviews federal and state income tax returns and related forms.

COUNSEL. D'Ancona & Pflaum, 30 N. LaSalle Street, Suite 2900, Chicago,
IL. 60602, serves as counsel to the Company and also serves as counsel for
those members of the Board of Directors who are not affiliated with the
Adviser.

Section III: Purchase, Redeem and Exchanging Shares

PURCHASE OF SHARES

CLASS A, B, AND C SHARES. You can purchase Class A, Class B, or Class
C shares of either fund from any dealer or other person having a sales
agreement with the Distributor. Class Y shares are offered only to certain
qualified purchasers, as described below.

There are three ways to make an initial investment of Class A, Class
B, or Class C shares in the Funds. One way is to fill out the Application Form
included in the Prospectus and mail it to State Street Bank and Trust Company
("State Street") at the address on the Form. The dealer must also sign the
Form. Your dealer or sales representative will help you fill out the Form. All
purchases made by check (minimum $1,000, except $250 for retirement plans)
should be in U.S. dollars and made payable to THE DAVIS FUNDS, or in the case
of a retirement account, the custodian or trustee. THIRD PARTY CHECKS WILL NOT
BE ACCEPTED. When purchases are made by check, redemptions will not be allowed
until the investment being redeemed has been in the account for 15 calendar
days. Shareholders whose Davis Government Money Market Fund accounts are
established for distributions of earnings or principal from a unit investment
trust sponsored by Clayton Brown & Associates, Inc. may make initial and
subsequent investments of amounts below the stated minimum.

34
<PAGE>

The second way to make an initial investment is to have your dealer
order and remit payment for the shares on your behalf. The dealer can also
order the shares from the Distributor by telephone or wire. You can also use
this method for additional investments of at least $1,000.

The third way to purchase shares is by wire. Shares may be purchased
at any time by wiring federal funds directly to State Street. Prior to an
initial investment by wire, the shareholder should telephone Davis
Distributors, LLC at 1-800-279-0279 to advise them of the investment and class
of shares and to obtain an account number and instructions. A completed Plan
Adoption Agreement or Application Form should be mailed to State Street after
the initial wire purchase. To assure proper credit, the wire instructions
should be made as follows:

State Street Bank and Trust Company,
Boston, MA 02210
Attn.: Mutual Fund Services
DAVIS SERIES, INC
(Please Specify Fund)
Shareholder Name,
Shareholder Account Number,
Federal Routing Number 011000028,
DDA Number 9904-606-2

After your initial investment, you can make additional investments of
at least $25. Simply mail a check payable to "The Davis Funds" to State Street
Bank and Trust Company, c/o The Davis Funds, P.O. Box 8406, Boston, MA
02266-8406. For overnight delivery, please send your check to State Street Bank
and Trust Company, c/o the Davis Funds, 66 Brooks Drive, Braintree, MA 02184.
THIRD PARTY CHECKS WILL NOT BE ACCEPTED. The check should be accompanied by a
form which State Street will provide after each purchase. If you do not have a
form, you should tell State Street that you want to invest the check in shares
of the applicable fund. If you know your account number, you should also
provide it to State Street.

CERTIFICATES. The Company does not issue certificates for Class A
shares unless you request a certificate each time you make a purchase.
Certificates are not issued for Class B or Class C shares or for accounts using
the Automatic Withdrawals Plan. In no event, however, will the Davis Government
Money Market Fund issue a certificate since all shares must be uncertificated
to use the check writing or pre-designated account payment privileges. The
Company does not issue certificates for Class Y shares. Instead, shares
purchased are automatically credited to an account maintained for you on the
books of the Company by State Street. You will receive a statement showing the
details of the transaction and any other transactions you had during the
current year each time you add to or withdraw from your account.

ALTERNATIVE PURCHASE ARRANGEMENTS

Each fund offers four classes of shares. With certain exceptions
described below, Class A shares are sold with a front-end sales charge at the
time of purchase and are not subject to a sales charge when they are redeemed.
Class B shares are sold without a sales charge at the time of purchase, but are
subject to a deferred sales charge if they are redeemed within six years after
purchase. Class B shares will automatically convert to Class A shares eight
years after the end of the calendar month in which the shareholder's order to
purchase was accepted. Class C shares are purchased at their net asset value
per share without the imposition of a front-end sales charge but are subject to
a 1% deferred sales charge if redeemed within one year after purchase and do
not have a conversion feature. The four classes of the Davis Government Money
Market Fund shares are available so as to enable investors to facilitate
exchanges since, with the exception of exchanges from Class A shares to Class Y
shares, shares may be exchanged only for shares of the same class. Davis
Government Money Market shares are sold directly without sales charges;
however, front-end or deferred sales charges may be imposed, in certain cases,
upon their exchange into shares of other Davis Funds (see "Exchange of
Shares"). Class Y shares are offered to (i) trust companies, bank trusts,
pension plans, endowments or foundations acting on behalf of their own account
or one or more clients for which such institution acts in a fiduciary capacity
and investing at least $5,000,000 at any one time ("Institutions"); (ii) any
state, county, city, department, authority or similar agency which invests at
least $5,000,000 at any one time ("Governmental Entities"); and (iii) any
investor with an account established under a "wrap account" or other

35
<PAGE>

similar fee-based program sponsored and maintained by a registered
broker-dealer approved by the Distributor ("Wrap Program Investors"). Class Y
shares are sold at net asset value without the imposition of Rule 12b-1
charges. Shares of the Davis Government Money Market Fund are offered at net
asset value. However, in the case of certain exchanges, the Money Market Fund
shares received may be subject to an escrow, pursuant to a Statement of
Intention, or a contingent deferred sales load. See "Exchange of Shares."

Depending on the amount of the purchase and the anticipated length of
time of the investment, investors may choose to purchase one Class of shares
rather than another. Investors who would rather pay the entire cost of
distribution at the time of investment, rather than spreading such cost over
time, might consider Class A shares. Other investors might consider Class B or
Class C shares, in which case 100% of the purchase price is invested
immediately. The Company will not accept any purchase of Class B shares in the
amount of $250,000 or more per investor. Such purchase must be made in Class A
shares. Class C shares may be more appropriate for the short-term investor. The
Company will not accept any purchase of Class C shares when Class A shares may
be purchased at net asset value.

CLASS A SHARES. Class A shares of Davis Government Money Market Fund
are sold at net asset value. Class A shares of the other Funds are sold at
their net asset value plus a sales charge. The amounts of the sales charges are
shown in the following table.

<TABLE>
<CAPTION>
Customary
Sales Charge Charge as Concession to Your
as Percentage Approximate Percentage Dealer as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- ------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C>
$99,999 or less................................ 4-3/4% 5.0% 4%
$100,000 to $249,999........................... 3-1/2% 3.6% 3%
$250,000 to $499,999........................... 2-1/2% 2.6% 2%
$500,000 to $749,999........................... 2% 2.0% 1-3/4%
$750,000 to $999,999........................... 1% 1.0% 3/4 of 1%
$1,000,000 or more............................. 0% 0.0% 0%*
</TABLE>

* On purchases of $1 million or more, the investor pays no front-end sales
charge but a contingent deferred sales charge of 0.75% is imposed if shares
purchased at net asset value without a sales load are redeemed within the first
year after purchase. The Distributor may pay the financial service firm a
commission during the first year after such purchase at an annual rate as
follows:

<TABLE>
<CAPTION>
Purchase Amount Commission
--------------- ----------
<S> <C>
First $3,000,000................................................ .75%
Next $2,000,000................................................ .50%
Over $5,000,000................................................ .25%
</TABLE>

Where a commission is paid for purchases of $1 million or more, such
payment will be made from 12b-1 distribution fees received from the Company
and, in cases where the limits of the distribution plan in any year have been
reached, from the Distributor's own resources.

REDUCTION OF CLASS A SALES CHARGE. There are a number of ways to
reduce the sales charge imposed on the purchase of the funds' Class A shares,
as described below. These reductions are based upon the fact that there is less
sales effort and expense involved in respect to purchases by affiliated persons
and purchases made in large quantities. If you claim any reduction of sales
charges, you or your dealer must so notify the Distributor (or State Street, if
the investment is mailed to State Street) when the purchase is made. Enough
information must be given to verify that you are entitled to such right.

(1) FAMILY OR GROUP PURCHASES. Certain purchases made by or for more
than one person may be considered to constitute a single purchase, including
(i) purchases for family members, including spouses and children under 21, (ii)
purchases by trust or other fiduciary accounts and purchases by Individual
Retirement Accounts for employees of a single employer and (iii) purchases made
by an organized group of persons, whether incorporated or not, if the group has
a purpose other than buying shares of mutual funds. For further information on
group purchase reductions, contact the Adviser or your dealer.

36
<PAGE>

(2) STATEMENTS OF INTENTION. Another way to reduce the sales charge is
by signing a Statement of Intention ("Statement"). See Appendix B: "Terms and
Conditions of a Statement of Intention." If you enter into a Statement of
Intention you (or any "single purchaser") may state that you intend to invest
at least $100,000 in the funds Class A shares over a 13-month period. The
amount you say you intend to invest may include Class A shares which you
already own, valued at the offering price, at the end of the period covered by
the Statement. A Statement may be backdated up to 90 days to include purchases
made during that period, but the total period covered by the Statement may not
exceed 13 months.

Shares having a value of 5% of the amount you state you intend to
invest will be held "in escrow" to make sure that any additional sales charges
are paid. If any of the funds shares are in escrow pursuant to a Statement and
such shares are exchanged for shares of another Davis Fund, the escrow will
continue with respect to the acquired shares.

No additional sales charge will be payable if you invest the amount
you have indicated. Each purchase under a Statement will be made as if you were
buying the total amount indicated at one time. For example, if you indicate
that you intend to invest $100,000, you will pay a sales charge of 3-1/2% on
each purchase.

If you buy additional amounts during the period to qualify for an even
lower sales charge, you will be charged such lower charge. For example, if you
indicate that you intend to invest $100,000 and actually invest $250,000, you
will, by retroactive adjustment, pay a sales charge of 2-1/2%.

