DAVIS SERIES INC, 485BPOS, 1999-04-28

DAVIS SERIES INC
485BPOS, 1999-04-28

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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. 42
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-2679
AMENDMENT NO. 38
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
30 North LaSalle Street
Suite 2900
Chicago, Illinois 60602
(1-312-580-2014)

It is proposed that this filing will become effective:

Immediately upon filing pursuant to paragraph (b)
------
x On May 1, 1999 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. 42 TO REGISTRATION STATEMENT NO. 2-057209
UNDER THE SECURITIES ACT OF 1933 AND AMENDMENT NO. 38 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
Other Investment Practices
Investment Restrictions
13 Directors and Officers
Directors Compensation Table
14 Certain Shareholders of the Fund
15 Investment Advisory Services
Distribution of Company Shares
Other Important Service Providers
16 Portfolio Transactions
17 Organization of the Company
18 Contained in the Prospectuses
19 Federal Income Taxes
20 Distribution of Company Shares
21 Performance Data
22 Annual Report Incorporated by Reference

4
<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

May 1, 1999

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

1
<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 $20 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. Smaller companies typically have
more-limited product lines, markets and financial resources than larger
companies, and their securities may trade less frequently and in
more-limited volume than those of larger, more mature companies.

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

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%
1998 1.61%

Best Quarter: Q3 '97 25.44%
Worst Quarter: Q3 '98 (20.46)%
Year-to-Date* Q1 '99 0.14%

* Not annualized.

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.

DAVIS GROWTH OPPORTUNITY FUND
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)

<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) (2.53)% N/A N/A 20.01%
- ----------------------------------------------------------------------------------------------------
S&P 500 INDEX 28.58% N/A N/A 30.71%
- ----------------------------------------------------------------------------------------------------
CLASS B SHARES (SINCE 5/1/84) (2.26)% 14.90% 15.16% 14.87%
- ----------------------------------------------------------------------------------------------------
S&P 500 INDEX 28.58% 24.03% 19.17% 18.34%
- ----------------------------------------------------------------------------------------------------
CLASS C SHARES (SINCE 8/15/97) 0.51% N/A N/A (3.11)%
- ----------------------------------------------------------------------------------------------------
S&P 500 INDEX 28.58% N/A N/A 27.36%
- ----------------------------------------------------------------------------------------------------
</TABLE>

5
<PAGE>

FEES AND EXPENSES OF THE FUND

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

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases 4.75% None None
(as a 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 GROWTH OPPORTUNITY FUND'S
ANNUAL FUND OPERATING EXPENSES
(for the Year Ended December 31, 1998)
(Deducted from Davis Growth Opportunity Fund's Assets)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.75% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25% 0.99% 1.00%
- -----------------------------------------------------------------------------------------------
Other Expenses 0.32% 0.36% 0.52%
- -----------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.32% 2.10% 2.27%
- -----------------------------------------------------------------------------------------------
</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:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
IF YOU SELL YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
IN...
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $603 $873 $1,164 $1,990
- --------------------------------------------------------------------------------------------
CLASS B SHARES $613 $958 $1,329 $2,138
- --------------------------------------------------------------------------------------------
CLASS C SHARES $330 $709 $1,215 $2,605
- --------------------------------------------------------------------------------------------
</TABLE>

6
<PAGE>

<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 $603 $873 $1,164 $1,990
- --------------------------------------------------------------------------------------------
CLASS B SHARES $213 $658 $1,129 $2,138
- --------------------------------------------------------------------------------------------
CLASS C SHARES $230 $709 $1,215 $2,605
- --------------------------------------------------------------------------------------------
</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.

KPMG LLP has audited the information for the fiscal year 1998. KPMG LLP's
report, along with the Fund's financial statements, is included in Davis Series'
annual report, which is available upon request. Another firm audited the
information for the previous fiscal years.

7
<PAGE>

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

DECEMBER 1,
(COMMENCEMENT
OF OPERATIONS)
----------YEAR ENDED-------- THROUGH
DECEMBER 31, DECEMBER 31,
1998 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..................... (0.09) (0.10) (0.13) (0.11) (0.01)
Net Realized and Unrealized Gains
(Losses).............................. 0.59 5.34 3.37 6.08 (0.29)
------ ------ ------ ------ -------

Total From Investment Operations.... 0.50 5.24 3.24 5.97 (0.30)
------ ------ ------ ------ -------

Distributions
Distributions from Realized Gains....... (1.03) (1.68) (1.55) (1.55) (0.57)
Return of Capital....................... - - (0.01) - -
------ ------ ------ ------ -------
Total Distributions................. (1.03) (1.68) (1.56) (1.55) (0.57)
------ ------ ------ ------ -------
Net Asset Value, End of Period............ $21.96 $22.49 $18.93 $17.25 $12.83
====== ====== ====== ====== =======

Total Return(1)........................... 2.32% 27.70% 18.73% 46.65% (2.21)%

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted). $52,212 $48,386 $27,158 $22,890 $12,455
Ratio of Expenses to Average Net Assets. 1.32% 1.27% 1.49%(2) 1.51% 1.42%*
Ratio of Net Investment Loss to
Average Net Assets................... (0.38)% (0.58)% (0.76)% (0.71)% (0.08)%*
Portfolio Turnover Rate(3).............. 18.03% 19.33% 30.55% 30.07% 37.31%
</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 expenses ratios.

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

* Annualized.

8
<PAGE>

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

YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994(1)

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $ 21.88 $ 18.58 $ 17.08 $ 12.82 $ 14.67
------- ------- ------- ------- -------

Income (Loss) From Investment Operations
Net Investment Loss.......................... (0.26) (0.25) (0.27) (0.26) (0.12)
Net Realized and Unrealized Gains (Losses)... 0.59 5.23 3.33 6.07 (1.11)
------- ------- ------- ------- -------
Total From Investment Operations......... 0.33 4.98 3.06 5.81 (1.23)
------- ------- ------- ------- -------

Distributions
Distributions from Realized Gains (1.03) (1.68) (1.55) (1.55) (0.62)
Return of Capital............................ - - (0.01) - -
------- ------- ------- ------- -------
Total Distributions...................... (1.03) (1.68) (1.56) (1.55) (0.62)
------- ------- ------- ------- -------
Net Asset Value, End of Period................. $ 21.18 $ 21.88 $ 18.58 $ 17.08 $ 12.82
======= ======= ======= ======= =======
Total Return(2)................................ 1.61% 26.82% 17.86% 45.44% (8.45)%

Ratios/Supplemental Data
Net Assets, End of Period (000
omitted)................................ $60,587 $61,383 $39,343 $35,326 $36,087
Ratio of Expenses to Average Net
Assets.................................. 2.10% 2.09%(3) 2.25%(3) 2.30% 2.15%
Ratio of Net Investment Loss to
Average Net Assets...................... (1.16)% (1.40)% (1.52)% (1.50)% (0.81)%
Portfolio Turnover Rate(4)................... 18.03% 19.33% 30.55% 30.07% 37.31%
</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.

(3) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 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.

9
<PAGE>

DAVIS GROWTH OPPORTUNITY FUND CLASS C SHARES

AUGUST 15, 1997
(COMMENCEMENT
YEAR OF OPERATIONS)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1998 1997
------- -------

Net Asset Value, Beginning of
Period....................................... $ 22.43 $ 25.56
------- -------

Income (Loss) From Investment Operations
Net Investment Loss........................ (0.30) (0.04)
Net Realized and Unrealized Gains (Losses). 0.61 (1.41)
------- -------
Total From Investment
Operations......................... 0.31 (1.45)
------- -------

Dividends and Distributions
Distributions from Realized Gains.......... (1.03) (1.68)
------- -------
Total Distributions.................... (1.03) (1.68)
------- -------
Net Asset Value, End of Period............... $ 21.71 $ 22.43
======= =======

Total Return(1).............................. 1.48% (5.66)%

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)... $ 3,644 $ 2,585
Ratio of Expenses to Average Net Assets... 2.27% 2.19%*

Ratio of Net Investment Loss to Average
Net Assets............................... (1.33)% (1.51)%*
Portfolio Turnover Rate(2)................. 18.03% 19.33%

(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.

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%
1998 14.17%

Best Quarter: Q4 '98 20.11%
Worst Quarter: Q3 '98 (15.94)%
Year-to-Date* Q1 '99 2.76%

* Not annualized.

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, 1998)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
PAST ONE YEAR PAST 5 YEARS LIFE OF FUND
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES (SINCE 5/1/91) 8.75% 24.32% 25.09%
- ------------------------------------------------------------------------------------
S&P 500 INDEX 28.58% 24.03% 19.42%
- ------------------------------------------------------------------------------------
CLASS B SHARES (SINCE 12/27/94) 9.21% NA 32.56%
- ------------------------------------------------------------------------------------
S&P 500 INDEX 28.58% NA 30.36%
- ------------------------------------------------------------------------------------
CLASS C SHARES (SINCE 8/12/97) 12.26% NA 16.77%
- ------------------------------------------------------------------------------------
S&P 500 INDEX 28.58% NA 24.58%
- ------------------------------------------------------------------------------------
</TABLE>

FEES AND EXPENSES OF THE FUND

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

DAVIS FINANCIAL FUND
ANNUAL FUND OPERATING EXPENSES
(for the Year Ended December 31, 1998)
(Deducted from Davis Financial Fund's Assets)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.64% 0.64% 0.64%
- -----------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.19% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------
Other Expenses 0.24% 0.29% 0.27%
- -----------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.07% 1.93% 1.91%
- -----------------------------------------------------------------------------------------------
</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 1 YEAR 3 YEARS 5 YEARS 10 YEARS
IN...
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $579 $799 $1,037 $1,719
- --------------------------------------------------------------------------------------------
CLASS B SHARES $596 $906 $1,242 $1,925
- --------------------------------------------------------------------------------------------
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 $579 $799 $1,037 $1,719
- --------------------------------------------------------------------------------------------
CLASS B SHARES $196 $606 $1,042 $1,925
- --------------------------------------------------------------------------------------------
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>
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994(2)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 25.68 $ 18.06 $ 14.50 $ 10.68 $ 11.70
------- ------- ------- ------- -------

