DAVIS HIGH INCOME FUND INC, 485APOS, 1999-05-28

DAVIS HIGH INCOME FUND INC
485APOS, 1999-05-28

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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. 2-66935
POST-EFFECTIVE AMENDMENT NO. 28
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-3007
AMENDMENT NO. 27
DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND, 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 LLC
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)
---
On __ pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)
---
X On August 1, 1999 pursuant to paragraph (a) of Rule 485
---

Title of Securities Being Registered: Common Stock of:
Davis Intermediate Investment Grade
Bond Fund

<PAGE>

FORM N-1A

DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND, INC.
CLASS A, B AND C SHARES

POST-EFFECTIVE AMENDMENT NO. 28 TO REGISTRATION STATEMENT NO. 2-66935 UNDER THE
SECURITIES ACT OF 1933 AND AMENDMENT NO. 27 UNDER THE INVESTMENT COMPANY ACT OF
1940 TO REGISTRATION STATEMENT NO. 811-3007.

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

<PAGE>

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. 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

<PAGE>

DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND

Prospectus and Application Form

Class A shares
Class B shares
Class C shares

August 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

<PAGE>

TABLE OF CONTENTS

Overview of the Fund
Investment Objectives 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 the Fund

Once You Invest in 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 INTERMEDIATE INVESTMENT GRADE BOND FUND

INVESTMENT OBJECTIVES AND STRATEGY

Davis Intermediate Investment Grade Bond Fund seeks primarily to achieve a high
level of current income. Secondarily, the Fund seeks capital growth so long as
such objective is consistent with the Fund's primary objective.

The Fund invests in a broad range of investment-grade corporate bonds and, to a
lesser extent, other debt securities, including high yield high risk securities.
In order to limit price changes due to changes in interest rates, the Fund
normally maintains an average maturity of between five and ten years.

The basic Davis investment philosophy is to search for quality growth companies,
which the market has overlooked. The Fund seeks to purchase the investment-grade
debt securities issued by companies having these characteristics. We consider
selling a company's debt if it turns out that we made a mistake in our original
appraisal, or if the company no longer exhibits the characteristics that we
believe foster sustainable long-term growth, minimize risk and enhance the
potential for superior long-term returns.

The Fund offers investors the opportunity to diversify their portfolio on two
levels:

o First, the Fund may balance holdings that investors may have in stocks or
stock mutual funds. Historically, portfolios that include bonds and stocks
have experienced lower volatility over the long-term than portfolios that
consist entirely of stocks.

o Second, the Fund offers investors diversification among bonds across many
industry sectors and of varying credit ratings. Investment-grade bonds and
high yielding bonds may react differently to factors such as changes in
interest rates, industry trends, U.S. economic growth, and, at times, stock
market activity.

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

3
<PAGE>

Determining If This Fund Is Right For You

YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:

o You are seeking a high level of current income.

o You can bear some credit, interest rate, and other bond market risks in
exchange for the potential for high current income.

o You are looking for a fixed-income investment primarily in investment-grade
corporate securities as part of your asset allocation plan to balance your
stock portfolio.

o You are investing for the long-term (three years or more).

YOU SHOULD NOT INVEST IN THIS FUND IF:

o You are worried about the possibility of moderate price swings and market
declines.

o You are primarily interested in growth of capital.

o You are investing for the short-term (less than three years).

PRINCIPAL RISKS

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

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.
The Fund attempts to manage its interest rate sensitivity by maintaining an
average maturity of between five and ten years.

o PREPAYMENT RISK. Many types of debt securities, including securities
subject to call provisions and mortgage securities, are subject to
prepayment risk. Prepayment risk occurs when the issuer of a security can
prepay principal prior to the security's maturity. Securities subject to
prepayment risk generally offer less potential for gains during a declining
interest rate environment, and similar or greater potential for loss in a
rising interest rate environment.

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

o CREDIT RISK. Like any borrower, the issuer of a debt security may be unable
to make its payments. The Fund may invest up to 35% of its 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.

4
<PAGE>

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.

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

You can find more detailed information about the risks of the Fund's particular
investments in the section called HOW WE MANAGE THE FUND.

PAST PERFORMANCE

<PAGE>

The bar chart and the table below provide an indication of the risks of
investing in Davis Intermediate Investment Grade Bond Fund by showing changes in
the Fund's year-to-year performance and by showing how the Fund's average annual
returns for one, five and ten years compare to those of the Merrill Lynch U.S.
Corporate Five to Ten Year Index, a widely recognized unmanaged index of bond
performance.

Prior to October 6, 1998, the Fund invested primarily in high yield, high-risk
debt securities. Beginning on October 6, 1998, the Fund began investing
primarily in intermediate investment-grade debt securities. The bar chart and
table include the results of investing principally in high yield, high-risk debt
securities rather than in intermediate investment-grade debt securities. How the
Fund has performed in the past is not necessarily an indication of how the Fund
will perform in the future.

DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND
TOTAL RETURN OVER THE LAST 10-YEAR PERIOD
(As of December 31st of each year)
CLASS A SHARES

1989 xx.xx%
1990 xx.xx%
1991 xx.xx%
1992 xx.xx%
1993 xx.xx%
1994 xx.xx%
1995 xx.xx%
1996 xx.xx%
1997 xx.xx%
1998 xx.xx%

During the period shown above, the highest quarterly return was xx.xx% for the
xx quarter of 19xx, and the worst quarterly return was (xx.x)% for the xx
quarter of 19xx. Year-to-date performance as of 05/30/99 (not annualized) was
x.xx%.

The bar 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.