If during the 13-month period you invest less than the amount you have
indicated, you will pay an additional sales charge. For example, if you state
that you intend to invest $250,000 and actually invest only $100,000, you will,
by retroactive adjustment, pay a sales charge of 3-1/2%. The sales charge you
actually pay will be the same as if you had purchased the shares in a single
purchase.

A Statement does not bind you to buy, nor does it bind the Adviser to
sell, the shares covered by the Statement.

(3) RIGHTS OF ACCUMULATION. Another way to reduce the sales charge is
under a right of accumulation. This means that the larger purchase entitled to
a lower sales charge does not have to be in dollars invested at one time. The
larger purchases that you (or any "single purchaser") make at any one time can
be determined by adding to the amount of a current purchase the value of Fund
shares (at offering price) already owned by you.

For example, if you owned $100,000 worth (at offering price) of shares
(including Class A, B and C shares of all Davis Funds, except Davis Government
Money Market Fund) and invest $5,000 in additional shares, the sales charge on
that $5,000 investment would be 3-1/2%, not 4-3/4%.

(4) COMBINED PURCHASES WITH OTHER DAVIS FUNDS. Your ownership or
purchase of Class A shares of other Davis Funds may also reduce your sales
charges in connection with the purchase of the Fund's Class A shares. This
applies to all three situations for reduction of sales charges discussed above.

If a "single purchaser" decides to buy a funds Class A shares as well
as Class A shares of any of the other Davis Funds (other than shares of Davis
Government Money Market Fund) at the same time, these purchases will be
considered a single purchase for the purpose of calculating the sales charge.
For example, a single purchaser can invest at the same time $100,000 in Davis
Growth Opportunity Fund's Class A shares and $150,000 in the Class A shares of
Davis Financial Fund and pay a sales charge of 2-1/2%, not 3-1/2%.

Similarly, a Statement of Intention for the Fund's Class A shares and
for the Class A shares of the other Davis Funds (other than Davis Government
Money Market Fund) may be aggregated. In this connection, the Company's Class A
shares and the Class A shares of the other Davis Funds which you already own,
valued at the current offering price at the end of the period covered by your
Statement of Intention, may be included in the amount you have stated you
intend to invest pursuant to your Statement.

Lastly, the right of accumulation also applies to the Class A, Class B
and Class C shares of the other Davis Funds (other than Davis Government Money
Market Fund) which you own. Thus, the amount of current purchases

37
<PAGE>

of the Fund's Class A shares which you make may be added to the value of the
Class A shares of the other Davis Funds (valued at their current offering
price) already owned by you in determining the applicable sales charge. For
example, if you owned $100,000 worth of shares of Davis Government Bond Fund
and Davis Financial Fund and Davis Convertible Securities Fund, (valued at the
applicable current offering price) and invest $5,000 in the Fund's shares, the
sales charge on your investment would be 3-1/2%, not 4-3/4%.

In all the above instances where you wish to assert this right of
combining the shares you own of the other Davis Funds, you or your dealer must
notify the Distributor (or State Street, if the investment is mailed to State
Street) of the pertinent facts. Enough information must be given to permit
verification as to whether you are entitled to a reduction in sales charges.

(5) ISSUANCE OF SHARES AT NET ASSET VALUE. There are many situations
where the sales charge will not apply to the purchase of Class A shares, as
discussed in the Prospectus. A sales charge is not imposed on these
transactions either because of the purchaser deals directly with the funds (as
in employee purchases) or because a responsible party (such as a financial
institution) is providing the necessary services usually provided by a
registered representative. In addition, the Fund occasionally may be
provided with an opportunity to purchase substantially all the assets of a
public or private investment company or to merge another such company into the
Fund. This offers the Fund the opportunity to obtain significant assets. No
dealer concession is involved. It is industry practice to effect such
transactions at net asset value as it would adversely affect the Fund's ability
to do such transactions if the Fund had to impose a sales charge.

(6) PURCHASES FOR EMPLOYEE BENEFIT PLANS. Trusteed or other fiduciary
accounts and Individual Retirement Accounts ("IRA") of a single employer are
treated as purchases of a single person. Purchases of and ownership by an
individual and such individual's spouse under an IRA are combined with their
other purchases and ownership.

(7) SALES AT NET ASSET VALUE. The sales charge will not apply to: (1)
Class A shares purchased through the automatic reinvestment of dividends and
distributions; (2) Class A shares purchased by directors, officers, and
employees of any fund for which the Adviser acts as investment adviser or
officers and employees of the Adviser, Sub-Adviser, or Distributor, including
former directors and officers and any spouse, child, parent, grandparent,
brother or sister ("immediate family members") of all of the foregoing, and any
employee benefit or payroll deduction plan established by or for such persons;
(3) Class A shares purchased by any registered representatives, principals, and
employees (and any immediate family member) of securities dealers having a
sales agreement with the Distributor; (4) initial purchases of Class A shares
totaling at least $250,000 but less than $5,000,000, made at any one time by
banks, trust companies, and other financial institutions on behalf of one or
more clients for which such institution acts in a fiduciary capacity; (5) Class
A shares purchased by any single account covering a minimum of 250 participants
(this 250 participant minimum may be waived for certain fee based mutual fund
marketplace programs) and representing a defined benefit plan, defined
contribution plan, cash or deferred plan qualified under 401(a) or 401(k) of
the Internal Revenue Code or a plan established under section 403(b), 457 or
501(c)(9) of such Code or "rabbi trusts"; (6) Class A shares purchased by
persons participating in a "wrap account" or similar fee-based program
sponsored and maintained by a registered broker-dealer approved by the Funds
Distributor or by investment advisors or financial planners who place trades
for their own accounts or the accounts of their clients and who charge a
management, consulting, or other fee for their services; and clients of such
investment advisors or financial planners who place trades for their own
accounts if the accounts, are linked to the master account of such investment
advisor or financial planner, on the books and records of the broker or agent;
and (7) Class A shares amounting to less than $5,000,000 purchased by any
state, county, city, department, authority or similar agency. Investors may be
charged a fee if they effect purchases in fund shares through a broker or
agent. The Funds may also issue Class A shares at net asset value incident to a
merger with or acquisition of assets of an investment company.

CLASS B SHARES. Class B shares are offered at net asset value, without
a front-end sales charge. The Distributor receives and usually reallows
commissions to firms responsible for the sale of such shares. With certain
exceptions described below, the Company imposes a deferred sales charge on
Class B shares of all the Funds except the Davis Government Money Market Fund.
The charge is 4% on shares redeemed during the first year after purchase, 3% on
shares redeemed during the second or third year after purchase, 2% on shares
redeemed during the fourth or fifth year after purchase and 1% on shares
redeemed during the sixth year after purchase. However, on

38
<PAGE>

Class B shares of the Funds which are acquired in exchange from Class B shares
of other Davis Funds which were purchased prior to December 1, 1994, the Funds
will impose a deferred sales charge of 4% on shares redeemed during the first
calendar year after purchase; 3% on shares redeemed during the second calendar
year after purchase; 2% on shares redeemed during the third calendar year after
purchase; and 1% on shares redeemed during the fourth calendar year after
purchase; and, no deferred sales charge is imposed on amounts redeemed after
four calendar years from purchase. Class B shares will be subject to a maximum
Rule 12b-1 fee at the annual rate of 1% of the class's average daily net asset
value. The Funds will not accept any purchase of Class B shares in the amount
of $250,000 or more per investor.

Class B shares that have been outstanding for eight years will
automatically convert to Class A shares without imposition of a front-end sales
charge. The Class B shares so converted will no longer be subject to the higher
expenses borne by Class B shares. Because the net asset value per share of the
Class A shares may be higher or lower than that of the Class B shares at the
time of conversion, although the dollar value will be the same, a shareholder
may receive more or less Class A shares than the number of Class B shares
converted. Under a private Internal Revenue Service Ruling, such a conversion
will not constitute a taxable event under the federal income tax law. In the
event that this ceases to be the case, the Board of Directors will consider
what action, if any, is appropriate and in the best interests of the Class B
shareholders. In addition, certain Class B shares held by certain defined
contribution plans automatically convert to Class A shares based on increases
of plan assets.

CLASS B SPECIAL DISTRIBUTION ARRANGEMENTS. Class B shares of the Fund
are made available to Retirement Plan Participants such as 401K or 403B Plans
at NAV with the waiver of Contingent Deferred Sales Charge ("CDSC") if:

(i) the Retirement Plan is recordkept on a daily valuation basis by
Merrill Lynch and, on the date the Retirement Plan sponsor signs the
Merrill Lynch Recordkeeping Service Agreement, the Retirement Plan has
less than $3 million in assets invested in broker/dealer funds not
advised or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Services Agreement between
Merrill Lynch and the fund's principal underwriter or distributor and
in funds advised or managed by MLAM (collectively, the "Applicable
Investments"); or

(ii) the Retirement Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract of alliance arrangement with Merrill Lynch, and on the date
the Retirement Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement, the Retirement Plan has less than $3 million in
assets, excluding money market funds, invested in Applicable
Investments; or

(iii) the Retirement Plan has less than 500 eligible employees, as
determined by the Merrill Lynch plan conversion manager, on the date
the Retirement Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement.

Retirement Plans recordkept on a daily basis by Merrill Lynch or an
independent recordkeeper under a contract with Merrill Lynch that are currently
investing in Class B shares of the Davis Mutual Funds convert to Class A shares
once the Retirement Plan has reached $5 million invested in Applicable
Investments. The Retirement Plan will receive a Retirement Plan level share
conversion. The Funds may make similar exceptions for other financial
institutions sponsoring or administering similar benefit plans.

CLASS C SHARES. Class C shares are offered at net asset value without
a sales charge at the time of purchase. Class C shares redeemed within one year
of purchase will be subject to a 1% charge upon redemption. Class C shares do
not have a conversion feature. The Funds will not accept any purchases of Class
C shares when Class A shares may be purchased at net asset value.