Income (Loss) From Investment
Operations
Net Investment Income.......... 0.09 0.13 0.14 0.07 0.08
Net Realized and Unrealized
Gains (Losses)............... 3.55 7.92 4.44 5.32 (0.61)
------- ------- ------- ------- -------
Total From Investment
Operations.............. 3.64 8.05 4.58 5.39 (0.53)
------- ------- ------- ------- -------
Dividends and Distributions
Net Investment Income.......... - (0.13) (0.15) (0.07) (0.08)
Distributions from Realized
Gains........................ - (0.30) (0.87) (1.50) (0.39)
Return of Capital.............. - - - - (0.02)
------- ------- ------- ------- -------
Total Dividends and
Distributions.......... - (0.43) (1.02) (1.57) (0.49)
------- ------- ------- ------- -------

Net Asset Value, End of Period... $ 29.32 $ 25.68 $ 18.06 $ 14.50 $ 10.68
======= ======= ======= ======= =======

Total Return (1)................. 14.17% 44.53% 31.50% 50.51% (4.55)%

Ratios/Supplemental Data
Net Assets, End of Period (000
omitted)..................... $460,799 $292,059 $107,579 $79,874 $57,670
Ratio of Expenses to Average
Net Assets................... 1.07%(3) 1.07% 1.15% 1.18% 1.24%
Ratio of Net Investment Income
to Average Net Assets....... 0.34% 0.77% 0.92% 0.53% 0.67%
Portfolio Turnover Rate (4).... 11.37% 6.23% 25.78% 41.89% 43.95%
</TABLE>

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

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

(3) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.06% for 1998.

16
<PAGE>

<TABLE>
<CAPTION>
DAVIS FINANCIAL FUND CLASS B SHARES

DECEMBER 27, 1994
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
DECEMBER 31, THROUGH
------------------------------------------ DECEMBER 31,
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 25.36 $ 17.91 $ 14.41 $ 10.68 $ 11.22
-------- -------- -------- ------- -------
Income (Loss) From Investment
Operations
Net Investment Income (Loss)... (0.12) (0.01) 0.01 0.01 0.03
Net Realized and Unrealized
Gains (Losses)............. 3.47 7.76 4.37 5.22 (0.13)
-------- -------- -------- ------- -------
Total From Investment
Operations.............. 3.35 7.75 4.38 5.23 (0.10)
-------- -------- -------- ------- -------

Dividends and Distributions
Net Investment Income.......... - - (0.01) - (0.03)
Distributions from Realized
Gains...................... - (0.30) (0.87) (1.50) (0.39)
Return of Capital.............. - - - - (0.02)
-------- -------- -------- ------- -------
Total Dividends and
Distributions........... - (0.30) (0.88) (1.50) (0.44)
-------- -------- -------- ------- -------

Net Asset Value, End of Period... $ 28.71 $ 25.36 $ 17.91 $ 14.41 $ 10.68
======== ======== ======== ======= =======
Total Return (1)................. 13.21% 43.25% 30.29% 49.00% (0.90)%

Ratios/Supplemental Data
Net Assets, End of Period(000
omitted)................ $419,145 $193,257 $ 8,213 $ 1,762 $ 28
Ratio of Expenses to Average Net
Assets.................. 1.93%(2) 1.97% 2.04% 2.09% 2.04%*
Ratio of Net Income Investment
(Loss) to Average Net Assets. (0.52)% (0.12)% 0.19% (0.38)% (0.13)%*
Portfolio Turnover Rate (3).... 11.37% 6.23% 25.78% 41.89% 43.95%
</TABLE>

(2) Ratio of expenses of average net assets after the reduction of custodian
fees under a custodian agreement was 1.92% for 1998.

* Annualized..

17
<PAGE>

<TABLE>
<CAPTION>
DAVIS FINANCIAL FUND CLASS C SHARES

AUGUST 12, 1997
(COMMENCEMENT
YEAR OF OPERATIONS)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1998 1997
-------- --------

<S> <C> <C>
Net Asset Value, Beginning of Period...... $ 25.71 $ 23.76
-------- --------

Income (Loss) From Investment Operations
Net Investment Income (Loss)............. (0.10) -
Net Realized and Unrealized Gains........ 3.51 2.25
-------- --------
Total From Investment Operations..... 3.41 2.25
-------- --------

Dividends and Distributions
Net Investment Income.................... - -
Distributions from Realized Gains........ - (0.30)
-------- --------
Total Dividends and Distributions.... - (0.30)
-------- --------

Net Asset Value, End of Period............. $ 29.12 $ 25.71
======== ========

Total Return (1)........................... 13.26% 9.45%

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted).. $ 92,513 $ 19,515
Ratio of Expenses to Average Net Assets.. 1.91% 1.93%*

Ratio of Net Investment Income
(Loss) to Average Net Assets........... (0.51)% (0.09)%*
Portfolio Turnover Rate (2).............. 11.37% 6.23%
</TABLE>

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

* 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 offers 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).

19
<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 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%
1998 (15.56)%

* 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 '98 (11.43)%
Year-to-Date** Q1 '99 (7.14)%

** Not annualized.

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, 1998)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
PAST ONE YEAR LIFE OF FUND
- ------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES (SINCE 1/3/94) (19.58)% 11.93%
- ------------------------------------------------------------------------------
S&P 500 INDEX 28.58% 24.12%
- ------------------------------------------------------------------------------
CLASS B SHARES (SINCE 12/27/94) (19.48)% 13.07%
- ------------------------------------------------------------------------------
S&P 500 INDEX 28.58% 30.36%
- ------------------------------------------------------------------------------
CLASS C SHARES (SINCE 8/13/97) (17.01)% (5.02)%
- ------------------------------------------------------------------------------
S&P 500 INDEX 28.58% 25.02%
- ------------------------------------------------------------------------------
</TABLE>
DAVIS REAL ESTATE FUND
YIELD, CLASS A SHARES
(as of December 31, 1999)

30-DAY SEC YIELD xx.xx%

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.

FEES AND EXPENSES OF THE FUND

FEES YOU MAY PAY AS A DAVIS REAL ESTATE FUND SHAREHOLDER
(Paid Directly from Your Investment)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases 4.75% None None
(as a 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 REAL ESTATE FUND
ANNUAL FUND OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998
(Deducted from Davis Real Estate Fund's Assets)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.71% 0.71% 0.71%
- -----------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------
Other Expenses 0.25% 0.31% 0.31%
- -----------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.21% 2.02% 2.02%
- -----------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>

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>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IF YOU SELL YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
IN...
- --------------------------------------------------------------------------------------------
CLASS A SHARES $592 $841 $1,108 $1,871
- --------------------------------------------------------------------------------------------
CLASS B SHARES $605 $934 $1,288 $2,042
- --------------------------------------------------------------------------------------------
CLASS C SHARES $305 $634 $1,088 $2,348
- --------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES AFTER...
- --------------------------------------------------------------------------------------------
CLASS A SHARES $592 $841 $1,108 $1,871
- --------------------------------------------------------------------------------------------
CLASS B SHARES $205 $634 $1,088 $2,042
- --------------------------------------------------------------------------------------------
CLASS C SHARES $205 $634 $1,088 $2,348
- --------------------------------------------------------------------------------------------
</TABLE>

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.

23
<PAGE>

DAVIS REAL ESTATE FUND CLASS A SHARES

<TABLE>
<CAPTION>
JANUARY 3, 1994
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
DECEMBER 31, THROUGH
------------------------------------- DECEMBER 31,
1998 1997 1996(1) 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...... $ 25.41 $ 21.24 $ 16.44 $ 14.72 $ 14.29
------- ------- ------- ------- -------

Income (Loss) From Investment Operations
Net Investment Income................... 0.74 0.74 0.71 0.82 0.62
Net Realized and Unrealized Gains (Losses) (4.65) 4.51 5.22 1.71 0.55
------- ------- ------- ------- -------
Total From Investment Operations... (3.91) 5.25 5.93 2.53 1.17
------- ------- ------- ------- -------

Dividends and Distributions
Net Investment Income................... (0.74) (0.74) (0.70) (0.81) (0.62)
Distributions from Realized Gains....... - (0.27) (0.25) - (0.12)
Return of Capital....................... (0.03) (0.07) (0.18) - -
------- ------- ------- ------- -------
Total Dividends and Distributions... (0.77) (1.08) (1.13) (0.81) (0.74)
------- ------- ------- ------- -------

Net Asset Value, End of Period............ $ 20.73 $ 25.41 $ 21.24 $ 16.44 $ 14.72
======= ======= ======= ======= =======

Total Return (2).......................... (15.56)% 25.08% 37.05% 17.70% 8.18%

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted). $198,328 $147,488 $32,507 $29,320 $25,450
Ratio of Expenses to Average Net Assets. 1.21% 1.18% 1.32%(3) 1.43% 1.86%*
Ratio of Net Investment Income to
Average Net Assets.................. 3.40% 3.40% 3.95% 5.44% 3.98%*
Portfolio Turnover Rate (4)............. 19.14% 12.50% 18.60% 38.82% 35.80%
</TABLE>

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

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

(3) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.31% for 1996. Prior to 1996, such
reductions were reflected in the expenses ratios.

* Annualized.