6
<PAGE>

DAVIS INTERMEDIATE INVESTMENT GRADE BOND 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> <C>
CLASS A SHARES (SINCE XX/XX/XX) xx.xx% xx.xx% xx.xx%
- ------------------------------------------ --------------------- ------------------ ------------------- -----------------
MERRILL LYNCH U.S. CORPORATE xx.xx% xx.xx% xx.xx%
FIVE TO TEN YEAR INDEX
- ------------------------------------------ --------------------- ------------------ ------------------- -----------------
CLASS B SHARES (SINCE XX/XX/XX) xx.xx% xx.xx% xx.xx%
- ------------------------------------------ --------------------- ------------------ ------------------- -----------------
MERRILL LYNCH U.S. CORPORATE xx.xx% xx.xx% xx.xx%
FIVE TO TEN YEAR INDEX
- ------------------------------------------ --------------------- ------------------ ------------------- -----------------
CLASS C SHARES (SINCE XX/XX/XX) xx.xx% xx.xx xx.xx
- ------------------------------------------ --------------------- ------------------ ------------------- -----------------
MERRILL LYNCH U.S. CORPORATE xx.xx% xx.xx xx.xx
FIVE TO TEN YEAR INDEX
- ------------------------------------------ --------------------- ------------------ ------------------- -----------------
</TABLE>

DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND
YIELD, CLASS A SHARES
(as of March 31, 1999)

30-DAY SEC YIELD xx.xx%

You can obtain Davis Intermediate Investment Grade 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 INTERMEDIATE INVESTMENT GRADE BOND FUND SHAREHOLDER
(Paid Directly from Your Investment)

<TABLE>
<CAPTION>
- --------------------------------------------------------------- ----------------- ---------------- -----------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- --------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a 4.75% None None
percentage of offering price)
- --------------------------------------------------------------- ----------------- ---------------- -----------------
Maximum Deferred Sales Charge (Load) Imposed on Redemptions 0.75% 4.00% 1.00%
(as a percentage of the lesser of the net asset value of the
shares redeemed or the total cost of such shares)
- --------------------------------------------------------------- ----------------- ---------------- -----------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None
- --------------------------------------------------------------- ----------------- ---------------- -----------------
Exchange Fee None None None
- --------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>

<PAGE>

ANNUAL FUND OPERATING EXPENSES
(For Fiscal Year ended March 31, 1999)
(Deducted from the Fund's Assets)
<TABLE>
<CAPTION>

- ------------------------------------------ ----------------- ---------------- -----------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------ ----------------- ---------------- -----------------
<S> <C> <C> <C>
Management Fees 0.xx% 0.xx% 0.xx%
- ------------------------------------------ ----------------- ---------------- -----------------
Distribution (12b-1) Fees 0.25% 1.00% 1.00%
- ------------------------------------------ ----------------- ---------------- -----------------
Other Expenses 0.xx% 0.xx% 0.xx%
- ------------------------------------------ ----------------- ---------------- -----------------
Total Annual Operating Expenses 0.xx% 1.xx% 1.xx%
- ------------------------------------------ ----------------- ---------------- -----------------
</TABLE>

EXAMPLE

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

The example assumes that you invest $10,000 in the Fund for the time periods
indicated. The example also assumes that your investment has a 5% return each
year and that the 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 IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------- ------------------ --------------------- ------------------- ------------------
CLASS A SHARES $xxx $xxx $xxx $xxxx
- ------------------------------- ------------------ --------------------- ------------------- ------------------
CLASS B SHARES $xxx $xxx $xxxx $xxxx
- ------------------------------- ------------------ --------------------- ------------------- ------------------
CLASS C SHARES $xxx $xxx $xxx $xxxx
- ------------------------------- ------------------ --------------------- ------------------- ------------------

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

8
<PAGE>

FINANCIAL HIGHLIGHTS

These tables are designed to show you the financial performance of Davis
Intermediate Investment Grade 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.

KPMG LLP has audited the information for the fiscal year 1999. KPMG LLP's
report, along with the Fund's financial statements, is included in the annual
report, which is available upon request. Another firm audited the information
for the previous fiscal years.

DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND CLASS A SHARES

YEAR ENDED MARCH 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........................... $ 4.76 $ 4.71 $ 4.84 $ 4.86 $ 5.14
------- -------- ------- ------- ------

Income (Loss) From Investment Operations
Net Investment Income........................ 0.28 0.34 0.39 0.43 0.46
Net Realized and Unrealized Gains or
Losses...................................... (0.75) 0.13 (0.06) 0.03 (0.24)
------- ------- ------- ------- -------
Total From Investment Operations.......... (0.47) 0.47 0.33 0.46 0.22
------- -------- -------- ------- -------

Dividends and Distributions
Dividends from Net Investment Income.......... (0.28) (0.34) (0.39) (0.43) (0.46)
Returns of Capital............................ (0.06) (0.08) (0.07) (0.05) (0.04)
------- ------- ------- ------- -------
Total Dividends and Distributions......... (0.34) (0.42) (0.46) (0.48) (0.50)

Net Asset Value, End of Period................... $ 3.95 $ 4.76 $ 4.71 $ 4.84 $ 4.86
======= ======= ======= ======= =======

Total Return(1)................................... (10.41)% 10.40% 7.08% 9.93% 4.69%

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)...... $20,029 $44,058 $47,890 $53,816 $56,405

Ratio of Expenses to Average Net Assets....... 1.36% 1.40%(2) 1.48%(2) 1.51% 1.53%

Ratio of Net Investment Income to
Average Net Assets.......................... 6.88% 7.11% 8.13% 8.92% 9.49%

Portfolio Turnover Rate(3)..................... 87.21% 71.54% 66.10% 118.34% 98.94%

</TABLE>

- ----------
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.

2 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.39% and 1.47% for the years ended
March 31, 1998 and March 31, 1997, respectively. Prior to 1997, such
reductions were reflected in the expense ratios.

3 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of

9
<PAGE>

acquisition of one year or less are excluded from the
calculation.

DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND CLASS B SHARES

DECEMBER 5, 1994
(INCEPTION
YEAR ENDED OF CLASS)
MARCH 31, THROUGH
---------------------------------------- MARCH 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $ 4.73 $ 4.68 $ 4.81 $ 4.85 $ 4.80
-------- --------- -------- -------- --------

Income (Loss) From Investment Operations
Net Investment Income........................... 0.24 0.33 0.36 0.40 0.11
Net Realized and Unrealized Gains or Losses..... (0.75) 0.10 (0.07) - 0.05
-------- --------- -------- -------- --------
Total From Investment Operations............ (0.51) 0.43 0.29 0.40 0.16
-------- --------- -------- -------- --------

Dividends and Distributions
Dividends from Net Investment Income............ (0.24) (0.33) (0.36) (0.40) (0.11)
Returns of Capital.............................. (0.06) (0.05) (0.06) (0.04) -
-------- --------- -------- -------- -----
Total Dividends and Distributions........... (0.30) (0.38) (0.42) (0.44) (0.11)

Net Asset Value, End of Period..................... $ 3.92 $ 4.73 $ 4.68 $ 4.81 $ 4.85
======== ========= ======== ======== ========

Total Return(1) ..................................... (11.20)% 9.53% 6.26% 8.68% 3.39%

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)........ $21,522 $21,624 $10,217 $6,599 $1,900
Ratio of Expenses to Average Net Assets......... 2.20%(2) 2.16%(2) 2.30%(2) 2.32% 2.36%*

Ratio of Net Investment Income to
Average Net Assets........................... 6.05% 6.35% 7.28% 8.11% 8.66%*
Portfolio Turnover Rate(3)....................... 87.21% 71.54% 66.10% 118.34% 98.94%

</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 2.19%, 2.15%, and 2.29% for the years
ended March 31, 1999, March 31, 1998 and March 31, 1997, respectively.
Prior to 1997, such reductions were reflected in the expense ratios.