The Distributor will pay a commission to the firm responsible for the
sale of Class C shares. No other fees will be paid by the Distributor during
the one-year period following purchase. The Distributor will be reimbursed for
the commission paid from 12b-1 fees paid by the Funds during the one-year
period. If Class C shares are redeemed within the one-year period after
purchase, the 1% redemption charge will be paid to the Distributor. After Class
C shares have been outstanding for more than one year, the Distributor will
make quarterly payments to the firm responsible for the sale of the shares in
amounts equal to 0.75% of the annual average daily net asset value of

39
<PAGE>

such shares for sales fees and 0.25% of the annual average daily net asset
value of such shares for service and maintenance fees.

CONTINGENT DEFERRED SALES CHARGES. Any contingent deferred sales
charge ("CDSC") imposed upon the redemption of Class A, Class B or Class C
shares is a percentage of the lesser of (i) the net asset value of the shares
redeemed or (ii) the original cost of such shares. No CDSC is imposed when you
redeem amounts derived from (a) increases in the value of shares redeemed above
the net cost of such shares or (b) certain shares with respect to which the
Funds did not pay a commission on issuance, including shares acquired through
reinvestment of dividend income and capital gains distributions. Upon request
for a redemption, shares not subject to the CDSC will be redeemed first.
Thereafter, shares held the longest will be the first to be redeemed.

The CDSC on Class A, B, and C shares that are subject to a CDSC will
be waived if the redemption relates to the following: (a) in the event of the
total disability (as evidenced by a determination by the federal Social
Security Administration) of the shareholder (including registered joint owner)
occurring after the purchase of the shares being redeemed; (b) in the event of
the death of the shareholder (including a registered joint owner); (c) for
redemptions made pursuant to an automatic withdrawals plan in an amount, on an
annual basis, up to 12% of the value of the account at the time the shareholder
elects to participate in the automatic withdrawals plan; (d) for redemptions
from a qualified retirement plan or IRA that constitute a tax-free return of
excess contributions to avoid tax penalty; (e) on redemptions of shares sold to
directors, officers, and employees of any fund for which the Adviser acts as
investment adviser, or officers and employees of the Adviser, Sub-Adviser, or
Distributor, including former directors and officers and immediate family
members of all of the foregoing, and any employee benefit or payroll deduction
plan established by or for such persons; and (f) on redemptions pursuant to the
right of the Company to liquidate a shareholder's account if the aggregate net
asset value of the shares held in such account falls below an established
minimum amount.

CLASS Y SHARES. Class Y shares are offered through a separate
Prospectus to (i) trust companies, bank trusts, endowments, pension plans or
foundations ("Institutions) acting on behalf of their own account or one or
more clients for which such Institution acts in a fiduciary capacity and
investing at least $5,000,000 at any one time; (ii) any state, county, city,
department, authority or similar agency which invests at least $5,000,000
("Government Entities"); and (iii) any investor with an account established
under a "wrap account" or other similar fee-based program sponsored and
maintained by a registered broker-dealer approved by the Fund's Distributor
("Wrap Program Investors"). Wrap Program Investors may only purchase Class Y
shares through the sponsors of such programs who have entered into agreements
with Davis Distributors, LLC.

Wrap Program Investors should be aware that both Class A and Class Y
shares are made available by the Fund at net asset value to sponsors of wrap
programs. However, Class A shares are subject to additional expenses under the
Fund's Rule 12b-1 Plan and sponsors of wrap programs utilizing Class A shares
are generally entitled to payments under the Plan. If the sponsor has selected
Class A shares, investors should discuss these charges with their program's
sponsor and weigh the benefits of any services to be provided by the sponsor
against the higher expenses paid by Class A shareholders.

SPECIAL SERVICES

PROTOTYPE RETIREMENT PLANS. The Distributor and certain qualified
dealers have available prototype retirement plans (e.g. 401(k), profit sharing,
money purchase, Simplified Employee Pension ("SEP") plans, model 403(b) and 457
plans for charitable, educational and governmental entities) sponsored by the
Company for corporations and self-employed individuals. The Distributor and
certain qualified dealers also have prototype Individual Retirement Account
("IRA") plans (deductible IRAs, non-deductible IRAs, including "Roth IRAs", and
educational IRAs) and SIMPLE IRA plans for both individuals and employers.
These plans utilize the shares of the Company and other Davis Funds as their
investment vehicle. State Street acts as custodian or trustee for such plans,
and charges the participant $10 to establish each account and an annual
maintenance fee of $10 per social security number. Such fees will be redeemed
automatically at year-end from your account, unless you elect to pay the fee
directly prior to such time.

40
<PAGE>

AUTOMATIC INVESTMENT PLAN. You may arrange for automatic monthly
investing whereby State Street will be authorized to initiate a debit to your
bank account of a specific amount (minimum $25) each month which will be used
to purchase the Funds shares. The account minimums of $1,000 for non-retirement
accounts and $250 for retirement accounts will be waived, if pursuant to the
automatic investment plan, the account balance will meet the minimum investment
requirements within twelve months of the initial investment. For institutions
that are members of the Automated Clearing House system (ACH), such purchases
can be processed electronically on any day of the month between the 4th and
28th day of each month. After each automatic investment, you will receive a
transaction confirmation, and the debit should be reflected on your next bank
statement. You may terminate the Automatic Investment Plan at any time. If you
desire to utilize this plan, you may use the appropriate designation on the
Application Form. Class Y shares are not eligible to participate in the
Automatic Investment Plan.

DIVIDEND DIVERSIFICATION PROGRAM. You may also establish a dividend
diversification program which allows you to have all dividends and any other
distributions automatically invested in shares of one or more of the Davis
Funds, subject to state securities law requirements and the minimum investment
requirements. You must receive a current prospectus for the other fund or funds
prior to investment. Shares will be purchased at the chosen fund's net asset
value on the dividend payment date. A dividend diversification account must be
in the same registration as the distributing fund account and must be of the
same class of shares. All accounts established or utilized under this program
must have a minimum initial value, and all subsequent investments must be at
least $25. This program can be amended or terminated at any time, upon at least
60 days' notice. If you would like to participate in this program, you may use
the appropriate designation on the Application Form. Class Y shares are not
eligible to participate in the Dividend Diversification Program.

TELEPHONE PRIVILEGE. Unless you have provided in your application that
the telephone privilege is not to be available, the telephone privilege is
automatically available under certain circumstances for exchanging shares and
for redeeming shares. BY EXERCISING THE TELEPHONE PRIVILEGE TO SELL OR EXCHANGE
SHARES, YOU AGREE THAT THE DISTRIBUTOR SHALL NOT BE LIABLE FOR FOLLOWING
TELEPHONE INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE. Reasonable procedures
will be employed to confirm that such instructions are genuine and if not
employed, the Company may be liable for unauthorized instructions. Such
procedures will include a request for personal identification (account or
social security number) and tape recording of the instructions. You should be
aware that during unusual market conditions we might have difficulty in
accepting telephone requests, in which case you should contact us by mail.

EXCHANGE OF SHARES

GENERAL. The exchange privilege is a convenient way to buy shares in
other Davis Funds in order to respond to changes in your goals or in market
conditions. If such goals or market conditions change, the Davis Funds offer a
variety of investment objectives that includes common stock funds, tax-exempt,
government and corporate bond funds, and a money market fund. However, each
Fund, except the Davis Government Money Market Fund is intended as a long-term
investment and is not intended for short-term trading. Shares of a particular
class of a fund may be exchanged only for shares of the same class of another
Davis Fund except that Class A shareholders who are eligible to purchase Class
Y shares may exchange their shares for Class Y shares of the Fund. All of the
Davis Funds offer Class A, Class B, Class C and Class Y shares. The shares to
be received upon exchange must be legally available for sale in your state. For
Class A, Class B or Class C shares the net asset value of the initial shares
being acquired must meet the required minimum of $1,000 unless such exchange is
under the Automatic Exchange Program described below. For Class Y shares the
net asset value of the initial shares being acquired must be at least
$5,000,000 for Institutions and Government Entities or minimums set by wrap
program sponsors.

Shares may be exchanged at relative net asset value without any
additional charge. However, if any shares being exchanged are subject to an
escrow or segregated account pursuant to the terms of a Statement of Intention
or a CDSC, such shares will be exchanged at relative net asset value, but the
escrow or segregated account will continue with respect to the shares acquired
in the exchange. In addition, the terms of any CDSC, or redemption fee
applicable at the time of exchange, will continue to apply to any shares
acquired upon exchange. Exchanges of Class A shares of the Davis Government
Money Market Fund into Class A shares of another Davis Fund will be

41
<PAGE>

made at the public offering price of the acquired shares (which includes the
applicable front-end sales load) unless such shares were acquired by exchange
of shares on which you have already paid a sales charge.

Before you decide to make an exchange, you must obtain the current
prospectus of the desired fund. Call your broker or the Distributor for
information and a prospectus for any of the other Davis Funds registered in
your state. Read the prospectus carefully. If you decide to exchange your
shares, contact your broker/dealer, the Distributor, or send State Street a
written unconditional request for the exchange and follow the instructions
regarding delivery of share certificates contained in the section on
"Redemption of Shares." A medallion signature guarantee is not required for
such an exchange. However, if shares are also redeemed for cash in connection
with the exchange transaction, a medallion signature guarantee may be required.
A medallion signature guarantee is a written confirmation from an eligible
guarantor institution, such as a securities broker-dealer or a commercial bank,
that the signature(s) on the account is (are) valid. Unfortunately, no other
form of signature verification can be accepted. Your dealer may charge an
additional fee for handling an exercise of the exchange privilege.

An exchange involves both a redemption and a purchase, and normally
both are done on the same day. However, in certain instances such as where a
large redemption is involved, the investment of redemption proceeds into shares
of other Davis Funds may take up to seven days. For federal income tax
purposes, exchanges between funds are treated as a sale and purchase.
Therefore, there will usually be a recognizable capital gain or loss due to an
exchange. An exchange between different classes of the same fund is not a
taxable event.

The number of times you may exchange shares among the Davis Funds
within a specified period of time may be limited at the discretion of the
Distributor. Currently, more than four exchanges out of a fund during a
twelve-month period are not permitted without the prior written approval of the
Distributor. The Company reserves the right to terminate or amend the exchange
privilege at any time upon 60 days' notice.