24
<PAGE>

DAVIS REAL ESTATE FUND CLASS B SHARES

DECEMBER 27, 1994
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
DECEMBER 31, THROUGH
---------------------------------------- DECEMBER 31, -
1998 1997 1996(1) 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..... $ 25.32 $ 21.19 $ 16.41 $ 14.72 $ 14.73
-------- ------- ------- ------- -------

Income (Loss) From Investment Operations
Net Investment Income.................. 0.56 0.54 0.56 0.68 0.02
Net Realized and Unrealized Gains
(Losses).......................... (4.63) 4.47 5.21 1.70 0.11
-------- ------- ------- ------- -------
Total From Investment Operations.. (4.07) 5.01 5.77 2.38 0.13
-------- ------- ------- ------- -------

Dividends and Distributions
Net Investment Income.................. (0.56) (0.54) (0.63) (0.69) (0.02)
Distributions from Realized Gains...... - (0.27) (0.25) - (0.12)
Return of Capital...................... (0.02) (0.07) (0.11) - -
-------- ------- ------- ------- -------

Total Dividends and Distributions (0.58) (0.88) (0.99) (0.69) (0.14)
-------- ------- ------- ------- -------

Net Asset Value, End of Period........... $ 20.67 $ 25.32 $ 21.19 $ 16.41 $ 14.72
======== ======= ======= ======= =======

Total Return (2)......................... (16.21)% 23.88% 35.99% 16.59% 0.89%

Ratios/Supplemental Data
Net Assets, End of Period (000
omitted)........................... $114,993 $143,993 $10,919 $ 414 $ 34

Ratio of Expenses to Average Net Assets 2.02% 2.04% 2.22% 2.39% 2.64%*
Ratio of Net Investment Income to
Average Net Assets....................... 2.59% 2.60% 3.46% 4.48% 3.20%*
Portfolio Turnover Rate (3)............ 19.14% 12.50% 18.60% 38.82% 35.80%
</TABLE>

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

* Annualized.

25
<PAGE>

DAVIS REAL ESTATE FUND CLASS C SHARES

AUGUST 13, 1997
(COMMENCEMENT
YEAR OF OPERATIONS)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,

1998 1997
---- ----
Net Asset Value, Beginning of Period...... $ 25.49 $ 23.41
-------- -------

Income (Loss) From Investment Operations
Net Investment Income................... 0.53 0.18
Net Realized and Unrealized Gains
(Losses).......................... (4.62) 2.42
-------- -------
Total From Investment Operations... (4.09) 2.60
-------- -------

Dividends and Distributions
Net Investment Income................... (0.53) (0.18)
Distributions from Realized Gains....... - (0.27)
Return of Capital....................... (0.06) (0.07)
-------- -------
Total Dividends and Distributions... (0.59) (0.52)
-------- -------

Net Asset Value, End of Period............ $ 20.81 $ 25.49
======== =======
Total Return (1).......................... (16.20)% 11.12%

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $ 34,336 $ 8,322
Ratio of Expenses to Average Net Assets. 2.02% 2.03%*
Ratio of Net Investment Income to
Average Net Assets.................. 2.59% 2.56%*
Portfolio Turnover Rate (2)............. 19.14% 12.50%

(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.

26
<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.

27
<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.

28
<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 Investors Service. 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 debt securities when they cannot get financing from more
traditional sources, such as 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 debt 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 debt 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
debt 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 debt
securities decline more than prices of investment-grade securities.

29
<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%
1998 (1.79)%

Best Quarter: Q3 '97 14.33%
Worst Quarter: Q3 '98 (19.15)%
Year-to-Date* Q1 '99 1.73%

* Not annualized.

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.

30
<PAGE>

DAVIS CONVERTIBLE SECURITIES FUND
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
PAST ONE YEAR PAST 5 YEARS LIFE OF FUND
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES (SINCE 5/1/92) (6.46)% 12.99% 14.31%
- ------------------------------------------------------------------------------------
S&P 500 INDEX 28.58% 24.03% 20.59%
- ------------------------------------------------------------------------------------
CLASS B SHARES (SINCE 2/3/95) (6.39)% NA 18.23%
- ------------------------------------------------------------------------------------
S&P 500 INDEX 28.58% NA 29.85%
- ------------------------------------------------------------------------------------
CLASS C SHARES (SINCE 8/12/97) (3.55)% NA 3.28%
- ------------------------------------------------------------------------------------
S&P 500 INDEX 28.58% NA 24.58%
- ------------------------------------------------------------------------------------
</TABLE>

DAVIS CONVERTIBLE SECURITIES FUND
YIELD, CLASS A SHARES
(as of December 31, 1999)

30-DAY SEC YIELD x.xx%

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)

31
<PAGE>

DAVIS CONVERTIBLE SECURITIES FUND
ANNUAL FUND OPERATING EXPENSES
(for the Year Ended December 31, 1998)
(Deducted from Davis Convertible Securities Fund's Assets)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.74% 0.74% 0.74%
- -----------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.21% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------
Other Expenses 0.21% 0.30% 0.29%
- -----------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.16% 2.04% 2.03%
- -----------------------------------------------------------------------------------------------
</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>
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IF YOU SELL YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
IN...
- -----------------------------------------------------------------------------------------------
CLASS A SHARES $588 $826 $1,083 $1,817
- -----------------------------------------------------------------------------------------------
CLASS B SHARES $607 $940 $1,298 $2,036
- -----------------------------------------------------------------------------------------------
CLASS C SHARES $306 $637 $1,093 $2,358
- -----------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES AFTER...
- -----------------------------------------------------------------------------------------------
CLASS A SHARES $588 $826 $1,083 $1,817
- -----------------------------------------------------------------------------------------------
CLASS B SHARES $207 $640 $1,098 $2,036
- -----------------------------------------------------------------------------------------------
CLASS C SHARES $206 $637 $1,093 $2,358
- -----------------------------------------------------------------------------------------------
</TABLE>

32
<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.

33
<PAGE>

DAVIS CONVERTIBLE SECURITIES FUND CLASS A SHARES

YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 25.26 $ 21.22 $ 18.22 $ 15.57 $ 17.45

Income (Loss) From Investment
Operations
Net Investment Income.......... 0.77 0.67 0.71 0.67 0.67
Net Realized and Unrealized
Gains (Losses).............. (1.23) 5.33 4.56 3.42 (1.83)
------- ------- ------- ------- -------
Total From Investment
Operations............. (0.46) 6.00 5.27 4.09 (1.16)
------- ------- ------- ------- -------

Dividends and Distributions
Net Investment Income.......... (0.76) (0.67) (0.69) (0.66) (0.67)
Distributions from Realized
Gains...................... (0.27) (1.22) (1.54) (0.78) (0.05)
Return of Capital.............. (0.01) (0.07) (0.04) - -
------- ------- ------- ------- -------

Total Dividends and
Distributions.......... (1.04) (1.96) (2.27) (1.44) (0.72)
------- ------- ------- ------- -------

Net Asset Value, End of Period... $ 23.76 $ 25.26 $ 21.22 $ 18.22 $ 15.57
======= ======= ======= ======= =======

Total Return (1)................. (1.79)% 28.68% 29.46% 26.68% (6.72)%

Ratios/Supplemental Data
Net Assets, End of Period (000
omitted)................ $132,856 $90,107 $42,841 $59,757 $47,844
Ratio of Expenses to Average
Net Assets............. 1.16%(2) 1.08%(2) 1.05% 1.14% 1.20%
Ratio of Net Investment Income
to Average Net Assets. 3.27% 3.00% 3.34% 3.87% 4.06%
Portfolio Turnover Rate (3)... 14.43% 23.68% 43.16% 53.58% 45.15%
</TABLE>

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

(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.15% and 1.07% for 1998 and 1997,
respectively. Prior to 1996, such reductions were reflected in the
expenses ratios.

34
<PAGE>

DAVIS CONVERTIBLE SECURITIES FUND CLASS B AND C SHARES

<TABLE>
<CAPTION>
CLASS B
CLASS C

FEBRUARY 3, 1995 AUGUST 12, 1997
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) YEAR OF OPERATIONS)
YEAR ENDED THROUGH ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31 DECEMBER 31,
1998 1997 1996 1995 1998 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 (Loss) From Investment
Operations
Net Investment Income.... 0.56 0.44 0.59 0.54 0.59 0.11
Net Realized and Unrealized
Gains (Losses)......... (1.22) 5.26 4.45 2.97 (1.26) 1.72
------- ------- ------- ------- ------- -------
Total From Investment
Operations......... (0.66) 5.70 5.04 3.51 (0.67) 1.83
------- ------- ------- ------- ------- -------

Dividends and Distributions
Net Investment Income... (0.54) (0.44) (0.56) (0.54) (0.55) (0.11)
Distributions from
Realized Gains......... (0.27) (1.22) (1.54) (0.78) (0.27) (1.22)
Return of Capital........ (0.01) (0.06) (0.03) - (0.01) (0.05)
------- ------- ------- ------- ------- -------

Total Dividends and
Distributions..... (0.82) (1.72) (2.13) (1.32) (0.83) (1.38)
------- ------- ------- ------- ------- -------

Net Asset Value, End of
Period................... $ 23.55 $ 25.03 $ 21.05 $ 18.14 $ 23.86 $ 25.36
======= ======= ======= ======= ======= =======

Total Return (1)........... (2.62)% 27.35% 28.21% 25.31% (2.61)% 7.38%

Ratios/Supplemental Data
Net Assets, End of
Period (000 omitted)... $90,827 $35,536 $ 2,075 $ 378 $ 26,406 $ 6,296

Ratio of Expenses to
Average Net Assets..... 2.04%(2) 2.11%(2) 2.01%(2) 2.01%* 2.03%(2) 2.08%*(2)

Ratio of Net Investment
Income to Average Net
Assets................ 2.39% 2.09% 2.40% 3.00%* 2.40% 2.01%*
Portfolio Turnover Rate (3) 14.43% 23.68% 43.16% 53.58% 14.43% 23.68%

</TABLE>

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

(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.03%, 2.10% and 2.00% for Class B
shares for 1998, 1997 and 1996, respectively, and 2.02% and 2.07% for
Class C shares for 1998 and 1997, respectively. Prior to 1996, such
reductions were reflected in the expenses ratios.

* Annualized.

35
<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.

36
<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 in which the Fund invests:

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.

37
<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

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%
1998 5.38%

Best Quarter: Q3 '91 4.85%
Worst Quarter: Q1 '90 (1.69)%
Year-to-Date* Q1 '99 (0.91)%

* Not annualized.