* Annualized

10
<PAGE>

DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND CLASS C SHARES

AUGUST 12, 1997
(INCEPTION
OF CLASS)
YEAR ENDED THROUGH
MARCH 31, MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Net Asset Value,
Beginning of Period............................. $ 4.76 $ 4.71
------ -------

Income (Loss) From Investment Operations
Net Investment Income.......................... 0.24 0.16
Net Realized and Unrealized Gains or Losses..... (0.76) 0.10
------- -------
Total From Investment Operations............ (0.52) 0.26
------- -------

Dividends and Distributions
Dividends from Net Investment Income............ (0.24) (0.16)
Returns of Capital.............................. (0.06) (0.05)
------- -------
Total Dividends and Distributions........... (0.30) (0.21)

Net Asset Value, End of Period..................... $ 3.94 $ 4.76
======= =======

Total Return(1)..................................... (11.34)% 5.61%

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)........ $4,055 $1,928
Ratio of Expenses to Average Net Assets......... 2.18% 2.09%(2)*
Ratio of Net Investment Income to
Average Net Assets............................ 6.06% 6.42%*
Portfolio Turnover Rate(3)....................... 87.21% 71.54%

</TABLE>

2 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.08% for the period ended March 31,
1998.

* Annualized.

11
<PAGE>

WHO IS RESPONSIBLE FOR YOUR DAVIS ACCOUNT

A number of entities provide services to Davis Intermediate Investment Grade
Bond Fund. This section shows how the Fund is organized, the entities that
perform these services, and how these entities are compensated. Additional
information on the organization of the Fund is provided in the Fund's 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 Davis Intermediate Investment Grade Bond
Fund's portfolio.

o Manages Davis Intermediate Investment Grade Bond Fund's 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 fiscal year March 31, 1999 (based on average net
assets): 0.xx%

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 Davis Intermediate
Investment Grade Bond Fund and other institutional clients.

o Wholly owned subsidiary of Davis Selected Advisers.

o Annual Fee: Davis Selected Advisers pays the fee, not the Fund.

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 the Fund daily.

o Holds share certificates and other assets of the Fund.

o Maintains records of shareholders.

o Issues and cancels share certificates.

o Supervises the payment of dividends.

12
<PAGE>

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 of the Davis Funds.

Other Experience:

o Served as Davis New York Venture Fund's Portfolio Manager from its
inception in 1969 until February 1997.

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

PORTFOLIO MANAGER

CAROLYN H. SPOLIDORO

Responsibilities:

o Manager of the Fund since October 6, 1998.

o Also manages other Davis bond funds and money market funds.

Other Experience:

o Has worked for Davis Selected Advisers since 1985.

OUR CODE OF ETHICS

13
<PAGE>

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.

HOW WE MANAGE THE FUND

WHAT WE INVEST IN AND WHY

Davis Intermediate Investment Grade Bond Fund invests in a broad range of
investment-grade, income-producing corporate bonds and, to a lesser extent,
below investment-grade bonds. The Fund is designed as a long-term investment for
shareholders who can bear some credit, interest rate, and other bond market
risks in exchange for the potential for high current income.

Under normal market conditions, the Fund invests at least 65% of its total
assets in U.S. dollar-denominated investment-grade debt securities.
Investment-grade debt securities are issued by companies that are established in
their industries, have stable cash flows and strong balance sheets. The Fund may
also invest in other forms of debt securities, including up to 35% of its total
assets in high yield, high-risk corporate debt securities that are rated below
investment-grade.

Investment-grade debt securities are those rated in one of the four highest
categories by Standard & Poor's Corporation ("Standard & Poor's"), Moody's
Investors Service, Inc. ("Moody's"), Fitch Investors Service, Inc., and other
nationally recognized rating organizations, or which Davis Selected Advisers
deems to be of comparable credit quality. High yield, high-risk debt securities
are considered predominantly speculative with respect to their capacity to pay
interest and repay principal. They generally involve a greater risk of default
and, at times, can have more price volatility than higher-rated securities.

Under normal market conditions, the Fund maintains a dollar-weighted average
maturity of five to ten years. By maintaining this intermediate range of
maturity the Fund hopes to manage interest rate risk. The Fund will invest in
securities of a variety of maturities including short-term (bonds with
maturities of less than five years), intermediate-term (bonds with maturities
between five and ten years), and long-term (bonds with maturities greater than
ten years). Longer-term bonds generally are more volatile than bonds with
shorter maturities.

For more details concerning current investments and market outlook, please see
the most recent annual or semi-annual report.

INTERMEDIATE INVESTMENT GRADE CORPORATE BONDS

14
<PAGE>

Investment grade corporate bonds represent the debt of companies that are
established in their industries, have stable cash flows and strong balance
sheets. The Davis investment philosophy stresses a back-to-basics approach to
select investment-grade corporate bonds: we use extensive research to buy the
bonds of 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.

Intermediate Investment Grade Corporate Bonds may lose market value due to a
rise in interest rates, issuers prepaying the bond's principal, rating agencies
changing the bond's debt rating, or if the issuer defaults on an interest or
principal payment.

WHAT WE LOOK FOR IN A COMPANY

1. FIRST-CLASS MANAGEMENT. We believe that great companies are created by
great managers. In visiting companies, we look for managers with a record
of doing what they say they are going to do.

2. MANAGEMENT OWNERSHIP. Just as we invest heavily in our own funds, we look
for companies where individual managers own a significant stake.