SEGREGATION OF DAVIS GOVERNMENT MONEY MARKET FUND SHARES. In order to
secure the payment of any sales charge or CDSC that may be due on shares
exchanged into shares of the Davis Government Money Market Fund, the number of
shares equal in value to the sales charge are segregated and separately
maintained in the Davis Government Money Market Fund. The purpose of the
segregation is to assure that redemptions utilizing the Davis Government Money
Market Fund check writing privilege do not deplete the account without payment
of any applicable sales charge and therefore no draft will be honored for
liquidation of shares in excess of the shares in the Davis Government Money
Market Fund account which are free of segregation. See "Check Writing
Privilege" under "Redemption of Shares - Davis Government Money Market Fund."

BY TELEPHONE. You may exchange shares by telephone into accounts with
identical registrations. Please see the discussion of procedures in respect to
telephone instructions in the section entitled "Telephone Privilege," as such
procedures are also applicable to exchanges.

AUTOMATIC EXCHANGE PROGRAM. The Company also offers an automatic
monthly exchange program. All accounts established or utilized under this
program must have the same registration and a minimum initial value of at least
$250. All subsequent exchanges must have a value of at least $25. Each month,
shares will be simultaneously redeemed and purchased at the chosen fund's
applicable price. If you would like to participate in this program, you may use
the appropriate designation on the Application Form.

REDEMPTION OF SHARES

GENERAL. You can redeem, or sell back to the Company, all or part of
your shares at any time at net asset value less any applicable sales charges.
You can do this by sending a written request to State Street Bank and Trust
Company, c/o The Davis Funds, P.O. Box 8406, Boston, MA 02266-8406, indicating
how many of your shares or what dollar amount you want to redeem. If more than
one person owns the shares to be redeemed, all owners must sign the request.
The signatures on the request must correspond to the account from which the
shares are being redeemed.

42
<PAGE>

Sometimes State Street needs more documents to verify authority to
make a redemption. This usually happens when the owner is a corporation,
partnership or fiduciary (such as a trustee or the executor of an estate) or if
the person making the request is not the registered owner of the shares.

If shares to be redeemed are represented by a certificate, the
certificate must be signed by the owner or owners and must be sent to State
Street with the request.

For the protection of all shareholders, the Company also requires that
signatures appearing on a share certificate, stock power or redemption request
where the proceeds would be more than $50,000, must be medallion signature
guaranteed by an eligible guarantor institution, such as a securities
broker-dealer, or a commercial bank. A medallion signature guarantee is also
required in the event that any modification to the Company's application is
made after the account is established, including the selection of the Expedited
Redemption Privilege. In some situations such as where corporations, trusts, or
estates are involved, additional documents may be necessary to effect the
redemption. The transfer agent may reject a request from any of the foregoing
eligible guarantors, if such guarantor does not satisfy the transfer agent's
written standards or procedures, or if such guarantor is not a member or
participant of a medallion signature guarantee program. This provision also
applies to exchanges when there is also a redemption for cash. A medallion
signature guarantee on redemption requests where the proceeds would be $50,000
or less is not required, provided that such proceeds are being sent to the
address of record and, in order to ensure authenticity of an address change,
such address of record has not been changed within the last 30 days. All
notifications of address changes must be in writing.

Redemption proceeds are normally paid to you within seven days after
State Street receives your proper redemption request. Payment for redemptions
can be suspended under certain emergency conditions determined by the
Securities and Exchange Commission or if the New York Stock Exchange is closed
for other than customary or holiday closings. If any of the shares redeemed
were just bought by you, payment to you may be delayed until your purchase
check has cleared (which usually takes up to 15 days from the purchase date).
You can avoid any redemption delay by paying for your shares with a bank wire
or federal funds.

Redemptions are ordinarily paid to you in cash. However, the Company's
Board of Directors is authorized to decide if conditions exist making cash
payments undesirable, (although the Board has never reached such a decision).
If the Board of Directors should decide to make payments other than in cash,
redemptions could be paid in securities, valued at the value used in computing
a fund's net asset value. There would be brokerage costs incurred by the
shareholder in selling such redemption proceeds. We must, however, redeem
shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net
asset value, whichever is smaller, during any 90-day period for any one
shareholder.

Your shares may also be redeemed through participating dealers. Under
this method, the Distributor repurchases the shares from your dealer, if your
dealer is a member of the Distributor's selling group. Your dealer may, but is
not required to, use this method in selling back your shares and may place
repurchase request by telephone or wire. Your dealer may charge you a service
fee or commission. No such charge is incurred if you redeem your own shares
through State Street rather than having a dealer arrange for a repurchase.

DAVIS GOVERNMENT MONEY MARKET FUND. You may request redemption of part
or all of your in the Davis Government Money Market Fund by mail by sending
your request to State Street Bank and Trust Company, c/o Davis Funds, P.O. Box
8406, Boston, MA 02266-8406. You may also redeem shares through the Check
Writing Privilege or by Expedited Redemption Privilege to a pre-designated bank
account. Normally, except for payment to a pre-designated bank account, State
Street will send payment for the Davis Government Money Market Fund shares
redeemed within three business days, but in no event, later than seven days,
after receipt of a redemption request in proper form. Redemption of the Davis
Government Money Market Fund shares which were acquired by exchange from shares
subject to a contingent deferred sales charge may be subject to such a charge.
Shares exchanged into Davis Government Money Market Fund are subject to
segregation to assure payment of any sales charges that may be due upon
redemption.

DAVIS GOVERNMENT MONEY MARKET FUND CHECK WRITING PRIVILEGE, CLASS A
SHARES. For Davis Government Money Market Fund (Class A shares only) accounts
other than retirement plans and IRAs, State Street will provide, upon request,
forms of drafts to be drawn on your regular account that will clear through
State Street.

43
<PAGE>

These drafts may be made payable to the order of any person in any amount not
less than $100. When a draft is presented to State Street for payment, State
Street will redeem a sufficient number of full and fractional shares in your
account to cover the amount of the draft. This enables you to continue earning
daily income dividends until the draft has cleared.

If you elect to use this method of redemption, please so signify on
the Check Writing Privilege Form. You will be subject to State Street's rules
and regulations governing such drafts, including the right of State Street not
to honor drafts in amounts exceeding the value of the regular account at the
time they are presented for payment. Drafts in excess of the value of the Davis
Government Money Market Fund regular account cannot be honored by redemption of
any other Fund account. The Company and State Street reserve the right to
modify or terminate this service at any time.

A shareholder may issue a "Stop Payment" on any draft by calling State
Street at (617) 847-8543. The "Stop Payment" order will become effective if it
is given on a timely basis pursuant to the "Stop Payment" rules in effect at
State Street with respect to their regular checking accounts.

EXPEDITED REDEMPTION PRIVILEGE. Expedited Redemption Privilege:
Investors with accounts other than prototype retirement plans and IRAs may
instruct State Street to establish banking instructions for the purpose of a
future expedited redemption. Class Y shareholders are not eligible for the
expedited redemption privilege. For the Davis Government Money Market Fund the
proceeds may be sent by wire only if the amount is $5,000 or more. Expedited
redemption privilege allows the shareholder to instruct State Street to forward
redemption proceeds to their checking or savings account at the their
commercial banking institution.

Shareholders may establish expedited redemption privilege by (a)
completion of the expedited redemption privilege section at the time the
account is established, (b) written instruction signed by all shareholders with
their signature medallion guaranteed, or (c) completion of the Davis Funds
Account Service Form by all shareholders with their signature(s) medallion
guaranteed. In each case, the shareholders must submit a copy of a voided check
or encoded deposit slip. With the voided check or encoded deposit slip, State
Street can verify the correct banking instructions.

Once the expedited redemption privilege is established, proceeds may
be sent via expedited redemption privilege by notifying Davis Distributors by
(a) telephone request from the registered shareholder(s) (b) telephone request
from the registered representative of a Qualified Dealer, or (c) written
request signed by the registered shareholder.

Redemption proceeds may be delivered by federal funds wire or by
Automated Clearing House (ACH). Proceeds delivered by federal funds wire should
be received the business day following the redemption transaction. There is a
$5.00 charge by State Street for federal funds wire service and the receiving
bank may charge for this service. Proceeds delivered by ACH should be received
within two business days following the redemption transaction. State Street
does not charge for this service. Certain financial institutions may not accept
proceeds by either of these methods except by arrangement with its
correspondent bank or unless such institution is a member of the Federal
Reserve System.

If a shareholder seeks to use the check writing privilege or expedited
redemption privilege to a pre-designated bank account to redeem Davis
Government Money Market Fund shares recently purchased by check (whether by
regular or expedited method), the fund will refuse to accept telephone
redemption requests when made and to honor redemption drafts when presented
unless it is then reasonably assured of the collection of the check
representing the purchase (normally up to 15 days after receipt of such check).
This result can be avoided by investing by wire.

MAINTENANCE FEES. To help relieve the Davis Government Money Market
Fund's high cost of maintaining small accounts, there is a $10 charge imposed
on all accounts whose net asset value has been reduced to less than $1,000.
This charge is collected by redemption in December of each year and is paid to
the Davis Government Money Market Fund.

44
<PAGE>

BY TELEPHONE. You can redeem shares by telephone and receive a check
by mail, but please keep in mind:

The check can only be issued for up to $25,000;
The check can only be issued to the registered owner (who
must be an individual);
The check can only be sent to the address of record; and
Your current address of record must have been on file for 30 days.

AUTOMATIC WITHDRAWALS PLAN. Under the Automatic Withdrawals Plan, you
can indicate to State Street how many dollars you would like to receive each
month or each quarter. Your account must have a value of at least $10,000 to
start a plan. On shares that are redeemed you will receive the payment you have
requested approximately on the 25th day of the month. Withdrawals involve
redemption of shares and may produce gain or loss for income tax purposes.
Shares of the funds initially acquired by exchange from any of the other Davis
Funds will remain subject to an escrow or segregated account to which any of
the exchanged shares were subject. If you utilize this program, any applicable
CDSCs will be imposed on such shares redeemed. Purchase of additional shares
concurrent with withdrawals may be disadvantageous to you because of tax and
sales load consequences. If the amount you withdraw exceeds the dividends on
your shares, your account will suffer depletion. You may terminate your
Automatic Withdrawals Plan at any time without charge or penalty. The Company
reserves the right to terminate or modify the Automatic Withdrawals Plan at any
time. Class Y shares are not eligible for the Automatic Withdrawals Plan.