38
<PAGE>

DAVIS GOVERNMENT BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)

<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) 1.30% N/A N/A 5.93%
- -------------------------------------------------------------------------------------------------------
LB INTERMEDIATE TREASURY SECURITIES 8.64% N/A N/A 8.53%
INDEX
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES (SINCE 5/1/84) 1.38% 4.60% 6.00% 6.99%
- -------------------------------------------------------------------------------------------------------
LB INTERMEDIATE TREASURY SECURITIES 8.64% 6.40% 8.32% N/A
INDEX
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES (SINCE 8/19/97) 4.42% N/A N/A 6.19%
- -------------------------------------------------------------------------------------------------------
LB INTERMEDIATE TREASURY SECURITIES 8.64% N/A N/A 8.74%
INDEX
- -------------------------------------------------------------------------------------------------------
</TABLE>

DAVIS GOVERNMENT BOND FUND
YIELD, CLASS A SHARES
(as of December 31, 1999)

30-DAY SEC YIELD X.XX%

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)

39
<PAGE>

DAVIS GOVERNMENT BOND FUND
ANNUAL FUND OPERATING EXPENSES
(for the Year Ended December 31, 1998)
(Deducted from Davis Government Bond Fund's Assets)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50%
- -----------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.24% 0.99% 1.00%
- -----------------------------------------------------------------------------------------------
Other Expenses 0.69% 0.69% 0.68%
- -----------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.43% 2.18% 2.18%
- -----------------------------------------------------------------------------------------------
</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 1 YEAR 3 YEARS 5 YEARS 10 YEARS
IN...
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $614 $906 $1,219 $2,107
- -----------------------------------------------------------------------------------------------
CLASS B SHARES $621 $982 $1,369 $2,234
- -----------------------------------------------------------------------------------------------
CLASS C SHARES $321 $682 $1,169 $2,513
- -----------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES AFTER...
- -----------------------------------------------------------------------------------------------
CLASS A SHARES $614 $906 $1,219 $2,107
- -----------------------------------------------------------------------------------------------
CLASS B SHARES $221 $682 $1,169 $2,234
- -----------------------------------------------------------------------------------------------
CLASS C SHARES $221 $682 $1,169 $2,513
- -----------------------------------------------------------------------------------------------
</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 (or lost) money on an investment in the Fund.
It assumes that all dividends and capital gains have been reinvested.

40
<PAGE>

DAVIS GOVERNMENT BOND FUND CLASS A SHARES

<TABLE>
<CAPTION>
ONE MONTH
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
---------------------------------------- ------------
1998 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........... 0.29 0.33 0.33 0.39 0.02
Net Realized and Unrealized
Gains (Losses)................ 0.07 0.11 (0.14) 0.27 (0.01)
------- ------- ------- ------- -------
Total From Investment
Operations............... 0.36 0.44 0.19 0.66 0.01
------- ------- ------- ------- -------

Dividends and Distributions
Net Investment Income............ (0.29) (0.33) (0.33) (0.36) -
Return of Capital................ (0.04) - (0.10) (0.09) -
------- ------- ------- ------- -------
Total Dividends and
Distributions............ (0.33) (0.33) (0.43) (0.45) -
------- ------- ------- ------- -------

Net Asset Value, End of Period..... $ 5.90 $ 5.87 $ 5.76 $ 6.00 $ 5.79
======= ======= ======= ======= =======
Total Return (1)................... 6.31% 7.92% 3.40% 11.82% (0.97)%

Ratios/Supplemental Data
Net Assets, End of Period (000
omitted)................... $21,285 $17,589 $18,129 $21,485 $20,035
Ratio of Expenses to Average Net
Assets..................... 1.43% 1.27%(2) 1.77% 1.74% 1.64%*
Ratio of Net Investment
Income to Average Net Assets... 4.87% 5.82% 5.88% 6.54% 6.22%*
Portfolio Turnover Rate (3)...... 18.40% 24.35% 45.50% 41.04% 62.17%
</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.

41
<PAGE>

DAVIS GOVERNMENT BOND FUND CLASS B SHARES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 5.86 $ 5.75 $ 5.98 $ 5.79 $ 6.33
------- ------- ------- ------- -------
Income (Loss) From Investment
Operations
Net Investment Income............. 0.27 0.29 0.29 0.34 0.31
Net Realized and Unrealized
Gains (Losses)................ 0.04 0.11 (0.13) 0.26 (0.37)
------- ------- ------- ------- -------
Total From Investment
Operations................. 0.31 0.40 0.16 0.60 (0.06)
------- ------- ------- ------- -------
Dividends and Distributions
Net Investment Income............. (0.27) (0.29) (0.29) (0.33) (0.37)
Return of Capital................ (0.02) - (0.10) (0.08) (0.11)
------- ------- ------- ------- -------
Total Dividends and
Distributions............. (0.29) (0.29) (0.39) (0.41) (0.48)
------- ------- ------- ------- -------

Net Asset Value, End of Period...... $ 5.88 $ 5.86 $ 5.75 $ 5.98 $ 5.79
======= ======= ======= ======= =======

Total Return (1).................... 5.38% 7.12% 2.78% 10.62% (0.97)%

Ratios/Supplemental Data
Net Assets, End of Period (000
omitted).................... $36,005 $12,703 $12,959 $15,976 $19,241
Ratio of Expenses to Average
Net Assets.................. 2.18%(2) 2.01%(2) 2.53%(2) 2.51% 2.38%
Ratio of Net Investment Income
to Average Net Assets....... 4.13% 5.07% 5.13% 5.77% 5.48%
Portfolio Turnover Rate (3)....... 18.40% 24.35% 45.50% 41.04% 62.17%
</TABLE>

(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.17%, 2.00% and 2.52% for 1998, 1997
and 1996, respectively. Prior to 1996, such reductions were reflected in
the expenses ratios.

42
<PAGE>

DAVIS GOVERNMENT BOND FUND CLASS C SHARES

AUGUST 19, 1997
(COMMENCEMENT
YEAR OF OPERATIONS)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1998 1997
---- ----

Net Asset Value, Beginning of Period.... $ 5.88 $ 5.79
------- -------

Income From Investment Operations
Net Investment Income............... 0.27 0.08
Net Realized and Unrealized Gains.... 0.04 0.09
------- -------
Total From Investment Operations. 0.31 0.17
------- -------

Dividends and Distributions
Net Investment Income................. (0.27) (0.08)
Return of Capital..................... (0.02) -
------- -------
Total Dividends and Distributions. (0.29) (0.08)
------- -------

Net Asset Value, End of Period.......... $ 5.90 $ 5.88
======= =======

Total Return (1)........................ 5.42% 2.97%

Ratios/Supplemental Data
Net Assets, End of Period (000
omitted).......................... $ 8,178 $ 215
Ratio of Expenses to Average Net
Assets............................ 2.18% 1.97%*(2)
Ratio of Net Investment Income to
Average Net Assets................ 4.12% 5.11%*
Portfolio Turnover Rate (3)........... 18.40% 24.35%

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

* Annualized.

43
<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 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.

44
<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.

45
<PAGE>

DAVIS GOVERNMENT MONEY MARKET FUND
TOTAL RETURN OVER THE LAST 10-YEAR PERIOD
(As of December 31st of Each Year)

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%
1998 4.94%

Best Quarter: Q2 '89 2.02%
Worst Quarter: Q2 '93 0.48%
Year-to-Date* Q1 '99 1.05%

* Not annualized.

DAVIS GOVERNMENT MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A sHARES 4.94% 4.70% 4.72%
- ----------------------------------------------------------------------------------------
CLASS B SHARES 4.94% 4.70% 4.72%
- ----------------------------------------------------------------------------------------
CLASS C SHARES 4.94% 4.70% 4.72%
- ----------------------------------------------------------------------------------------
</TABLE>

DAVIS GOVERNMENT MONEY MARKET FUND
7-DAY SEC YIELD
CLASS A, B AND C SHARES
(as of December 31, 1999)

7-DAY SEC YIELD 4.20%

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.

46
<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 CLASS B CLASS C
SHARES SHARES SHARES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases None None None
(as a 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, 1998)
(Deducted from Davis Government Money Market Fund's Assets)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.47% 0.47% 0.47%
- -----------------------------------------------------------------------------------------------
Distribution (12b-1) Fees None None None
- -----------------------------------------------------------------------------------------------
Other Expenses 0.14% 0.14% 0.14%
- -----------------------------------------------------------------------------------------------
Total Annual Operating Expenses 0.61% 0.61% 0.61%
- -----------------------------------------------------------------------------------------------
</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:

47
<PAGE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IF YOU SELL YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
IN...
- --------------------------------------------------------------------------------------------
CLASS A SHARES $62 $195 $340 $762
- --------------------------------------------------------------------------------------------
CLASS B SHARES $62 $195 $340 $762
- --------------------------------------------------------------------------------------------
CLASS C SHARES $62 $195 $340 $762
- --------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES AFTER...
- --------------------------------------------------------------------------------------------
CLASS A SHARES $62 $195 $340 $762
- --------------------------------------------------------------------------------------------
CLASS B SHARES $62 $195 $340 $762
- --------------------------------------------------------------------------------------------
CLASS C SHARES $62 $195 $340 $762
- --------------------------------------------------------------------------------------------
</TABLE>

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.