3. STRONG RETURNS ON CAPITAL. We want companies that invest their capital
wisely and reap superior returns on those investments.

4. LEAN EXPENSE STRUCTURE. Companies that can keep costs low are able to
compete better, especially in difficult times. A low cost structure sharply
reduces the risk of owning a company's shares.

5. DOMINANT OR GROWING MARKET SHARE IN A GROWING MARKET. A company that is
increasing its share of a growing market has the best of both worlds.

6. PROVEN RECORD AS AN ACQUIRER. When an industry or market downturn occurs,
it is a good idea to own companies that can take advantage of attractive
prices to expand operations through inexpensive acquisitions.

7. STRONG BALANCE SHEET. Strong finances give a company staying power to
weather difficult economic cycles.

8. COMPETITIVE PRODUCTS OR SERVICES. We invest in companies with products that
are not vulnerable to obsolescence.

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.

15
<PAGE>

HIGH YIELD, HIGH-RISK DEBT SECURITIES

High yield, high-risk debt securities are bonds and notes issued by companies
that do not have the financial strength of companies issuing investment-grade
bonds and notes. Investing in high yielding, lower quality debt securities
involves many of the same risks as investing in investment-grade bonds,
including interest rate sensitivity, prepayment risk, and changes in debt
rating. In addition, high yield, high-risk debt securities are subject to
greater credit risks than debt issued by investment-grade companies.

The Fund will invest in a high yield, high-risk debt security when our analysis
indicates that the security offers a yield that fully compensates for its risk.
Our research focuses upon factors affecting the credit-worthiness of the issuing
company.

OTHER SECURITIES AND INVESTMENT STRATEGIES

Davis Intermediate Investment Grade Bond Fund invests primarily in
investment-grade securities. It may invest up to 35% of its total assets in high
yield, high-risk debt securities. There are other securities in which the Fund
may invest, such as U.S. Treasury and Agency securities, mortgage-backed
securities, and other debt securities, and other investment strategies which the
Fund may employ, but they are not principal investment strategies. The Statement
of Additional Information discusses these other securities and investment
strategies.

The Fund uses short-term investments to 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 decline in
the market values of common stock of large capitalization domestic companies, we
may reduce our risk by investing in short-term securities until market
conditions improve. The short-term investments typically do not offer as high a
yield as longer-term bonds and thus may contribute less to the 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.

16
<PAGE>

time for this event. In addition, there can be no assurance that the companies
in which the Fund invests 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. Davis Intermediate
Investment Grade Bond Fund has a risk level we characterize as "low to medium."

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

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

HOW WE MANAGE RISK

Risks are inherent in all investments. Investing in a mutual fund, even the most
conservative, involves risk, including the risk that you may receive little or
no return on your investment or even that you may lose part or all of your
investment. Davis Intermediate Investment Grade Bond Fund has five strategies to
minimize the risk assumed when we invest.

FIVE STRATEGIES WE USE TO MINIMIZE RISK

1. OUR PRIMARY FOCUS IS ON HIGH-QUALITY GROWTH COMPANIES. Our focus on
high-quality growth companies reduces the likelihood that your investment
will be tied up in a failing company. A high-quality growth company is one
that has achieved a dominant or growing market share, and is led by
first-class management.

<PAGE>

2. DIVERSIFICATION. We diversify our investments among different industry
sectors, various issuers, and various types and grades of securities.

3. CREDIT ANALYSIS. We conduct a thorough credit analysis of an issuer before
buying its securities.

4. WE HAVE A LONG-TERM VISION. We get to know the managers of the companies in
which we invest and understand their goals. We view temporary setbacks as
buying opportunities: when other managers sell bonds in response to bad
news, we evaluate the issuer's long-term prospects.

5. WE MAY MAKE TEMPORARY DEFENSIVE INVESTMENTS. From time to time, Davis
Intermediate Investment Grade Bond Fund may take temporary defensive
positions in response to adverse market, economic or political conditions.

ONCE YOU INVEST IN 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 Davis Intermediate Investment Grade Bond 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 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.

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 Funds 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).

18
<PAGE>

HOW SECURITIES IN THE PORTFOLIO ARE VALUED

We use current market valuations to value the securities in Davis Intermediate
Investment Grade Bond Fund:

o Debt securities maturing in more than 60 days may be valued by an
independent pricing service. In particular, the Fund relies on a
professional pricing service that has experience in valuing securities with
limited resale markets so as to obtain prices that reflect the market as
accurately as possible.

o Debt securities maturing in 60 days or less are usually valued at an
amortized (gradually reduced) cost.

o Securities with unavailable market quotations and other assets are valued
at "fair value"--which is determined or directed by the Board of Directors.

Davis Intermediate Investment Grade Bond Fund may invest in foreign securities
which are denominated in U.S. dollars. If any of the Fund's securities are
traded in markets that close at different times, events affecting portfolio
values that occur between the time that their prices are determined and the time
the Fund's shares are priced will generally not be reflected in the Fund's share
price. The net asset value of the Fund's shares may change on days when
shareholders will not be able to purchase or redeem the Fund's shares.

HOW WE PAY EARNINGS

There are two ways you can receive payments from Davis Intermediate Investment
Grade Bond Fund:

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

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

Davis Intermediate Investment Grade Bond Fund usually pays monthly dividends and
generally distributes capital gains, if any, in November or December. Unless you
choose otherwise, Davis Intermediate Investment Grade Bond 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.

<PAGE>

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 Davis Funds Application Form or on the IRS Form W-9 that your Tax
Identification Number is correct and you are not subject to backup withholding.
Backup withholding is required for the taxpayers that are subject to back taxes
for failure to report all interest and dividends.

If you fail to report a correct Taxpayer I.D. Number, under-reported dividend or
interest income, or are already subject to backup withholding, Davis
Intermediate Investment Grade Bond Fund is 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 automatically invested in the same
share class of this or other Davis Funds. 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 Davis Intermediate Investment Grade Bond Fund pays dividends, they are
taxable to shareholders as ordinary income. Dividends include both net
investment income and short-term capital gains.

o If Davis Intermediate Investment Grade Bond Fund pays net capital gains,
they generally will be taxed as a long-term capital-gain distribution.

These payments may be taxed at different rates, depending on the length of time
the Fund holds its assets. More information is provided in the instructions that
come with your tax return.