INVOLUNTARY REDEMPTIONS. To relieve the Company of the cost of
maintaining uneconomical accounts, the Company may effect the redemption of
shares at net asset value in any account if the account, due to shareholder
redemptions, has a value of less than $250. At least 60 days prior to such
involuntary redemption, the Company will mail a notice to the shareholder so
that an additional purchase may be effected to avoid such redemption.

SUBSEQUENT REPURCHASES. After some or all of your shares are redeemed
or repurchased, you may decide to put back all or part of your proceeds into
the same Class of a fund's shares. Any such shares will be issued without sales
charge at the net asset value next determined after you have returned the
amount of your proceeds. In addition, any applicable CDSC assessed on such
shares will be returned to the account. Shares will be deemed to have been
purchased on the original purchase date for purposes of calculating the CDSC
and the conversion period. This can be done by sending State Street or the
Distributor a letter, together with a check for the reinstatement amount. The
letter must be received, together with the payment, within 30 days after the
redemption or repurchase. You can only use this privilege once.

Section IV: General Information

DETERMINING THE PRICE OF SHARES

NET ASSET VALUE. The net asset value per share of each class is
determined daily by dividing the total value of investments and other assets,
less any liabilities, by the total outstanding shares. The net asset value of
each fund is determined daily as of the earlier of the close of the New York
Stock Exchange (the "Exchange") or 4:00 p.m., Eastern time, on each day that
the Exchange is open for trading.

The price per share for purchases or redemptions made directly through
State Street is generally the value next computed after State Street receives
the purchase order or redemption request. In order for your purchase order or
redemption request to be effective on the day you place your order with your
broker-dealer or other financial institution, such broker-dealer or financial
institution must (i) receive your order before 4:00 p.m. Eastern time and (ii)
promptly transmit the order to State Street. The broker-dealer or financial
institution is responsible for promptly transmitting purchase orders or
redemption requests to State Street so that you may receive the same day's net
asset value. Note that in the case of redemptions and repurchases of shares
owned by corporations, trusts, or estates, or of shares represented by
outstanding certificates, State Street may require additional documents to
effect the redemption and the applicable price will be determined as of the
close of the next computation following the receipt of the required
documentation or outstanding certificates. See "Redemption of Shares."

45
<PAGE>

The Company does not price its shares or accept orders for purchases
or redemptions on days when the New York Stock Exchange is closed. Such days
currently include New Year's Day, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

Certain brokers and certain designated intermediaries on their behalf
may accept purchase and redemption orders. The Distributor will be deemed to
have received such an order when the broker or the designee has accepted the
order. Customer orders are priced at the net asset value next computed after
such acceptance. Such order may be transmitted to the Fund or its agents
several hours after the time of the acceptance and pricing.

VALUATION OF PORTFOLIO SECURITIES. Portfolio securities are normally
valued using current market valuations. Securities traded on a national
securities exchange are valued at the last published sales price on the
exchange, or in the absence of recorded sales, at the average of closing bid
and asked prices on such exchange. Over-the-counter securities are valued at
the average of closing bid and asked prices. Fixed-income securities may be
valued on the basis of prices provided by a pricing service. Investments in
short-term securities (maturing in sixty days or less) are valued at amortized
cost unless the Board of Directors determines that such cost is not a fair
value. Assets for which there are no quotations available will be valued at a
fair value as determined by or at the direction of the Board of Directors.

To the extend that the Funds' securities are traded in markets that
close at different times, events affecting portfolio values that occur between
the time that their prices are determined and the time the Funds' shares are
priced will generally not be reflected in the Funds' share price. The value of
securities denominated in foreign currencies and traded in foreign markets will
have their value converted into the U.S. dollar equivalents at the prevailing
market rate as computed by State Street Bank & Trust Company. Fluctuation in
the value of foreign currencies in relation to the U.S. dollar may affect the
net asset value of the Fund's shares even if there has not been any change in
the foreign currency price of the Fund's investments.

Normally, the share price of the Davis Government Money Market Fund
does not fluctuate. However, if there are unusually rapid changes in interest
rates which in the Board's view cause a material deviation between amortized
cost and market value, the Board will consider whether such conditions require
taking any temporary action to maintain the normal fixed price or to prevent
material dilution or other unfavorable results to shareholders. Such action
could include withholding dividends, paying dividends out of surplus, realizing
gains or losses or using market valuation.

YEAR 2000 AND EURO CONVERSION ISSUES

Like all financial service providers, the Adviser, Sub-Adviser,
Distributor, and third parties providing investment advisory, administrative,
transfer agent, custodial and other services (jointly the "Service Providers")
utilize systems that may be affected by Year 2000 transition issues and/or by
Euro Conversion issues.

YEAR 2000 ISSUES. The services provided to the Funds and the
shareholders by the Service Providers depend on the smooth functioning of their
computer systems and those of other parties they deal with. Many computer
software systems in use today cannot distinguish the year 2000 from the year
1900 because of the way dates are encoded and calculated.

EURO CONVERSION ISSUES. Accurate pricing of the Company's assets
depends upon accurate valuation of securities denominated in foreign
currencies. On January 1, 1999, eleven of the fifteen member states of the
European Union are scheduled to convert to a common currency, the "euro."
Conversion to the euro may present Service Providers with technical challenges
to adapt information technology and other systems to accommodate
euro-denominated transactions. The euro conversion also may affect market risk
with respect to the foreign securities which the Company invests in.

46
<PAGE>

have been actively working on necessary changes to their computer systems to
prepare for the Year 2000 and the Euro Conversion and expect that their
systems, and those of other parties they deal with, will be adapted in time for
these events. In addition, there can be no assurance that the companies which
the Funds invest in will not experience difficulties with Year 2000 or Euro
Conversion issues which may negatively effect the market value of those
companies.

DIVIDENDS AND DISTRIBUTIONS

There are two sources of income, net income and realized capital gains
made to you by the Funds. You will receive confirmation statements for
dividends declared and shares purchased through reinvestment of dividends. You
will also receive confirmations after each purchase and after each redemption.
Different classes of shares may be expected to have different expense ratios
due to differing distribution services fees and certain other expenses. Classes
with higher expense ratios will pay correspondingly lower dividends than
Classes with lower expense ratios. For tax purposes, information concerning
distributions will be mailed annually to shareholders.

Shareholders have the option to receive all dividends and
distributions in cash, to have all dividends and distributions reinvested, or
to have income dividends paid in cash and capital gain distributions
reinvested. Reinvestment of all dividends and distributions is automatic for
accounts utilizing the Automatic Withdrawals Plan. The reinvestment of
dividends and distributions is made at net asset value (without any initial or
contingent deferred sales charge) on the payment date.

For the protection of the shareholder, upon receipt of the second
dividend check which has been returned to State Street as undeliverable,
undelivered dividends will be invested in additional shares at the current net
asset value and the account designated as a dividend reinvestment account.

DAVIS GROWTH OPPORTUNITY FUND AND DAVIS FINANCIAL FUND. Income
dividends and distributions from net realized capital gains, if any, are
distributed annually.

DAVIS GOVERNMENT BOND FUND. Income dividends are paid monthly. You
will receive confirmation statements for dividends declared and shares
purchased through reinvestment of dividends. Distributions from any net
realized capital gain not offset by capital loss carryovers are distributed
annually. The Davis Government Bond Fund declares distributions based on the
Adviser's projections of estimated net investment income and net realized
short-term gains. The amount of each distribution may differ from actual net
investment income and gains determined in accordance with generally accepted
accounting principles. The Davis Government Bond Fund at times may continue to
pay distributions based on expectations of future investment results to provide
stable distributions for its shareholders even though, as a result of temporary
market conditions or other factors (including losses realized later in a fiscal
year which have the effect of affecting previously realized gains), the Davis
Government Bond Fund may have failed to achieve projected investment results
for a given period. In such cases, the Davis Government Bond Fund's
distributions may include a return of capital to shareholders. Shareholders who
reinvest their distributions are largely unaffected by such returns of capital.
In the case of shareholders who do not reinvest, a return of capital is
equivalent to a partial redemption of the shareholder's investment.

DAVIS GOVERNMENT MONEY MARKET FUND. Dividends from net income are
declared daily on shares outstanding as of the close of business the preceding
day and are paid monthly. You will receive monthly confirmation statements for
dividends declared and shares purchased through reinvestment of dividends.
Income for Saturdays, Sundays and holidays are accrued on Fridays. Dividends
declared during each calendar month are paid on the last business day of the
month. Shares earn dividends as of the first business day after the effective
purchase date up through the date of redemption.

DAVIS CONVERTIBLE SECURITIES FUND AND DAVIS REAL ESTATE FUND. Income
dividends are normally paid quarterly. Distributions from any net realized
capital gains are made annually.

ALL FUNDS. Information concerning distributions will be mailed to
shareholders annually. Shareholders have the option to receive all dividends
and distributions in cash, to have all dividends and distributions reinvested,
or to have income dividends paid in cash and capital gain distributions
reinvested. The reinvestment of dividends

47
<PAGE>

and distributions is made at net asset value (without any sales charge) on the
dividend payment date. Upon receipt of the second dividend check which has been
returned to State Street as undeliverable, undelivered dividends will be
invested in additional shares at the current net asset value and the account
designated as a dividend reinvestment account.

FEDERAL INCOME TAXES

This section is not intended to be a full discussion of all the
aspects of the federal income tax law and its effects on the Funds and their
shareholders. Shareholders may be subject to state and local taxes on
distributions. Each investor should consult his or her own tax adviser
regarding the effect of federal, state, and local taxes on any investment in
the Funds.