48
<PAGE>

DAVIS GOVERNMENT MONEY MARKET FUND CLASSES A, B & C

YEAR ENDED
DECEMBER 31,
--------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net Asset Value, Beginning of
Period........................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------

Income From Investment Operations
Net Investment Income........ .048 .049 .047 .051 .034

Dividends
Net Investment Income........ (.048) (.049) (.047) (.051) (.034)
------- ------- ------- ------- -------

Net Asset Value, End of Period... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======

Total Return (1)................. 4.94% 5.02% 4.80% 5.25% 3.48%

Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted).............$514,474 $464,459 $411,416 $360,290 $240,727

Ratio of Expenses to Average
Net Assets............... 0.61% 0.57% 0.66% 0.73% 0.64%
Ratio of Net Investment
Income to Average Net
Assets................... 4.84% 4.92% 4.72% 5.13% 3.43%

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

49
<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, 1998 (based on average
net assets): Davis Growth Opportunity Fund: 0.75%
Davis Financial Fund: 0.64%
Davis Real Estate Fund: 0.71%
Davis Convertible Securities Fund: 0.74%
Davis Government Bond Fund: 0.50%
Davis Government Money Market Fund: 0.47%

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.

50
<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

Davis Funds' Board of Directors has general supervisory responsibilities of the
Davis Funds. The Board monitors and supervises the performance of the investment
adviser, sub-advisers and other service providers, monitors the Davis Funds'
business and investment activities, and determines whether or not to renew
agreements with the adviser and sub-adviser.

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.

51
<PAGE>

o Served as Portfolio Manager of a growth and income fund managed by Davis
Selected Advisers from May 1993 until February 1997.

PORTFOLIO MANAGERS

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.

52
<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.

53
<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.

U.S. Government Securities may include bonds and notes issued by the U.S.
government treasury and also government agencies such as the Federal Home Loan
Bank, Government National Mortgage Association (GNMA or "Ginnie Mae"), Federal
National Mortgage association (FNMA or "Fannie Mae") and Student Loan marketing
Association (SLMA or "Sallie Mae"). Treasury issues and Ginnie Maes are backed
by the full faith and credit of the U.S. Government while securities issued by
the other government agencies are not fully guaranteed by the U.S. Government,
and in unusual circumstances may present credit risk.

[SET OFF OR BOXED]

WHAT WE LOOK FOR IN A COMPANY

54
<PAGE>

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.
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 in which Davis Series Funds may invest, 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 Funds 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 FUND: YEAR 2000 TRANSITION ISSUES

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.

55
<PAGE>

Difficulties with Year 2000 transition issues could have a negative impact on
handling securities trades, payments of interest and dividends, pricing and
account services. Although, at this time there can be no assurance that there
will be no adverse impact on the Funds, the Service Providers have advised the
Funds that they have been actively working on necessary changes to their
computer systems to prepare for the Year 2000 and expect that their systems, and
those of other parties they deal with, will be adapted in time for this event.
In addition, there can be no assurance that the companies in which the Funds
invest will not experience difficulties with Year 2000 transition issues which
may negatively affect 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."

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
DAVIS FUNDS MED MED
LOW LOW MED HIGH HIGH
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DAVIS GROWTH OPPORTUNITY FUND o
- ------------------------------------------------------------------------------------------
DAVIS INTERNATIONAL TOTAL RETURN FUND o
- ------------------------------------------------------------------------------------------
DAVIS FINANCIAL FUND o
- ------------------------------------------------------------------------------------------
DAVIS REAL ESTATE FUND o
- ------------------------------------------------------------------------------------------
DAVIS NEW YORK VENTURE FUND o
- ------------------------------------------------------------------------------------------
DAVIS GROWTH & INCOME FUND o
- ------------------------------------------------------------------------------------------
DAVIS CONVERTIBLE SECURITIES FUND o
- ------------------------------------------------------------------------------------------
DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND o
- ------------------------------------------------------------------------------------------
DAVIS TAX-FREE HIGH INCOME FUND o
- ------------------------------------------------------------------------------------------
DAVIS GOVERNMENT BOND FUND o
- ------------------------------------------------------------------------------------------
DAVIS GOVERNMENT MONEY MARKET FUND o
- ------------------------------------------------------------------------------------------
</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.

56
<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. A business day is any day the New York Stock
Exchange is open for trading. 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. 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.

57
<PAGE>

in the Funds' share price. The net asset value of the Funds' shares may change
on days when shareholders will not be able to purchase or redeem the Funds'
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 Funds' shares even if there has not been any change in
the foreign currency price of the Funds' investments.

Normally, the share price of Davis Government Money Market Fund does not
fluctuate. However, if there are unusually rapid changes in interest rates that
the Fund's Board of Directors believes will cause a material deviation between
the amortized cost of the Fund's debt securities and the market value of those
securities, the Board will consider taking temporary action to maintain a fixed
price or to prevent material dilution or other unfavorable consequences to Fund
shareholders. This temporary action could include withholding dividends, paying
dividends out of surplus, realizing gains or losses, or using market valuation
to calculate net asset value rather than amortized cost.

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 and capital gains 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).

58
<PAGE>

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.

(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.
o Davis Government Money Market Fund, as a money market fund, intends to pay
only ordinary income dividends and no capital gains distributions.

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.

59
<PAGE>

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.

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 ongoing
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.

60
<PAGE>

CLASS A SALES CHARGES
(FOR ALL DAVIS FUNDS EXCEPT DAVIS GOVERNMENT MONEY MARKET FUND)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
AMOUNT OF PURCHASE SALES CHARGE SALES CHARGE AMOUNT OF SALES
(PERCENTAGE OF (PERCENTAGE OF NET CHARGE RETAINED BY
OFFERING PRICE) AMOUNT INVESTED) THE DEALER
(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 None
- -----------------------------------------------------------------------------------------------
</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.

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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 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.

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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 1.00% 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)

- ------------------------------------------------------------------------------
SALES MADE AFTER PURCHASE AMOUNT OF DEFERRED SALES CHARGE
- ------------------------------------------------------------------------------
YEAR 1 4%
- ------------------------------------------------------------------------------
YEARS 2-3 3%
- ------------------------------------------------------------------------------
YEARS 4-5 2%
- ------------------------------------------------------------------------------
YEAR 6 1%
- ------------------------------------------------------------------------------
YEARS 7-8 NONE
- ------------------------------------------------------------------------------

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 1.00%.

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o The Davis Funds (other than Davis Government Money Market Fund) pay a
distribution fee of 1.00% 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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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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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, to 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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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 withdraw
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.

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<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.

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<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.

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<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 recently purchased, payment to you will be delayed until
your purchase check has cleared, up to a maximum of 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.

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<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
1.00% 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 guarantee 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.

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[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

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<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.

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<PAGE>

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 (Class A shares of Davis
Government Money Market Fund which are purchased for cash may be exchanged for
any class of any Davis Fund). 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 from 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.

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<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

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<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.

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.

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<PAGE>

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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<PAGE>

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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<PAGE>

[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.

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 through
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 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

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999

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,
1999, AND THE CLASS Y PROSPECTUS DATED MAY 1, 1999. 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.

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TABLE OF CONTENTS

PAGE

Section I: Investment Strategies and Restrictions..........................4

Investment Objective and Policies..............................4
Portfolio Securities...........................................5

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.....................................13
Portfolio Transactions........................................16
Investment Restrictions.......................................18

Section II: Key Persons...................................................21

Organization of the Company...................................21
Directors and Officers........................................22
Directors Compensation Schedule...............................24
Certain Shareholders of the Fund..............................24
Investment Advisory Services..................................28
Distribution of Company Shares................................31
Other Important Service Providers.............................34

Section III: Purchase, Exchange and Redemption of Shares..................34

Purchase of Shares............................................34
Alternative Purchase Arrangements..............35
Class A Shares
Class B Shares
Class C Shares
Class Y Shares

Special Services..............................................40
Prototype Retirement Plans
Automatic Investment Privilege
Dividend Diversification Program
Telephone Privilege

Exchange of Shares............................................41
By Telephone
Automatic Exchange Program

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Redemption of Shares..........................................42
Expedited Redemption Privilege
By Telephone
Automatic Withdrawal Plan
Involuntary Redemption
Subsequent Repurchase

Section IV: General Information...........................................45

Determining the Price of Shares...............................45
Year 2000 and Euro Conversion Issues..........................46
Dividends and Distributions...................................47
Federal Income Taxes..........................................48
Performance Data..............................................48

Appendix A: Quality Ratings of Debt Securities.............................53
Appendix B: Term and Conditions for a Statement of Intention...............55

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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 as described below. 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.

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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
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 in which the Funds invest 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 in which they concentrate.

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.

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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 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.

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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.

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.

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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
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.

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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 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.

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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 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 in which the Funds may
invest 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."

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<PAGE>

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 &
Poor's, 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 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.

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<PAGE>

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 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 Funds' net assets. Since some of the Funds' expenses are fixed,
this could also reduce the Funds' 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 December 31, 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
December 31, 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

12
<PAGE>

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.

PORTFOLIO COMPOSITION OF THE DAVIS CONVERTIBLE SECURITIES FUND PORTFOLIO BY
QUALITY RATING OF DEBT SECURITIES AS A PERCENTAGE OF TOTAL
ASSETS AT DECEMBER 31, 1998

<TABLE>
<CAPTION>
FUND'S ASSESSMENT GENERAL DEFINITION
MOODY'S S&P RATING CATEGORY PERCENTAGE OF UNRATED SECURITIES OF BOND QUALITY
- --------------------------- ---------- --------------------- -------------------
<S> <C> <C> <C>
Aaa/AAA........................ 1.46% - Highest quality
Aa/AA ........................ 6.90% - High quality
A/A ........................ 7.06% - Upper medium grade
Baa/BBB........................ 4.88% - Medium grade
Ba/BB ........................ - 1.05% Some speculative elements
B/B ........................ 5.82% - Speculative
Caa/CCC........................ 0.87% - More speculative
Ca,C/CC,C,D.................... - - Very speculative, may be in
default
Not Rated...................... 1.05% - Not rated by Moody's or S&P

Common and Convertible
Preferred Stock............. 70.05% -
Short-term Investments......... - -
Other assets less liabilities.. 1.91% -
------- --------------- ---------------------
100.00% 1.05%
</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.

13
<PAGE>

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 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

14
<PAGE>

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 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.

15
<PAGE>

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 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 CALL 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.