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 the 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 Davis Intermediate Investment Grade Bond Fund.

20
<PAGE>

HOW TO CHOOSE A SHARE CLASS

Before you can buy any shares in Davis Intermediate Investment Grade Bond Fund,
you need to decide which class of shares best suits your needs. The Fund offers
four classes of shares: A, B, C and Y. Class Y shares (which are offered through
a separate prospectus) are available only to qualified institutional investors.
Each class is subject to different expenses and sales charges.

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

SPECIAL NOTE: Institutions buying $5 million or more may be eligible to buy
Class Y shares of Davis Intermediate Investment Grade Bond 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. The 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 Fund pays a distribution fee--up to 0.25% of the average daily net
asset value--each year you hold the shares. This fee is lower than the fee
you pay for the other two classes of shares. Lower expenses translate into
higher annual return on net asset value.

21
<PAGE>

CLASS A SHARES SALES CHARGES
<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 to under $250,000 3.5% 3.6% 3.0%
- -------------------------------------- ------------------------ ------------------------ -----------------------
$250,000 to under $500,000 2.5% 2.6% 2.0%
- -------------------------------------- ------------------------ ------------------------ -----------------------
$500,000 to under $750,000 2.0% 2.0% 1.75%
- -------------------------------------- ------------------------ ------------------------ -----------------------
$750,000 to under $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 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:

- ------------------------------------------ ---------------------------------------
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, the dealer will be
paid with distribution fees received from the 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. There are several ways you may combine purchases to qualify for a
lower sales charge.

YOU CAN COMBINE PURCHASES OF CLASS A SHARES

o WITH OTHER FAMILY MEMBERS. If you buy shares for yourself, your spouse and
any children under the age of 21, all the shares you buy will be counted as
a single purchase.

o WITH CERTAIN GROUPS. If you buy shares through a group organized for a
purpose other than to buy mutual fund shares, the purchases will be treated
as a single purchase.

o THROUGH EMPLOYEE BENEFIT PLANS. If you buy shares through trusteed or
fiduciary accounts and Individual Retirement Accounts (IRAs) of a single
employer, the purchases will be treated as a single purchase.

o UNDER A STATEMENT OF INTENTION. If you enter a Statement of Intention and
agree to buy Class A shares of $100,000 or more over a 13-month period, all
of the shares you buy during that period will be counted as a single
purchase. Before entering a

22
<PAGE>

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 Shareholders making purchases with dividends or capital gains that are
automatically reinvested.

o Purchases by directors, officers and employees of Davis Intermediate
Investment Grade Bond Fund, its investment adviser or its affiliates, and
their immediate families.

o Purchases by employees and people affiliated with broker-dealer firms
offering Fund shares.

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.

23
<PAGE>

CLASS B SHARES

Class B shares may be best for you if you are willing to pay a higher
distribution fee than Class A shares for eight years in order to avoid paying an
initial 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 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 Fund pays a distribution fee of 1.00% of the average daily net asset
value each year you hold the shares. Higher expenses translate into lower
annual return on net asset value.

CLASS B SHARES DEFERRED SALES CHARGES
<TABLE>
<CAPTION>

- ------------------------------------------- -------------------------------------------
SALES MADE AFTER PURCHASE AMOUNT OF DEFERRED SALES CHARGE
- ------------------------------------------- -------------------------------------------
<S> <C>
Year 1 4%
- ------------------------------------------- -------------------------------------------
Years 2-3 3%
- ------------------------------------------- -------------------------------------------
Years 4-5 2%
- ------------------------------------------- -------------------------------------------
Year 6 1%
- ------------------------------------------- -------------------------------------------
Years 7-8 None
- ------------------------------------------- --------------------------------------------
</TABLE>

CLASS C SHARES

Class C shares may be best for you if you are willing to pay a higher
distribution fee than Class A shares pay in order to avoid paying an initial
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 the shares within one year of purchase, you must pay a deferred
sales charge of 1.00%.

o The Fund pays a distribution fee of 1.00% of the average daily net asset
value each year you hold the shares. Higher expenses translate into lower
annual return on net asset value.

24
<PAGE>

DEFERRED SALES CHARGE

As an investor in the 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. 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 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 sometime 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.

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.

25
<PAGE>

[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.

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. 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 and obtain an account number and application. A customer
service representative will be pleased to assist you with your initial
investment by wire. 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
DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND
Shareholder Name
Shareholder Account Number
Federal Routing Number 011000028
DDA Number 9904-606-2
26

<PAGE>

Generally, the Fund does not issue share certificates for purchases. You can
receive certificates 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.

RETIREMENT PLAN ACCOUNTS

You can invest in Davis Intermediate Investment Grade Bond 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 retirement plan
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 Davis Intermediate Investment
Grade Bond 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.

27
<PAGE>

(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 (7:00 a.m. to 4:00 p.m. Mountain time)
or use our automated telephone system any time, day or night.

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, the Fund does 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 in good
order (as described above) 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

28
<PAGE>

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

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

29
<PAGE>

SELLING SHARES

You may sell back all or part of your shares to Davis Intermediate Investment
Grade Bond Fund (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. You may be required to have the owners' signatures
medallion-guaranteed (see "Medallion Signature Guarantee" below).

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.

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 your address of record has changed in the last 30
days, or if you wish to send redemption proceeds to a third party, you will
need a medallion signature guarantee to sell shares.

o If a certificate was issued for the shares you wish to sell, the
certificate must be signed by the owner(s) and sent by certified mail 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 of instruction 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.

<PAGE>

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 Davis Intermediate Investment Grade Bond Fund may make sales payments in
securities if Davis Intermediate Investment Grade Bond Fund's Board of
Directors decides that making cash payments would harm the Fund.

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 and sell them within a year of
purchase.

o You sell Class B shares within six years of purchase.

o You sell Class C shares within one year of purchase.

IF YOU DECIDE TO BUY BACK SHARES YOU SOLD

If you decide to buy back some or all of the shares you sold in this 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 returned to your account. You must send a
letter to our service provider, State Street Bank and Trust, along with a check
for the repurchased shares.

IF YOUR ACCOUNT FALLS BELOW $250

If your account balance falls below $250 (as a result of a redemption or
exchange), we may sell your remaining shares in Davis Intermediate Investment
Grade Bond Fund 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.