The Funds intend to continue to qualify as a regulated investment
company under the Internal Revenue Code (the "Code"), and if so
qualified, will not be liable for federal income tax to the extent its earnings
are distributed. If, for any calendar year, the distribution of earnings
required under the Code exceeds the amount distributed, an excise tax, equal to
4% of the excess, will be imposed on the applicable fund. The Funds intend to
make distributions during each calendar year sufficient to prevent imposition
of the excise tax.

Distributions of net investment income and net realized short-term
capital gains will be taxable to shareholders as ordinary income. Distributions
of net long-term capital gains will be taxable to shareholders as long-term
capital gain regardless of how long the shares have been held. Distributions
will be treated the same for tax purposes whether received in cash or in
additional shares. Dividends declared in the last calendar month to
shareholders of record in such month and paid by the end of the following
January are treated as received by the shareholder in the year in which they
are declared. A gain or loss for tax purposes may be realized on the redemption
of shares. If the shareholder realizes a loss on the sale or exchange of any
shares held for six months or less and if the shareholder received a capital
gain distribution during that period, then the loss is treated as a long-term
capital loss to the extent of such distribution.

PERFORMANCE DATA

From time to time, the Funds may advertise information regarding their
performance. Such information will be calculated separately for each class of
shares. These performance figures are based upon historical results and are not
intended to indicate future performance.

CUMULATIVE TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN

The cumulative total return and the average annual total return (each
is defined below) with respect to each class of shares for each fund for the
periods indicated below is as follows:

<TABLE>
<CAPTION>
Cumulative Average Annual
Davis Growth Opportunity Fund Total Return 1 Total Return 2
- ----------------------------- -------------- --------------
<S> <C> <C>
Class A Shares
One year ended June 30 , 1998.......................................10.66% 10.66%
Period from December 1, 1994 through
June 30, 1998 (life of class) ..................................119.87% 24.61%

Class B Shares
One year ended June 30, 1998.........................................11.22% 11.22%
Five years ended June 30, 1998......................................139.74% 19.10%
Ten years ended June 30, 1998.......................................315.28% 15.29%
Period from May 1, 1984 through June 30, 1998 (life of class).......700.74% 15.81%

48
<PAGE>

Class C Shares
Period from August 15, 1997 through June 30, 1998 (life of class)...(0.62)% (N/A)

Class Y Shares
Period from September 18, 1997 through
June 30, 1998 (life of class)................................... (4.82)% (N/A)

Davis Financial Fund Total Return 1 Average Annual Total Return 2
- -------------------- -------------- -----------------------------

Class A Shares
One year ended June 30, 1998.........................................27.56% 27.56%
Five years ended June 30, 1998......................................212.46% 25.58%
Period from May 1, 1991 through June 30, 1998 (life of class) ......452.10% 26.91%

Class B Shares
One year ended June 30, 1998.........................................28.72% 28.72%
Period from December 27, 1994 through
June 30, 1998 (life of class) ...................................208.36% 37.83%

Class C Shares
Period from August 12, 1997 through June 30, 1998 (life of class)......22.29% N/A

Class Y Shares
One year ended June 30, 1998 ........................................34.22% 34.22%
Period from March 10, 1997 through June 30, 1998 (life of class).....45.71% 33.38%

Davis Real Estate Fund Total Return 1 Average Annual Total Return 2
- ---------------------- -------------- -----------------------------

Class A Shares
One year ended June 30, 1998..........................................2.68% 2.68%
Period from January 3, 1994 through June 30, 1998 (life of class)....95.73% 16.13%

Class B Shares
One year ended June 30, 1998..........................................2.91% 2.91%
Period from December 27, 1994 through
June 30, 1998 (life of class).....................................83.45% 18.87%

Class C Shares
Period from August 13, 1997 through June 30, 1998 (life of class).....3.23% N/A

Class Y Shares
One year ended June 30, 1998 ........................................8.15% 8.15%
Period from November 8, 1996 through June 30, 1998 (life of class)...33.37% 19.18%

Davis Convertible Securities Fund Total Return 1 Average Annual Total Return 2
- --------------------------------- -------------- -----------------------------

Class A Shares
One year ended June 30, 1998..........................................9.59% 9.59%
Five years ended June 30, 1998.......................................99.56% 14.81%
Period from May 1, 1992 through June 30, 1998 (life of class) ......149.10% 15.95%

Class B Shares
One year ended June 30, 1998..........................................9.93% 9.93%
Period from February 3, 1995 through June 30, 1998 (life of class)...97.31% 22.09%

49
<PAGE>

Class C Shares
Period from August 12, 1997 through June 30, 1998 (life of class).....6.21% N/A

Class Y Shares
One year ended June 30, 1998 .......................................15.34% 15.34%
Period from November 13, 1996 through
June 30, 1998 (life of class).....................................38.36% 22.08%

Davis Government Bond Fund Total Return 1 Average Annual Total Return 2
- -------------------------- -------------- -----------------------------

Class A Shares
One year ended June 30, 1998..........................................2.84% 2.84%
Period from December 1, 1994 through June 30, 1998 (life of class) 22.41% 5.81%

Class B Shares
One year ended June 30, 1998..........................................3.23% 3.23%
Five years ended June 30, 1998.......................................22.66% 4.17%
Ten years ended June 30, 1998........................................76.63% 5.85%
Period from May 1, 1984 through June 30, 1998 (life of class).......162.13% 7.04%

Class C Shares
Period from August 19, 1997 through June 30, 1998 (life of class).....4.52% N/A

Class Y Shares
As of June 30, 1998, no Class Y shares have been issued.
</TABLE>

1 "Cumulative Total return" is a measure of a fund's performance
encompassing all elements of return. Total return reflects the change
in share price over a given period and assumes all distributions are
taken in additional fund shares. Total return is determined by
assuming a hypothetical investment at the beginning of the period,
deducting a maximum front-end or applicable contingent deferred sales
charge, adding in the reinvestment of all income dividends and capital
gains, calculating the ending value of the investment at the net asset
value as of the end of the specified time period and subtracting the
amount of the original investment, and by dividing the original
investment. This calculated amount is then expressed as a percentage
by multiplying by 100. Periods of less than one year are not
annualized.

2 "Average annual total return" represents the average annual compounded
rate of return for the periods presented. Periods of less than one
year are not annualized. Average annual total return measures both the
net investment income generated by, and the effect of any realized or
unrealized appreciation or depreciation of, the underlying investments
in the fund's portfolio. Average annual total return is calculated
separately for each class in accordance with the standardized method
prescribed by the Securities and Exchange Commission by determining
the average annual compounded rates of return over the periods
indicated, that would equate the initial amount invested to the ending
redeemable value, according to the following formula:

P(1+T)n = ERV

Where: P = hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value at the
end of the period of a hypothetical
$1,000 payment made at the
beginning of such period

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<PAGE>

This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates and (ii)
deducts (a) the maximum front-end or applicable contingent deferred sales
charge from the hypothetical initial $1,000 investment, and (b) all recurring
fees, such as advisory fees, charged as expenses to all shareholder accounts.

30-DAY SEC YIELD

The 30-Day SEC Yield (defined below) with respect to each class of
shares of Davis Real Estate Fund, Davis Convertible Bond Fund, and Davis
Government Bond Fund for the period ended June 30, 1998, is as follows:

Davis Convertible Davis Government
Securities Fund Bond Fund
--------------- ---------
Class A shares 2.58% 5.18%
Class B shares 1.92% 4.66%
Class C shares 1.83% 4.65%
Class Y shares 2.96% N/A

As of June 30, 1998, Davis Real Estate Fund did not yet calculate a
30-Day SEC Yield.

"30-Day SEC Yield" is computed in accordance with a standardized
method prescribed by the rules of the Securities and Exchange Commission and is
calculated separately for each class. 30-Day SEC Yield is a measure of the net
investment income per share (as defined) earned over a specified 30 day period
expressed as a percentage of the maximum offering price of the Funds' shares at
the end of the period. Such yield figure was determined by dividing the net
investment income per share on the last day of the period, according to the
following formula:

30-Day SEC Yield = 2 [(a - b + 1) 6 - 1]
-----
cd

Where: a = dividends and interest earned during the period.

b = expenses accrued for the period.

c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.

d = the maximum offering price per share on the last day of the
period.

The Funds' 30-Day SEC Yields will fluctuate depending upon prevailing
interest rates, quality, maturities, types of instruments held, and operating
expenses. Thus, any yield quotation should not be considered representative of
future results. If a broker-dealer charges investors for services related to
the purchase or redemption of Fund shares, the yield will effectively be
reduced.

CURRENT AND EFFECTIVE YIELDS. The current and effective yields for
Davis Government Money Market Fund's Class A shares for the seven day period
ended June 30, 1998 was 4.94% and 5.06% respectively.

Yield quotations are calculated in accordance with the following
formulas:

Current Yield = [(C-D) - BV] x (365/7)

Effective Yield = [ [ [ (C-D) - BV] + 1]365/7] - 1

C = Net change (excluding capital change in value
of hypothetical account with balance of one
share at beginning of seven-day period).

D = Deductions charged to hypothetical account.

BV = Value of hypothetical account at beginning
of seven-day period for which yield is quoted.

51
<PAGE>

Davis Government Money Market Fund's Current and Effective Yields will
fluctuate depending upon prevailing interest rates, quality, maturities, types
of instruments held, and operating expenses. Thus, any yield quotation should
not be considered representative of future results. If a broker-dealer charges
investors for services related to the purchase or redemption of Fund shares,
the yield will effectively be reduced.

OTHER FUND STATISTICS

In reports or other communications to shareholders and in advertising
material, the performance of the Funds may be compared to recognized unmanaged
indices or averages of the performance of similar securities. Also, the
performance of the Funds may be compared to that of other funds of comparable
size and objectives as listed in the rankings prepared by Lipper Analytical
Services, Inc., Morningstar, Inc. or similar independent mutual fund rating
services, and the Funds may use evaluations published by nationally recognized
independent ranking services and publications. Any given performance comparison
should not be considered representative of the Fund's performance for any
future period.

In advertising and sales literature the Funds may publish various
statistics describing its investment portfolio such as the Funds' average Price
to Book and Price to Earnings ratios, beta, alpha, R-squared, standard
deviation, etc.