WHEN ISSUED SECURITIES. Fixed-income securities may at times be
purchased or sold on a delayed delivery basis or on a when-issued basis. These
transactions arise when securities are purchased or sold by a Fund with payment
and delivery taking place in the future. No payment is made until delivery is
made which may be up to 60 days after purchase. If delivery of the obligation
does not take place, no purchase will result and the transaction will be
terminated. Such transactions are considered to involve more risk than immediate
cash transactions. As a matter of non-fundamental policy, any investment on a
when issued or delayed delivery basis will not be made if such investment would
cause more than 5% of the value of a Fund's total assets to be invested in this
type of investment.

When purchasing when issued securities a Fund will segregate liquid high
grade assets with its custodian to the extent that the Fund's obligations are
not otherwise "covered" as that term is understood under the Investment Company
Act of 1940. In general, an amount of cash or liquid high grade securities at
least equal to the current amount of the obligation must either be identified as
being restricted in the Fund's accounting records or physically segregated in a
separate account at the Fund's custodian. The segregated assets cannot be sold
or transferred unless equivalent assets are substituted in their place or it is
no longer necessary to segregate them. For the purpose of determining the
adequacy of the liquid securities which have been restricted, the securities
will be valued at market or fair value. If the market or fair value of such
securities declines, additional cash or liquid securities will be restricted on
a daily basis so that the value of the restricted cash or liquid securities,
when added to the amount deposited with the broker as margin, equals the amount
of such commitments by the Fund.

16
<PAGE>

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 each of the 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 of seeking 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 or
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 or 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 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.

17
<PAGE>

The Funds paid the following brokerage commissions:

<TABLE>
<CAPTION>
Fiscal year ended
December 31,
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Davis Growth Opportunity Fund
Brokerage Commissions Paid $ 60,286 $ 44,081 $ 14,490
Amount Paid to Brokers Providing Research 83.43% 83.81% 92.75%
Brokerage Commissions Paid
to Shelby Cullom Davis & Co.(1) N/A N/A N/A

Davis Financial Fund
Brokerage Commissions Paid $628,635 $250,113 $ 58,435
Amount Paid to Brokers Providing Research 90.50% 98.94% 73.89%
Brokerage Commissions Paid
to Shelby Cullom Davis & Co. (1) $ 53,340 $ 28,260 $ 1,200

Davis Real Estate Fund
Brokerage Commissions Paid $675,385 $291,541 $ 49,848
Amount Paid to Brokers Providing Research 99.09% 100.00% 55.28%
Brokerage Commissions Paid
to Shelby Cullom Davis & Co. (1) $ 14,382 $ 2,454 $ 0

Davis Convertible Securities Fund
Brokerage Commissions Paid $119,151 $ 68,913 $ 58,057
Amount Paid to Brokers Providing Research 98.49% 98.26% 49.98%
Brokerage Commissions Paid
to Shelby Cullom Davis & Co. (1) $ 4,032 $ 0 $ 372
</TABLE>

(1) Shelby Cullom Davis & Co. is a broker-dealer who may be considered an
affiliated person of the Adviser. During the fiscal year ended December 31,
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 8.49% 12.20%
Davis Real Estate Fund 2.13% 1.63%
Davis Convertible Securities Fund 3.38% 5.20%

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.

18
<PAGE>

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 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").

19
<PAGE>

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 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.

20
<PAGE>

(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 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 FUNDAMENTAL 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.

21
<PAGE>

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 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 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 Company and 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 Company are set forth below, together with their principal
business affiliations and occupations for the last five years. 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., Davis Series, Inc., Davis International Series, Inc. and
Davis Variable Account Fund, Inc. (collectively the "Davis Funds"). As indicated
below, certain directors and officers of the Company may also hold similar
positions with the following funds that are managed by the Adviser: Selected

22
<PAGE>

American Shares, Inc., Selected Special Shares, Inc., and Selected Capital
Preservation Trust (collectively the "Selected 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. Director Van Eck
Funds; 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 Drive 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 of semi-conductor circuits), Cirrus Logic
Corp. (a manufacturer of semi-conductor circuits) and Alliance Technology Fund
(a mutual fund).

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).

MARSHA WILLIAMS (3/28/51), 725 Landwehr Road, Northbrook IL 60062. Director of
the Company and each of the Davis Funds (except Davis International Series,
Inc.) and the Selected Funds; Chief Administrative officer of Crate & Barrel;
former Treasurer, Amoco Corporation. Director, Illinois Benedictine College, The
Conference Board Council of Corporate Treasurers, Illinois Council on Economic
Education, Chicagoland Chamber of Commerce; formerly Director, Fertilizers of
Trinidad and Tobago from 1989-1993, Ok Tedi Mining Limited from 1992-1993, and
Just Jobs from 1988-1992.

23
<PAGE>

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 and the Selected
Funds; Director, Chairman and Chief Executive Officer, Venture Advisers, Inc.;
Director, Davis Selected Advisers-NY, Inc.; 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.) and the Selected Funds; Director and
President, Venture Advisers, Inc.; Director and Vice President, Davis Selected
Advisers-NY, Inc.; Former Vice President and head of convertible security
research, PaineWebber, Inc.

CHRISTOPHER C. DAVIS (7/13/65),* ** 609 Fifth Avenue, New York NY 10017.
Director and Vice President of the Company and each of the Davis Funds and the
Selected Funds; 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, Kings Bay 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 and Selected Funds; 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 and Selected 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 and Selected Funds; 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 and Selected Funds;
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.

SHELDON R. STEIN (11/29/28), 111 East Wacker Drive, Suite 2800, Chicago IL
60601. Assistant Secretary of the Company and each of the Davis Funds and
Selected Funds; Partner D'Ancona & Pflaum, the Company's legal counsel.

ARTHUR DON (9/24/53), 111 East Wacker Drive, Suite 2800, Chicago IL. Assistant
Secretary of the Company and each of the Davis Funds and Selected Funds; Partner
D'Ancona & Pflaum, the Company's legal counsel.

*Jeremy H. Biggs, Andrew A. Davis and Christopher C. Davis are considered to be
"interested persons" of the Company, as defined in the Investment Company Act.
** 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.

24
<PAGE>

DIRECTORS' COMPENSATION SCHEDULE

During the fiscal year ended December 31, 1998, 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 $ 17,060 $ 52,600
Marc P. Blum 16,000 49,000
Jerry D. Geist 14,600 45,500
D. James Guzy 16,000 49,000
G. Bernard Hamilton 16,000 50,250
LeRoy E. Hoffberger 16,000 49,000
Laurence W. Levine 16,000 49,000
Christian R. Sonne 16,000 49,000
Edwin R. Werner** 8,000 24,500
Marsha Williams - 25,500

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

** Mr. Werner retired from the Board of Directors 12/31/97, but still serves
in a non-voting emeritus status.

CERTAIN SHAREHOLDERS OF THE FUND

As of April 1, 1999 officers and directors owned the following
percentages of each Class of shares issued by the Funds

<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Davis Growth Opportunity Fund 6.179% * * *
Davis Government Bond Fund * * * *
Davis Government Money Market Fund 3.169% * * *
Davis Financial Fund 3.002% * * *
Davis Convertible Securities Fund 2.810% * * *
Davis Real Estate Fund 3.374% * * *
</TABLE>

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

The following table sets forth, as of April 1, 1999, 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. Other than as
indicated below, the Funds are not aware of any shareholder that beneficially
owns in excess of 25% of the Funds' total outstanding shares.

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

DAVIS FINANCIAL FUND

Shelby Cullom Davis & Co. 18.21%
Investment #3
609 5th Avenue, 11th Floor
New York, NY 10017-1021

25
<PAGE>

Merrill Lynch Pierce Fenner & Smith 7.99%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS REAL ESTATE FUND

Charles Schwab and Co., Inc. 15.09%
101 Montgomery St.
San Francisco, CA 94104-4122

Merrill Lynch Pierce Fenner & Smith 5.12%
Mutual Fund Operations
4800 Deerlake Dr. East, 2nd Floor
Jacksonville, FL 32264-6484

DAVIS CONVERTIBLE SECURITIES FUND

Shelby Cullom Davis & Co. 18.96%
Investment #3
609 5th Avenue, 11th Floor
New York, NY 10017-1021

The Bank of New York, TRS for 5.98%
Shelby Cullom Davis
FBO the Bank of New York as Pledgee
One Wall Street
New York, NY 10005-2501

DAVIS GOVERNMENT BOND FUND

Merrill Lynch Pierce Fenner & Smith 9.51%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS GOVERNMENT MONEY MARKET FUND

Shelby Cullom Davis & Co. 69.75%
Investment #3
609 5th Avenue, 11th Floor
New York, NY 10017-1021

CLASS B SHARES

DAVIS GROWTH OPPORTUNITY FUND

Merrill Lynch Pierce Fenner & Smith 9.14%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

26
<PAGE>

DAVIS FINANCIAL FUND

Merrill Lynch Pierce Fenner & Smith 29.18%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS REAL ESTATE FUND

Merrill Lynch Pierce Fenner & Smith 25.54%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS CONVERTIBLE SECURITIES FUND

Merrill Lynch Pierce Fenner & Smith 29.34%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS GOVERNMENT BOND FUND

Merrill Lynch Pierce Fenner & Smith 42.46%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

CLASS C SHARES

DAVIS GROWTH OPPORTUNITY FUND

Merrill Lynch Pierce Fenner & Smith 14.36%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS FINANCIAL FUND

Merrill Lynch Pierce Fenner & Smith 44.60%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS REAL ESTATE FUND

Merrill Lynch Pierce Fenner & Smith 22.90%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

27
<PAGE>

DAVIS CONVERTIBLE SECURITIES FUND

Merrill Lynch Pierce Fenner & Smith 35.75%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS GOVERNMENT BOND FUND

Merrill Lynch Pierce Fenner & Smith 60.42%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

Robert W. Baird & Co. Inc. 7.67%
A/C 6225-5827
777 East Wisconsin Avenue
Milwaukee, WI 53202-5300

CLASS Y SHARES

DAVIS GROWTH OPPORTUNITY FUND

Merrill Lynch Pierce Fenner & Smith 99.93%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS FINANCIAL FUND

Merrill Lynch Pierce Fenner & Smith 93.16%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS REAL ESTATE FUND

Naidot & Co. 51.39%
c/o Bessemer Trust Company
100 Woodbridge Center Drive
Woodbridge, NJ 07095

Kuwait Fund for ARAB Economic Development 20.22%
P.O. Box 2921
Safat, Kuwait 13030

Abilene Christian University Endowment 7.97%
Attn: Kent Rideout
ACU Box 29120
Abilene, TX 79699-0001

Philip O. Geier, President 7.55%
Armard Hammer United World College
P.O. Box 248
Montezuma , NM 87731-0248

28
<PAGE>

DAVIS CONVERTIBLE SECURITIES FUND

Naidot & Co. 93.13%
c/o Bessemer Trust Company
100 Woodbridge Center Drive
Woodbridge, NJ 07095

Merrill Lynch Pierce Fenner & Smith 6.27%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484

DAVIS GOVERNMENT BOND FUND

Merrill Lynch Pierce Fenner & Smith 99.95%
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., Davis Variable Account Fund, Inc., (collectively
with the Fund, the "Davis Funds"), Selected American Shares, Inc., Selected
Special Shares, Inc. and Selected Capital Preservation Trust (collectively the
"Selected Funds"). The Distributor also acts as the principal underwriter for
the Davis Funds and the Selected Funds.