31
<PAGE>

[SET OFF - SPECIAL PROGRAM]
MAKING AUTOMATIC WITHDRAWALS

If you hold more than $10,000 in your account, you can sell a set dollar amount
each month or quarter. When you participate in this program, known as the
AUTOMATIC WITHDRAWALS PLAN, shares are sold so that you will receive payment by
one of two methods:

First, you may receive funds at the address of record provided that this address
has been unchanged for a period not less than 30 days. These funds are sent by
check on or after the 25th of the month.

Second, you may also choose to receive funds by Automated Clearing House (ACH),
to the banking institution of your choice. You may elect an ACH draft date
between the fifth and the 28th. You must complete this section of the Davis
Funds Account Application or submit a letter of instruction with a medallion
signature guarantee to execute an Automatic Withdrawals Plan by ACH.

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 or by notifying the service agent in writing.

[SET OFF - SPECIAL SHAREHOLDER PROGRAM]
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 through ACH 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. You may call our customer service department to execute
a wire sale by phone. You may also write the service agent to execute a wire
sale via written instructions. However, wiring instructions must be established
prior to the sale by completing the appropriate section of the application or by
submitting a letter of instruction with a medallion signature guarantee signed
by all registered owners at the time of the sale.

32
<PAGE>

EXCHANGING SHARES

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

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 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. This is known
as redemption. Please see the section "What You Need To Know Before You Sell
Your Shares" for restrictions that might apply to this type of transaction.

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

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 between funds are allowed during a 12-month period. You may make
an unlimited amount of exchanges out of the Davis Government Money Market Fund.
Automatic Exchanges are excluded from this provision. Davis Distributors must
approve any exchanges above the limit in writing.

33
<PAGE>

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 - SPECIAL SHAREHOLDER PROGRAM]
MAKING AUTOMATIC EXCHANGES

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 automated
telephone system to sell or exchange shares. If you do not wish to have this
option activated for your account, mark the box in the appropriate section of
the Application Form.

34
<PAGE>

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.

o Your current address must be on file for 30 days.

When you buy, sell or exchange shares over the telephone, you agree that 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 Fund may be liable for unauthorized instructions.

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

35
<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 either
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.

36
<PAGE>

ADDRESS AND PHONE GUIDE

OUR TELEPHONE NUMBER: OUR SERVICE PROVIDER'S REGULAR MAILING ADDRESS:
1-800-279-0279 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 ADDRESS:
http://www.davisfunds.com State Street Bank and Trust Company
c/o Davis Funds
66 Brooks Drive
Braintree, MA 02184

37
<PAGE>

[BACK COVER]

OTHER FUND DOCUMENTS

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
account 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. 811-3007

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1999

DAVIS INTEMEDIATE INVESTMENT GRADE TOTAL RETURN FUND, 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 AUGUST 1,
1999 AND THE CLASS Y PROSPECTUS DATED AUGUST 1, 1999 FOR DAVIS INTERMEDIATE
INVESTMENT GRADE BOND FUND, INC. THIS STATEMENT OF ADDITIONAL INFORMATION
INCORPORATES THE PROSPECTUSES BY REFERENCE. THE PROSPECTUSES MAY BE OBTAINED
FROM THE FUND.

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

<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>

PAGE

<S> <C>
Section I: Investment Strategies and Restrictions ...........................................4

Investment Objectives and Policies....................................................4
Portfolio Securities..................................................................4

Investment Grade Corporate Bonds
U.S. Government Securities
High Yield, High-Risk Debt Securities
Portfolio Composition
Foreign Securities Denominated in U.S. Dollars
Mortgage-Backed Securities
Asset-Backed Securities
Zero Coupon Securities
Taxable Municipal Obligations

Other Investment Policies............................................................10
Portfolio Transactions ..............................................................12
Investment Restrictions..............................................................13

Section II: Key Persons.....................................................................15

Organization of the Company..........................................................15
Directors and Officers...............................................................16
Directors' Compensation Schedule.....................................................18
Certain Shareholders of the Fund.....................................................18
Investment Advisory Services.........................................................19
Distribution of Company Shares.......................................................20
Other Important Service Providers....................................................23

Section III: Purchase, Exchange and Redemption of Shares....................................23

Purchase of Shares...................................................................23
Alternative Purchase Arrangements.............................................24
Class A Shares................................................................25
Class B Shares................................................................27
Class C Shares................................................................28
Class Y Shares................................................................29

Special Services.....................................................................29
Prototype Retirement Plans....................................................29
Automatic Investment Plan.....................................................29
Dividend Diversification Program..............................................30
Telephone Privilege...........................................................30

Exchange of Shares...................................................................30
General.......................................................................30
By Telephone..................................................................31
Automatic Exchange Program....................................................31

<PAGE>

Redemption of Shares................................................................31
General................................................................31
Expedited Redemption Privilege.........................................32
By Telephone...........................................................32
Automatic Withdrawals Plan.............................................32
Involuntary Redemptions................................................33
Subsequent Repurchases.................................................33

Section IV: General Information............................................................33

Determining the Price of Shares.....................................................33
Year 2000 Transition Issues.........................................................34
Dividends and Distributions.........................................................34
Federal Income Taxes................................................................35
Performance Data....................................................................35

Appendix A: Quality Ratings of Debt Securities..............................................38
Appendix B: Term and Conditions for a Statement of Intention................................40

</TABLE>

<PAGE>

Section I: Investment Strategies and Restrictions

INVESTMENT OBJECTIVES AND POLICIES

Davis Intermediate Investment Grade Bond Fund, Inc. (the "Fund") seeks
primarily to achieve a high level of current income. The Fund also seeks to
achieve capital growth so long as such objective is consistent with its primary
objective. There is no assurance that the Fund will achieve its investment
objectives. An investment in the Fund may not be appropriate for all investors
and short-term investing is discouraged.

Under normal market conditions, the Fund invests at least 65% of its
total assets in U.S. dollar-denominated investment-grade debt securities.
Investment-grade corporate debt securities are issued by companies that are
established in their industries, have stable cash flows and strong balance
sheets. Other borrowers may also issue investment-grade debt, including the U.S.
Government and its agencies. The Fund may also invest in other forms of debt
securities, including up to 35% of its total assets in high yield, high-risk
corporate debt securities that are rated below investment-grade.