The Funds' Annual Report and Semi-Annual Report contain additional
performance information and will be made available upon request and without
charge by calling Davis Funds toll-free at 1-800-279-0279, Monday-Friday, 7
a.m. to 4 p.m. Mountain Time.

52
<PAGE>

APPENDIX A

QUALITY RATINGS OF DEBT SECURITIES

MOODY'S CORPORATE BOND RATINGS

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are unlikely to impair
the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than Aaa
securities.

A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade-obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e. they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative elements as their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments, or of maintenance of
other terms of the contract over any longer period of time, may be small.

Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

STANDARD & POOR'S CORPORATE BOND RATINGS

AAA - Debt rated `AAA' has the highest rating assigned by Standard and Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA - Debt rated `AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A - Debt rated `A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB - Debt rated `BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

53
<PAGE>

BB - Debt rated `BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The `BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied `BBB-' rating.

B - Debt rated `B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The `B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied `BB' or `BB-'
rating.

CCC - Debt rated `CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The `CCC' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied `B' or `B-' rating.

CC - The rating `CC' is typically applied to debt subordinated to senior debt
that is assigned an actual or implied `CCC' rating.

C - The rating `C' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied `CCC-' debt rating. The `C' rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.

CI - The rating `CI' is reserved for income bonds on which no interest is being
paid.

D - Debt rated `D' is in payment default. The `D' rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The `D' rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

MOODY'S COMMERCIAL PAPER RATINGS

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers: Prime-1 (superior capacity), Prime-2 (strong capacity) and
Prime-3 (acceptable capacity). In assigning ratings to an issuer which
represents that its commercial paper obligations are supported by the credit of
another entity or entities, Moody's evaluates the financial strength of the
indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment.

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

The S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from `A' for the highest
quality to `D' for the lowest. Issues assigned an `A' rating are regarded as
having the greatest capacity for timely payment. Within the `A' category, the
numbers 1, 2 and 3 indicate relative degrees of safety. The addition of a plus
sign to the category A-1 denotes that the issue is determined to possess
overwhelming safety characteristics.

54
<PAGE>

APPENDIX B

TERMS AND CONDITIONS FOR A STATEMENT OF INTENTION (CLASS A SHARES ONLY)

TERMS OF ESCROW:

1. Out of my initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified in this Statement will be held in escrow by State
Street in the form of shares (computed to the nearest full share at the public
offering price applicable to the initial purchase hereunder) registered in my
name. For example, if the minimum amount specified under this statement is
$100,000 and the public offering price applicable to transactions of $100,000
is $10 a share, 500 shares (with a value of $5,000) would be held in escrow.

2. In the event I should exchange some or all of my shares to those of another
mutual fund for which Davis Distributors, LLC, acts as distributor, according
to the terms of this prospectus, I hereby authorize State Street to escrow the
applicable number of shares of the new fund, until such time as this Statement
is complete.

3. If my total purchases are at least equal to the intended purchases, the
shares in escrow will be delivered to me or to my order.

4. If my total purchases are less than the intended purchases, I will remit to
Davis Distributors, LLC, the difference in the dollar amount of sales charge
actually paid by me and the sales charge which I would have paid if the total
purchase had been made at a single time. If remittance is not made within 20
days after written request by Davis Distributors, LLC, or my dealer, State
Street will redeem an appropriate number of the escrowed shares in order to
realize such difference.

5. I hereby irrevocably constitute and appoint State Street my attorney to
surrender for redemption any or all escrowed shares with full power of
substitution in the premises.

6. Shares remaining after the redemption referred to in Paragraph No. 4 will be
credited to my account.

7. The duties of State Street are only such as are herein provided being purely
ministerial in nature, and it shall incur no liability whatever except for
willful misconduct or gross negligence so long as it has acted in good faith.
It shall be under no responsibility other than faithfully to follow the
instructions herein. It may consult with legal counsel and shall be fully
protected in any action taken in good faith in accordance with advice from such
counsel. It shall not be required to defend any legal proceedings which may be
instituted against it in respect of the subject matter of this Agreement unless
requested to do so and indemnified to its satisfaction against the cost and
expense of such defense.

8. If my total purchases are more than the intended purchases and such total is
sufficient to qualify for an additional quantity discount, a retroactive price
adjustment shall be made for all purchases made under such Statement to reflect
the quantity discount applicable to the aggregate amount of such purchases
during the thirteen-month period.

55
<PAGE>

FORM N-1A

DAVIS SERIES, INC.

POST-EFFECTIVE AMENDMENT NO. 41 UNDER THE SECURITIES ACT OF 1933
REGISTRATION STATEMENT NO. 2-57209

AND

AMENDMENT NO. 37 UNDER THE INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-2679

PART C

OTHER INFORMATION

Item 23. Exhibits:

(a)(1) Articles of Incorporation. incorporated by reference to
Exhibit 1 of Registrant's Post-Effective Amendment No. 35
File 2-57209.

(a)(2) Articles Supplementary to Articles of Incorporation dated
September 1, 1996 designating shares, incorporated by
reference to Exhibit (1)(b) to Registrant's Post-Effective
Amendment No. 38, File No. 2-57209.

(b) By-laws. Amended and Restated Bylaws, incorporated by
reference to Exhibit 2 of Registrant's Post-Effective
Amendment No. 35, File No. 2-57209.

(d)(1) Investment Advisory Contracts. incorporated by reference to
Exhibit 5(a) of Registrant's Post-Effective Amendment No.,
35, File No. 2-57209.

(d)(2) Investment Advisory Agreement, as amended, incorporated by
reference to Exhibit 5(b) of Registrant's Post-Effective
Amendment No., 35, File No. 2-57209.

(d)(3) Sub-Advisory Agreement between Davis Selected Advisers, L.P.
and Davis Selected Advisers-NY, Inc., incorporated by
reference to exhibit 5(d) of Registrant's Post-Effective
Amendment No. 37 File No. 2-57209.

1
<PAGE>

(e)(1) Underwriting Contracts. Distributor's Agreement,
incorporated by reference to Exhibit (b) of Registrant's
Post-Effective Amendment No. 35, File No. 2-57209.

(e)(2) Transfer and Assumption Agreement dated July 31, 1997,
incorporated by reference to Exhibit (6)(b) of Registrant's
Post-Effective Amendment No. 38, File No. 2-57209.

(f) Bonus or Profit Sharing Contracts. Not applicable.

(g)(1) Custodian Agreements Custodian Contract in respect of the
Davis Growth Opportunity Fund, incorporated by reference to
Exhibit (8)(a) of Registrant's Post-Effective Amendment No.
25, File No. 2-57209.

(g)(2) Custodian Contract in respect of the Davis Government Bond
Fund, incorporated by reference to Exhibit (8)(b) of
Registrant's Post-Effective Amendment No. 25, File No.
2-57209.

(g)(3) Custodian Contract in respect of the Davis Government Money
Market Fund, incorporated by reference to Exhibit (8)(c) of
Registrant's Post-Effective Amendment No. 25, File No.
2-57209.

(g)(4) Letter Agreement with Custodian and Transfer Agent
Concerning the Davis Financial Fund, incorporated by
reference to Exhibit (8)(e) of Registrant's Post-Effective
Amendment No. 25, File No. 2-57209.

(h) Other Material Contracts. Transfer Agency and Service
Agreement incorporated by reference to Exhibit (8)(d) of
Registrant's Post-Effective Amendment No. 25, File No.
2-57209.

(i)* Legal Opinion. Opinion and Consent of Counsel, (D'Ancona &
Pflaum).

(j)* Other Opinions. Consent of Former Auditors. Tait, Weller &
Baker

(k) Omitted Financial Statements, incorporated from the Annual
Report.

(l) Initial Capital Agreements. Not Applicable

(m)(1) Rule 12b-1 Plan. Distribution Plan for Class A shares, as
amended, incorporated by reference to Exhibit (15)(a) of
Registrant's Post-Effective Amendment No. 32, File No.
2-57209.

2
<PAGE>

(m)(2) Distribution Plan for Class B shares, incorporated by
reference to Exhibit (15)(b) of Registrant's Post-Effective
Amendment No. 32, File No. 2-57209.

(m)(3) Distribution Plan for Class C shares, incorporated by
reference to Exhibit (15)(b) of Registrant's Post-Effective
Amendment No. 38, File No. 2-57209.

(m)(4) Distribution Plan for Davis Government Money Market Fund,
incorporated by reference to Exhibit (15)(b) of Registrant's
Post-Effective Amendment No. 25, File No. 2-57209.

(n) Financial Data Schedule. Not applicable

(o) Rule 18f-3 Plan. Plan pursuant to Rule 18f-3, as amended,
incorporated by reference to Exhibit (18)(b) of Registrant's
Post-Effective Amendment No. 38, File No. 2-57209.

(p) Other Exhibits. Powers of Attorney of the Registrant,
Officers and Board of Directors of Davis Series, Inc.
appointing Sheldon Stein and Arthur Don as
attorneys-in-fact. Incorporated by reference to Exhibit
(18)(b) of Registrant's Post-Effective Amendment No. 40,
File No. 2-57209.

* Filed Herein

Item 24. Persons Controlled by or Under Common Control With Registrant

Not applicable

Item 25. Indemnification

Registrant's Articles of Incorporation indemnifies its directors,
officers and employees to the full extent permitted by Section 2-418 of the
Maryland General Corporation Law, subject only to the provisions of the
Investment Company Act of 1940. The indemnification provisions of the Maryland
General Corporation Law (the "Law") permit, among other things, corporations to
indemnify directors and officers unless it is proved that the individual (1)
acted in bad faith or with active and deliberate dishonesty, (2) actually
received an improper personal benefit in money, property or services, or (3) in
the case of a criminal proceeding, had reasonable cause to believe that his act
or omission was unlawful. The Law was also amended to permit corporations to
indemnify directors and officers for amounts paid in settlement of
stockholders' derivative suits.