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.

29
<PAGE>

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

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

<TABLE>
<CAPTION>
Fiscal Year Ended
December 31,
----------------------------------------
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Davis Growth Opportunity Fund $ 924,119 $ 660,606 $ 465,709
Davis Financial Fund 5,195,747 1,930,789 700,862
Davis Real Estate Fund 2,845,709 1,217,004 286,302
Davis Convertible Fund 1,960,290 800,976 494,195
Davis Government Bond Fund 216,248 144,613 200,005
Davis Government Money Market Fund 2,351,638 2,085,736 1,825,917
</TABLE>

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 and Sub-Advisory Agreement will terminate automatically
upon assignment and are 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 and Sub-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 Funds. 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 under federal and state securities laws. Each Fund
reimburses the Adviser for providing certain services. Such reimbursements are
detailed below:

<TABLE>
<CAPTION>
Fiscal Year Ended
December 31,
---------------------------------------
1998 1997 1996
------------ ----------- ----------
<S> <C> <C> <C>
Davis Growth Opportunity Fund
Accounting and Administrative Services $ 6,504 $ 17,835 $ 15,996
Qualifying Shares for sale With State
Agencies 9,996 9,996 9,000
Shareholder Services 33,840 5,963 6,058

Davis Financial Fund
Accounting and Administrative Services $ 14,496 $ 18,543 $ 15,996
Qualifying Shares for Sale With State
Agencies 9,996 9,996 9,000
Shareholder Services 170,050 22,076 4,328

Davis Real Estate Fund
Accounting and Administrative Services $ 9,504 $ 21,418 $ 12,000
Qualifying Shares for Sale With State
Agencies 9,996 9,996 9,000
Shareholder Services 75,161 15,130 2,702

30
<PAGE>

Davis Convertible Securities Fund
Accounting and Administrative Services $ 7,500 $ 20,414 $ 15,996
Qualifying Shares for Sale With State
Agencies 9,996 9,996 9,000
Shareholder Services 32,827 6,557 1,421

Davis Government Bond Fund
Accounting and Administrative Services $ 2,496 $ 11,665 $ 17,004
Qualifying Shares for Sale With State
Agencies 9,996 9,996 9,000
Shareholder Services 8,135 14,364 4,291

Davis Government Money Market Fund
Accounting and Administrative Services $ 37,50 $ 27,086 $ 12,000
Qualifying Shares for Sale With State
Agencies 9,996 9,996 9,000
Shareholder Services 20,809 19,072 12,905
</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 Funds have a pending buy or sell
order, (ii) which the Funds are considering buying or selling, or (iii) which
the Funds purchased or sold within seven calendar days.

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) reimburses 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.

31
<PAGE>

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, 1998 the cumulative totals of
these carryover payments were:

Class B Shares
Dollars % of Net Assets

Davis Growth Opportunity Fund $ 632,976 1.44%
Davis Financial Fund 12,556,756 3.00%
Davis Real Estate Fund 6,624,863 4.60%
Davis Convertible Securities Fund 3,697,492 4.07%
Davis Government Bond Fund 464,906 1.29%

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

32
<PAGE>

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.

FUND SUPERMARKETS. The Funds participate in various "Fund Supermarkets"
in which a broker-dealer offers many mutual funds to the sponsor's clients
without charging the clients a sales charge. The Funds pay the supermarket
sponsor a negotiated fee for distributing the Funds' shares and for continuing
services provided to their shareholders.

A portion of the supermarket sponsor's fee (that portion related to
sales, marketing, or distribution of Funds shares) is paid with fees authorized
under the Distribution Plans.

A portion of the supermarket sponsor's fee (that portion related to
shareholder services such as new account set-up, shareholder accounting,
shareholder inquiries, transaction processing, and shareholder confirmations and
reporting) is paid as a shareholder servicing fee of the Funds. The Funds would
typically be paying these shareholder servicing fees directly, were it not that
the supermarket sponsor holds all customer accounts in a single omnibus account
with the Funds. The amount of shareholder servicing fees which the Funds may pay
to supermarket sponsors may not exceed the lesser of (a) 1/10 of 1 percent of
net assets held by such supermarket sponsors per year, or (b) the shareholder
servicing costs saved by the Funds with the omnibus account (determined in the
reasonable judgement of the Adviser).

If the supermarket sponsor's fees exceed the sum available from the
Distribution Plans and shareholder servicing fees, then the Adviser pays the
remainder out of its profits.

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 Street, 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.
By the terms of the Distributing Agreement, the Distributor pays for all
expenses in connection with the preparation, printing, and 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.

33
<PAGE>

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:

<TABLE>
<CAPTION>
Fiscal Year Ended
December 31,
1998 1997 1996
--------- -------- ---------

<S> <C> <C> <C>
Davis Growth Opportunity Fund $ 369,205 $ 442,713 $ 74,530
Amount Reallowed to Dealers 313,281 376,768 57,376

Davis Financial Fund 5,418,760 3,657,273 167,334
Amount Reallowed to Dealers 4,568,459 3,081,777 134,887

Davis Real Estate Fund 1,888,528 2,339,674 317,436
Amount Reallowed to Dealers 1,593,635 1,973,114 262,083

Davis Convertible Securities Fund 1,238,727 691,313 52,343
Amount Reallowed to dealers 1,049,380 583,729 41,837

Davis Government Bond Fund 85,407 39,183 18,190
Amount Reallowed to Dealers 74,035 33,094 14,870
</TABLE>

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, 1998, the Distributor received the following amounts as
compensation on redemptions and repurchases:

<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
<S> <C> <C> <C>
Davis Growth Opportunity Fund $ N/A $ 100,568 $ 2,515
Davis Financial Fund 8,311 927,899 32,692
Davis Real Estate Fund 20,028 452,740 14,686
Davis Convertible Fund 1,610 180,059 8,683
Davis Government Bond Fund N/A 90,905 1,055
</TABLE>

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.

Fiscal Year Ended
December 31,
1998 1997 1996
---- ---- ----
Davis Growth Opportunity Fund
Class A Shares $ 141,000 $ 81,099 $ 45,833
Class B Shares 620,687 486,624 358,112
Class C Shares 38,471 5,131 N/A

Davis Financial Fund
Class A Shares 784,325 305,509 75,327
Class B Shares 3,305,680 778,923 42,952
Class C Shares 636,742 34,391 N/A

34
<PAGE>

Davis Real Estate Fund
Class A Shares 484,050 189,473 22,619
Class B Shares 1,477,840 554,450 26,901
Class C Shares 246,679 13,033 N/A

Davis Convertible Securities Fund
Class A Shares 275,435 86,098 23,521
Class B Shares 769,236 117,261 10,953
Class C Shares 209,203 11,296 N/A

Davis Government Bond Fund
Class A Shares 49,428 41,409 43,662
Class B Shares 197,911 118,362 136,766
Class C Shares 29,187 460 N/A

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 Funds' 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 LLP ("KPMG"), 707 17th Street, 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, 111 East Wacker Drive, Suite 2800, Chicago,
Illinois 60601, 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. Your dealer or sales representative
will help you fill out the Form. The dealer must also sign 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, to 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.

35
<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

36
<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:

Purchase Amount Commission
First $3,000,000...................................... .75%
Next $2,000,000....................................... .50%
Over $5,000,000....................................... .25%

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.

37
<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 Funds' Class A shares. This
applies to all three situations for reduction of sales charges discussed above.

If a "single purchaser" decides to buy a Fund's 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.

38
<PAGE>

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 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 Intermediate Investment Grade Bond Fund and
Davis Financial Fund and Davis Convertible Securities Fund, (valued at the
applicable current offering price) and invest $5,000 in the Funds' shares, the
sales charge on your investment would be 3-1/2%, not 4-3/4%.

In all of 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 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 Funds' 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 Funds impose a deferred sales charge on 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

39
<PAGE>

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 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

40
<PAGE>

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 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 Funds' 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.

41
<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

42
<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 with 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.

43
<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 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.

44
<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. 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.

45
<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 60 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."

46
<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 extent 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 Funds' shares even if there has not been any change in the
foreign currency price of the Funds' 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 TRANSITION 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.

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.

Difficulties with Year 2000 transition issues could have a negative
impact on handling securities trades, payments of interest and dividends,
pricing and account services. Although at this time there can be no assurance
that there will be no adverse impact on the Funds, the Service Providers have
advised the Funds that they have been actively working on necessary changes to
their computer systems to prepare for the Year 2000 and expect that their
systems, and those of other parties they deal with, will be adapted in time for
this event. In addition, there can be no assurance that the companies in which
the Funds invest will not experience difficulties with Year 2000 transition
issues, which may negatively affect the market value of those companies.