PORTFOLIO SECURITIES

Investors generally purchase bonds and other debt securities to
increase current income or to diversify their investment portfolios. Changes in
the value of securities held by the Fund will cause the Fund's share price to
fluctuate.

INVESTMENT-GRADE CORPORATE BONDS. Investment-grade corporate bonds
represent the debt of companies that are established in their industries, have
stable cash flows and strong balance sheets. 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.

All debt securities, including investment-grade corporate bonds, are
subject to risks, and an investor may lose some or all of the money invested.
The most significant risk factors affecting investment-grade corporate bonds
are:

Interest rate risk. Most debt securities are subject to interest rate
risk. When prevailing interest rates fall, the values of already-issued debt
securities generally rise. When interest rates rise, the values of
already-issued debt securities generally decline. The magnitude of these
fluctuations will often be greater for longer-term debt securities than
shorter-term debt securities. The Fund seeks to limit its interest rate exposure
by maintaining, in normal market conditions, an average maturity of five to ten
years.

Changes in debt rating. If the fundamental business strength of a
company improves or deteriorates, a rating agency may increase or lower the
company's credit rating. An improved credit rating usually causes the market
value of a debt security to increase while a downgraded credit rating usually
causes the market value of a debt security to decline.

Credit risk. Most debt securities are subject to credit risk. Credit
risk relates to the ability of the issuer of a debt security to make interest
and principal payments on the security as they become due. Generally,
higher-yielding, lower-rated bonds (the Fund may invest up to 35% of its total
assets in high yield, high-risk securities) are subject to greater credit risk
than higher-rated bonds. Securities issued or guaranteed by the U.S. Government
are subject to little, if any, credit risk. While the Adviser may rely to some
extent on credit ratings by nationally recognized rating agencies, such as
Standard & Poor's or Moody's, in evaluating the credit risk of securities
selected for the Fund's portfolio, it may also use its own or broker research
and analysis.

Prepayment risk. Many types of debt securities, including mortgage
securities and securities subject to call provisions, are subject to prepayment
risk. Prepayment risk occurs when the issuer of a security can prepay principal
prior to the security's maturity. Securities subject to prepayment risk
generally offer less potential for gains during a declining interest rate
environment, and similar or greater potential for loss in a rising interest rate

4
<PAGE>

environment. In addition, the potential impact of prepayment features on the
price of a debt security may be difficult to predict and result in greater
volatility. Many bonds are subject to redemption or call provisions. If an
issuer exercises these provisions when investment rates are declining, the Fund
will likely replace such bonds with lower yielding bonds, resulting in a
decreased return.

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. Ginnie Mae certificates are one type of
mortgage-backed U.S. Government Security in which the Fund may invest
(mortgage-backed securities are described below).

HIGH YIELD, HIGH-RISK DEBT SECURITIES. The Fund may invest up to 35% of
its total assets in high yield, high-risk debt securities rated BB or lower by
Standard & Poor's Corporation ("S&P"), or Ba or lower by Moody's Investors
Service ("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 Appendix A. The Fund will not
purchase securities rated BB or Ba or lower if the 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 securities.

High yield, high-risk debt securities are subject to the same risks as
investment-grade corporate bonds. In addition, high yield, high-risk debt
securities 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 Fund to dispose of
particular issues and may cause the Fund to incur special securities
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties. Unexpected net redemptions may force the Fund 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
Fund invests in debt securities that are original issue discount, zero coupon,
pay-in-kind or deferred interest bonds, the Fund may have taxable interest
income in excess of the cash actually received on these issues. In order to
avoid taxation to the Fund, the Fund may have to sell portfolio securities to
meet taxable distribution requirements.

High yield, high-risk debt securities 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 debt securities often are highly leveraged
and may not have available to them more traditional methods of financing.
Therefore, the risk associated with acquiring the debt securities of such
issuers generally is greater than is the case with higher-rated debt securities.
For example, during an economic downturn or recession, highly leveraged issuers
of high yield, high-risk debt securities may experience financial stress. During
such periods, such issuers may not

5
<PAGE>

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 debt securities because
such securities 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 Fund experiences unexpectedly large net redemptions, it may be
forced to sell high yield, high-risk debt securities out of the portfolio
without regard to the investment merits of such sales. This could decrease the
Fund's net assets. Since some of the Fund's expenses are fixed, this could also
reduce the Fund's rate of return.

The Fund may have difficulty disposing of certain high yield, high-risk
debt securities because there may be a thin trading market for such securities.
Because not all dealers maintain markets in all high yield, high-risk debt
securities, the Fund anticipates that such securities 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 Fund's
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 debt securities regardless of a fundamental analysis of the
investment merits of such securities. To the extent that the Fund purchases
illiquid or restricted securities, it may incur special securities registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties relating to such securities.

Until October 6, 1998, the Fund invested primarily in high yield,
high-risk securities. On that date the Fund's Board of Directors approved
changing the Fund's investment strategy to focus upon investment grade debt
securities. Under its current investment strategy, the Fund will not purchase
additional high yield, high-risk securities if, after giving effect to the
purchase, more than 35% of the Fund's total assets would be invested in high
yield, high-risk securities.

PORTFOLIO COMPOSITION. The table below reflects the Fund's portfolio
composition by quality rating for the year ended March 31, 1999, calculated on
the basis of the average weighted ratings of all bonds held at year end. The
table reflects the percentage of total assets represented by fixed-income
securities rated by Moody's or S&P, by unrated fixed-income securities and by
other assets. The percentages shown reflect the higher of the Moody's or S&P
rating. U.S. Government Securities, whether or not rated, are reflected as Aaa
and AAA (highest quality). Other assets may include money market instruments,
repurchase agreements, 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 ratings will change over time.

COMPOSITION OF
DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND'S
PORTFOLIO BY QUALITY RATING AS A PERCENTAGE OF
TOTAL NET ASSETS AS OF MARCH 31, 1999
<TABLE>
<CAPTION>

FUND'S ASSESSMENT OF GENERAL DEFINITION
MOODY'S/S&P RATING CATEGORY PERCENTAGE NON-RATED SECURITIES OF BOND QUALITY
- --------------------------- ---------- -------------------- ---------------
<S> <C> <C> <C>
Aaa/AAA ............................ xxx% xxx% Highest quality
Aa/AA ............................ xxx% xxx% High quality
A/A ............................ xxx% xxx% Upper medium grade
Baa/BBB ............................ xxx% xxx% Medium grade
Ba/BB ............................ xxx% xxx% Some speculative elements
B/B ............................ xxx% xxx% Speculative
Caa/CCC ............................ xxx% xxx% More speculative
Ca, C/CC, C, D...................... xxx% xxx% Very speculative, may be in default
Not Rated........................... xxx% xxx% Not rated by Moody's or S&P
Common and Preferred Stock.......... xxx% xxx%
Short-term Investments.............. xxx% xxx%
---- ----
xxx% xxx%
</TABLE>

<PAGE>

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 Appendix A. 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.