3
<PAGE>

In addition, the Registrant's directors and officers are covered under
a policy to indemnify them for loss (subject to certain deductibles) including
costs of defense incurred by reason of alleged errors or omissions, neglect or
breach of duty. The policy has a number of exclusions including alleged acts,
errors, or omissions which are finally adjudicated or established to be
deliberate, dishonest, malicious or fraudulent or to constitute willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties
in respect to any registered investment company. This coverage is incidental to
a general policy carried by the Registrant's adviser.

In addition to the foregoing indemnification, Registrant's Articles of
Incorporation exculpate directors and officers with respect to monetary damages
except to the extent that an individual actually received an improper benefit
in money property or services or to the extent that a final adjudication finds
that the individual acted with active and deliberate dishonesty.

Item 26. Business and Other Connections of Investment Adviser

Davis Selected Advisers, L.P. ("DSA ") and subsidiary companies
comprise a financial services organization whose business consists primarily of
providing investment management services as the investment adviser and manager
for investment companies registered under the Investment Company Act of 1940,
unregistered off-shore investment companies, and as an investment adviser to
institutional and individual accounts. DSA also serves as sub-investment
adviser to other investment companies. Davis Distributors, L.L.C., a
wholly-owned subsidiary of DSA, is a registered broker-dealer. Davis Selected
Advisers - NY, Inc., another wholly-owned subsidiary, provides investment
management services to various registered and unregistered investment
companies, pension plans, institutions and individuals.

Other business of a substantial nature that directors or officers of DSA are or
have been engaged in the last two years:

SHELBY M.C. DAVIS, 4135 North Steers Head Road, Jackson Hole, WY 83001.
Director, Chairman and Chief Executive Officer, Venture Advisers, Inc.;
Director, Davis Selected Advisers-NY, Inc.; Employee of Capital Ideas, Inc.
(financial consulting firm); Consultant to Fiduciary Trust Company
International; Director, Shelby Cullom Davis Financial Consultants, Inc.

ANDREW A. DAVIS, 124 East Marcy Street, Santa Fe, NM 87501. Director and
President, Venture Advisers, Inc.; Director and Vice President, Davis Selected
Advisers-NY, Inc.; Consultant to Capital Ideas, a private financial consultant.

CHRISTOPHER C. DAVIS, 609 Fifth Ave, New York, NY 10017. Vice Chairman, Venture
Advisers, Inc.; Director, Chairman, Chief Executive Officer, Davis Selected
Advisers-NY, Inc.; Chairman and Director, Shelby Cullom Davis Financial
Consultants, Inc.; employee of Shelby Cullom Davis & Co., a registered
broker/dealer; Director, Rosenwald, Roditi and Company, Ltd., an offshore
investment management company.

KENNETH C. EICH , 124 East Marcy Street, Santa Fe, NM 87501. Chief Operating
Officer, Venture Advisers, Inc.; Vice President, Davis Selected Advisers-NY,
Inc.; President, Davis Distributors, L.L.965742481C. Former President and Chief
Executive Officer of First of Michigan

4
<PAGE>

Corporation. Former Executive Vice President and Chief Financial Officer of
Oppenheimer Management Corporation.

GARY TYC, 124 East Marcy Street, Santa Fe NM 87501. Vice President, Chief
Financial Officer Treasurer, and Assistant Secretary of Venture Advisers, Inc.;
Vice President, Treasurer, & Assistant Secretary of Davis Selected Advisers -
NY, Inc.; Vice President, Treasurer, & Assistant Secretary of Davis
Distributors, L.L.C. Former Vice President of Oppenheimer Management
Corporation.

THOMAS D. TAYS, 124 East Marcy Street, Santa Fe NM 87501. Vice President and
Secretary, Venture Advisers, Inc., Davis Selected Advisers-NY, Inc., and Davis
Distributors, L.L.C. Former Vice President and Special Counsel of U.S. Global
Investors, Inc.

Item 27. Principal Underwriter

(a) Davis Distributors, LLC, a wholly owned subsidiary of the Adviser,
located at 124 East Marcy Street, Santa Fe, NM 87501, is the principal
underwriter for the Registrant and also acts as principal underwriter for
Davis New York Venture Fund, Inc., Davis Tax-Free High Income Fund, Inc.,
Davis Intermediate Investment Grade Bond Fund, Inc., Davis Series, Inc.,
Davis International Series, Inc., Selected American Shares, Inc., Selected
Special Shares, Inc. and Selected Capital Preservation Trust.

(b) Management of the Principal Underwriters:

NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS UNDERWRITER WITH REGISTRANT

Kenneth C. Eich President Vice President
124 East Marcy Street
Santa Fe, NM 87501

Gary P. Tyc Vice President, Treasurer and None
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501

Thomas D. Tays Vice President and Secretary Vice President and
124 East Marcy Street Secretary
Santa Fe, NM 87501

Russell O. Wiese Senior Vice President None
124 East Marcy Street
Santa Fe, NM 87501

Sharra Reed Assistant Treasurer Vice President,
124 East Marcy Street Treasurer and Assistant
Santa Fe, NM 87501 Secretary.

5
<PAGE>

Item 28. Location of Accounts and Records

Accounts and records are maintained at the offices of Davis Selected
Advisers, L.P., 124 East Marcy Street, Santa Fe, New Mexico 87501, and at the
offices of the Registrant's custodian, State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02107, and the Registrant's
transfer agent State Street Bank and Trust, c/o Service Agent, BFDS, Two
Heritage Drive, 7th Floor, North Quincy, Massachusetts 02107.

Item 29. Management Services

Not applicable

Item 30. Undertakings

Registrant undertakes to furnish each person to whom a prospectus is delivered
with a copy of Registrant's latest annual report to shareholders upon request
and without charge.

6
<PAGE>

DAVIS SERIES, INC.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago and State of Illinois on the 28th day of
December, 1998.

DAVIS SERIES, INC.

*By: /s/ Arthur Don
---------------------------
Arthur Don
Attorney-in-Fact

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated.

Signature Title Date
--------- ----- ----

Shelby M.C. Davis* President, Chief Executive Officer December 28, 1998
- ------------------
Shelby M.C. Davis

Sharra L. Reed* Principal Financial Officer October 19, 1998
- --------------- and Treasurer
Sharra L. Reed

*By: /s/ Arthur Don
---------------------------
Arthur Don
Attorney-in-Fact

* Arthur Don signs this document on behalf of the Registrant and each of the
foregoing officers pursuant to the powers of attorney filed as Exhibit (p) to
Registrant's Post-Effective Amendment number 40 to Registrant's Registration
Statement.

/s/ Arthur Don
-------------------------------
Arthur Don
Attorney-in-Fact

7
<PAGE>

DAVIS SERIES, INC.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on October 19, 1998 by the following
persons in the capacities indicated.

Signature Title
--------- -----

Wesley E. Bass. Jr.* Director
- -----------------------------
Wesley E. Bass, Jr.

Jeremy H. Biggs* Director
- -----------------------------
Jeremy H. Biggs

Marc P. Blum* Director
- -----------------------------
Marc P. Blum

Andrew A. Davis* Director
- -----------------------------
Andrew A. Davis

Christopher C. Davis* Director
- -----------------------------
Christopher C. Davis

Jerry D. Geist* Director
- -----------------------------
Jerry D. Geist

D. James Guzy* Director
- -----------------------------
D. James Guzy

G. Bernard Hamilton* Director
- -----------------------------
G. Bernard Hamilton

LeRoy E. Hoffberger* Director
- -----------------------------
LeRoy E. Hoffberger

Laurence W. Levine* Director
- -----------------------------
Laurence W. Levine

Christian R. Sonne* Director
- -----------------------------
Christian R. Sonne

* Arthur Don signs this document on behalf of each of the foregoing persons
pursuant to the powers of attorney filed as Exhibit (p) to Registrant's
Post-Effective Amendment No 40 to Registrant's Registration Statement.

8
<PAGE>

/s/ Arthur Don
-------------------------
Arthur Don
Attorney-in-Fact

<PAGE>

EXHIBIT
ITEM 23 (i)

[LETTERHEAD OF D'ANCONA & PFLAUM]
111 E. WACKER DRIVE
CHICAGO, IL 60601-4205

December 28, 1998

Davis Series, Inc.
124 East Marcy Street
Santa Fe, New Mexico 87501

Ladies and Gentlemen:

We have acted as counsel for Davis Series, Inc. (the "Company") in
connection with the registration under the Securities Act of 1933 (the "Act")
of an indefinite number of shares of beneficial interest in the series of the
Company designated as Davis Growth Opportunity Fund, Davis Financial Fund,
Davis Real Estate Fund, Davis Convertible Securities Fund, Davis Government
Bond Fund and Davis Government Money Market Fund (collectively, the "Shares")
in registration statement No. 2-57209 on Form N-1A (the "Registration
Statement").

In this connection we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate and
other records, certificates and other papers as we deemed it necessary to
examine for the purpose of this opinion, including the Articles of
Incorporation and bylaws of the Company, actions of the Board of Directors
authorizing the issuance of Shares and the Registration Statement.

Based on the foregoing examination, we are of the opinion that upon
the issuance and delivery of the Shares in accordance with the Articles of
Incorporation and the actions of the Board of Directors authorizing the
issuance of the Shares, and the receipt by the Company of the authorized
consideration therefor, the Shares so issued will be validly issued, fully paid
and nonassessable.

We consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under section 7 of the Act.

Very truly yours,

D'Ancona & Pflaum

By /s/ Sheldon R. Stein
---------------------------------
Sheldon R. Stein, Partner

<PAGE>

EXHIBIT
ITEM 23(J)

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated February 13, 1998 accompanying the financial
statements of Davis Series, Inc. (comprising, respectively, Davis Growth
Opportunity Fund, Davis Government Bond Fund, Davis Government Money Market
Fund, Davis Financial Fund, Davis Convertible Securities Fund, and Davis Real
Estate Fund) which are incorporated by reference in Part B of the
Post-Effective Amendment to this Registration Statement and Prospectus. We
consent to the use of the aforementioned report in this Registration Statement
and Prospectus.

/s/ Tait, Weller & Baker
------------------------
Tait, Weller & Baker

Philadelphia, Pennsylvania
December 21, 1998