47
<PAGE>

DIVIDENDS AND DISTRIBUTIONS

There are two sources of income, net income and realized capital gains
paid 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 of receiving all dividends and
distributions in cash, to have all dividends and distributions reinvested, or of
having 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 of receiving all dividends
and distributions in cash, of having all dividends and distributions reinvested,
or to have income dividends paid in cash and capital gain distributions
reinvested. The reinvestment of dividends 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.

48
<PAGE>

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 December 31, 1998............... (2.53)% (2.53)%
Period from December 1, 1994 through
December 31, 1998 (life of class) ............. 110.64% 20.01%

Class B shares
One year ended December 31, 1998 ............... (2.26)% (2.26)%
Five years ended December 31, 1998 ............. 100.24% 14.90%
Ten years ended December 31, 1998 .............. 310.54% 15.16%
Period from May 1, 1984 through
December 31, 1998 (life of class) .............. 665.36% 14.87%

Class C shares
One year ended December 31, 1998 ............... 0.51% 0.51%
Period from August 15, 1997 through
December 31, 1998 (life of class)............... (4.26)% (3.11)%

49
<PAGE>

Class Y shares
One year ended December 31, 1998............... 2.18% 2.18%
Period from September 18, 1997 through
December 31, 1998 (life of class).............. (9.04)% (7.11)%

Cumulative Average Annual
Davis Financial Fund Total Return (1) Total Return (2)
- -------------------- ---------------- ----------------

Class A shares
One year ended December 31, 1998............... 8.75% 8.75%
Five years ended December 31, 1998............. 197.01% 24.32%
Period from May 1, 1991 through
December 31, 1998 (life of class) ............. 457.42% 25.09%

Class B shares
One year ended December 31, 1998............... 9.21% 9.21%
Period from December 27, 1994 through
December 31, 1998 (life of class) ............. 209.99% 32.56%

Class C shares
One year ended December 31, 1998............... 12.26% 12.26%
Period from August 12, 1997 through
December 31, 1998 (life of class).............. 23.97% 16.77%

Class Y shares
One year ended December 31, 1998 .............. 14.58% 14.58%
Period from March 10, 1997 through
December 31, 1998 (life of class).............. 47.41% 23.90%

Cumulative Average Annual
Davis Real Estate Fund Total Return (1) Total Return (2)
- ---------------------- ---------------- ----------------

Class A shares
One year ended December 31, 1998............... (19.58)% (19.58)%
Period from January 3, 1994 through
December 31, 1998 (life of class).............. 75.59% 11.93%

Class B shares
One year ended December 31, 1998............... (19.48)% (19.48)%
Period from December 27, 1994 through
December 31, 1998 (life of class).............. 63.75% 13.07%

Class C shares
One year ended December 31, 1998 .............. (17.01)% (17.01)%
Period from August 13, 1997 through
December 31, 1998 (life of class).............. (6.88)% (5.02)%

Class Y shares
One year ended December 31, 1998............... (15.20)% (15.20)%
Period from November 8, 1996 through
December 31, 1998 (life of class).............. 19.94% 8.85%

50
<PAGE>

Cumulative Average Annual
Davis Convertible Securities Fund Total Return (1) Total Return (2)
- --------------------------------- ---------------- ------------------

Class A shares
One year ended December 31, 1998 .............. (6.46)% (6.46)%
Five years ended December 31, 1998 ............ 84.15% 12.99%
Period from May 1, 1992 through
December 31, 1998 (life of class).............. 144.00% 14.31%

Class B shares
One year ended December 31, 1998 .............. (6.39)% (6.39)%
Period from February 3, 1995 through
December 31, 1998 (life of class) ............. 92.49% 18.23%

Class C shares
One year ended December 31, 1998 .............. (3.55)% (3.55)%
Period from August 12, 1997 through
December 31, 1998 (life of class).............. 4.57% 3.28%

Class Y shares
One year ended December 31, 1998 .............. (1.46)% (1.46)%
Period from November 13, 1996 through
December 31, 1998 (life of class) ............. 35.81% 15.44%

Cumulative Average Annual
Davis Government Bond Fund Total Return (1) Total Return (2)
- -------------------------- ---------------- ----------------

Class A shares
One year ended December 31, 1998 .............. 1.30% 1.30%
Period from December 1, 1994 through
December 31, 1998 (life of class) ............. 26.53% 5.93%

Class B shares
One year ended December 31, 1998 .............. 1.38% 1.38%
Five years ended December 31, 1998 ............ 25.23% 4.60%
Ten years ended December 31, 1998 ............. 79.11% 6.00%
Period from May 1, 1984 through
December 31, 1998 (life of class) ............. 169.57% 6.99%

Class C shares
One year ended December 31, 1998 .............. 4.42% 4.42%
Period from August 19, 1997 through
December 31, 1998 (life of class).............. 8.55% 6.19%

Class Y shares
Period from September 1, 1998 through
December 31, 1998 (life of class).............. 1.59% N/A
</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.

51
<PAGE>

(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

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 December 31, 1998, is as follows:

Davis Real Davis Convertible Davis Government
Estate Fund Securities Fund Bond Fund
----------- ----------------- ----------------
Class A shares 4.25% 2.45% 4.73%
Class B shares 3.64% 1.74% 4.23%
Class C shares 3.60% 1.70% 4.20%
Class Y shares 4.82% 2.89% 5.34%

"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.

52
<PAGE>

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
December 31, 1998 was 4.42% and 4.52% 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.

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 Funds' 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.

53
<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.

54
<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.

55
<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.

<PAGE>

FORM N-1A

DAVIS SERIES, INC.

POST-EFFECTIVE AMENDMENT NO. 42 UNDER THE SECURITIES ACT OF 1933
REGISTRATION STATEMENT NO. 2-57209

AND

AMENDMENT NO. 38 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)(1)* Other Opinions. Consent of Current Auditors. KPMG,
LP.

(j)(2)* Other Opinions. Consent of Former Auditors. Tait,
Weller & Baker

(k) Omitted Financial Statements, incorporated from the
Annual Report.

(l) Initial Capital Agreements. Not Applicable

2
<PAGE>

(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.

(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)(1) 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.

(p)(2)*Other Exhibits. Powers of Attorney of the
Registrant, Marsha Williams of Davis Series, Inc.
appointing Sheldon Stein and Arthur Don as
attorneys-in-fact. Filed herein.

* 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

3
<PAGE>

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.

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.; Director, Shelby Cullom Davis
Financial Consultants, Inc.

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 of Kings Bay, 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

4
<PAGE>

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.

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:

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS UNDERWRITER WITH REGISTRANT
- ---------------- ----------- ---------------
<S> <C> <C>
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 Secretary
124 East Marcy Street
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, Treasurer and
124 East Marcy Street Assistant Secretary.
Santa Fe, NM 87501
</TABLE>

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 16th day of
April, 1999.

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.

<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Shelby M.C. Davis* President, Chief Executive Officer April 16, 1999
------------------
Shelby M.C. Davis

Sharra L. Reed* Principal Financial Officer
---------------
Sharra L. Reed and Treasurer April 16, 1999
</TABLE>

*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

Marsha Williams** Director
- -----------------
Marsha Williams

8
<PAGE>

*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.

**Arthur Don signs this document on behalf of the foregoing person pursuant to
the powers of attorney filed as Exhibit (p) to Registrant's Post-Effective
Amendment No 42 to Registrant's Registration Statement.

/s/Arthur Don
----------------
Arthur Don
Attorney-in-Fact

9
<PAGE>

EXHIBIT LIST

(i) Legal Opinion and Consent
(j)(1) Current Auditor's Consent. KPMG LLP
(j)(2) Former Auditor's Consent. Tait, Weller & Baker
(p)(2) Power of Attorney, Marsha Williams.

<PAGE>

EXHIBIT
ITEM 23 (i)

[LETTERHEAD OF D'ANCONA & PFLAUM]

April 20, 1999

Davis Series, Inc.
124 East Marcy Street
Santa Fe, New Mexico 87501

Dear Ladies and Gentlemen:

We have acted as counsel for Davis Series, Inc. (the "Fund") 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, Member

<PAGE>

EXHIBIT
ITEM 23 (J)(1)

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Davis Series, Inc.

We consent to the use of our report dated February 5, 1999 incorporated by
reference in this Registration Statement of Davis Series, Inc. and to the
references to our firm under the headings "Financial Highlights" in the
Prospectuses for Class A, Class B and Class C and for Class Y and "Auditors" in
the Statement of Additional Information.

/s/ KPMG, LLP

Denver, Colorado
April 26, 1999

<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
April 20, 1999

<PAGE>

DAVIS NEW YORK VENTURE FUND, INC
DAVIS SERIES, INC.
DAVIS TAX-FREE HIGH INCOME FUND, INC.
DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND, INC.

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Sheldon R. Stein and Arthur Don, and each of them, as the undersigned's
attorneys-in-fact, each with the power of substitution, for him or her in any
and all capacities, to sign any post-effective amendments to the registration
statement under:

<TABLE>
<CAPTION>
Registrant's Name Securities Act of 1933 Investment Company
Registration No. Act of 1940
Registration No:

<S> <C> <C>
(1) Davis New York Venture
Fund, Inc. 2-29858 811-1701
(2) Davis Series, Inc. 2-57209 811-2679
(3) Davis Tax-Free High
Income Fund, Inc. 2-74216 811-3270
(4) Davis Intermediate Investment
Grade Bond Fund 2-266935 811-3007
</TABLE>

whether on Form N-1A or any successor forms thereof, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and all other applicable state or federal
regulatory authorities. Each of the undersigned hereby ratifies and confirms all
that each of the aforenamed attorneys-in-fact, or his substitute or substitutes,
may do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney
as of the date listed below.

/s/ Marsha Williams Date: April 13, 1999
- -------------------
Marsha Williams