FOREIGN SECURITIES DENOMINATED IN U.S. DOLLARS. The Fund may invest
without limit in foreign issuers so long as their debt is denominated in U.S.
dollars. By restricting the Fund's investments to debt securities denominated in
U.S. dollars the Fund avoids currency risk, which is a primary risk of investing
in foreign issuers. There are other risks of foreign investing. For example,
foreign issuers are not required to use generally accepted accounting
principles. If foreign securities are not registered for sale in the U.S. under
U.S. securities laws, the issuer does not have to comply with the disclosure
requirements of our laws, which are generally more stringent than foreign laws.
The values of foreign securities investments will be affected by other factors,
including exchange control regulations or currency blockage, and possible
expropriation or nationalization of assets. There may also be changes in
governmental administration or economic or monetary policy in the U.S. or abroad
that can affect foreign investing. In addition, it is generally more difficult
to obtain court judgments outside the U.S. if the Fund has to sue a foreign
broker or issuer. Additional costs may be incurred because foreign broker
commissions are generally higher than U.S. rates, and there are additional
custodial costs associated with holding securities abroad.

Investments in foreign securities offer potential benefits not
available from investments solely in securities of domestic issuers, by offering
the opportunity to invest in foreign issuers that appear to offer growth
potential, or in foreign countries with economic policies or business cycles
different from those of the U.S., or to reduce fluctuations in portfolio value
by taking advantage of foreign bond or other markets that do not move in a
manner parallel to U.S. markets. From time to time, U.S. government policies
have discouraged certain investments abroad by U.S. investors through taxation
or other restrictions, and it is possible that such restrictions could be
reimposed. The Fund's policy of investing in foreign debt securities if they are
denominated in U.S. dollars may limit the number of foreign debt securities in
which the Fund may invest and prevent the Fund from investing in foreign issuers
which would otherwise meet the Fund's investment criteria.

The obligations of foreign governmental entities may or may not be
supported by the full faith and credit of a foreign government. Obligations of
"supranational entities" include those of international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and of international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the "World Bank"), the European Coal and Steel Community, the Asian
Development Bank and the Inter- American Development Bank. The governmental
members, or "stockholders," of these entities usually make initial capital
contributions to the supranational entity and in many cases are committed to
make additional capital contributions if the supranational entity is unable to
repay its borrowings. Each supranational entity's lending activities are limited
to a percentage of its total capital (including "callable capital" contributed
by members at the entity's call), reserves and net income. There is no assurance
that foreign governments will be able or willing to honor their commitments.

MORTGAGE-BACKED SECURITIES. Certain mortgage-backed securities, whether
issued by the U.S. Government or by private issuers, "pass-through" to investors
the interest and principal payments generated by a pool of mortgages assembled
for sale by government agencies or private issuers. Pass-through mortgage-backed
securities entail the risk that principal may be repaid at any time because of
prepayments on the underlying mortgages. That may result in greater price and
yield volatility than traditional fixed-income securities that have a fixed
maturity and interest rate.

Some mortgage-backed securities are issued by private issuers, such as
commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers. Mortgage-backed
securities issued by such private issuers are not issued or guaranteed by the
U.S. Government or its agencies and are, therefore, also subject to credit risk.

Mortgage-backed securities represent participation interests in pools
of residential mortgage loans which are guaranteed by agencies or
instrumentalities of the U.S. Government. Such securities differ from
conventional

7
<PAGE>

debt securities which generally provide for periodic payment of interest in
fixed or determinable amounts (usually semi-annually) with principal payments at
maturity or specified call dates. Some mortgage-backed securities in which the
Fund may invest may be backed by the full faith and credit of the U.S. Treasury
(e.g., direct pass-through certificates of Government National Mortgage
Association); some are supported by the right of the issuer to borrow from the
U.S. government (e.g., obligations of Federal Home Loan Mortgage Corporation);
and some are backed by only the credit of the issuer itself, which may be a
private rather than a government entity. Those guarantees do not extend to the
value of or yield of the mortgage-backed securities themselves or to the net
asset value of the Fund's shares. Any of these government agencies may also
issue collateralized mortgage-backed obligations ("CMOs"), discussed below.

The yield on mortgage-backed securities is based on the average
expected life of the underlying pool of mortgage loans. The actual life of any
particular pool will be shortened by any unscheduled or early payments of
principal and interest. Principal prepayments generally result from the sale of
the underlying property or the refinancing or foreclosure of underlying
mortgages. The occurrence of prepayments is affected by a wide range of
economic, demographic and social factors, and accordingly, it is not possible to
predict accurately the average life of a particular pool. Yield on such pools is
usually computed by using the historical record of prepayments for that pool, or
in the case of newly issued mortgages, the prepayment history of similar pools.
The actual prepayment experience of a pool of mortgage loans may cause the yield
realized by the Fund to differ from the yield calculated on the basis of the
expected average life of the pool.

Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease as do the values of other debt securities, but when
prevailing interest rates decline, the value of a pass-through security is not
likely to rise to the extent that the value of other debt securities rise,
because of the prepayment feature of pass-through securities. The Fund's
reinvestment of scheduled principal payments and unscheduled prepayments it
receives may occur at times when available investments offer higher or lower
rates than the original investment; thus, affecting the yield of the Fund.
Monthly interest payments received by the Fund have a compounding effect which
may increase the yield to the Fund more than debt obligations that pay interest
semi-annually. Because of those factors, mortgage-backed securities may be less
effective than Treasury bonds of similar maturity at maintaining yields during
periods of declining interest rates. The Fund may purchase mortgage-backed
securities at par, at a premium, or at a discount. Accelerated prepayments
adversely affect yields for pass-through securities purchased at a premium
(i.e., at a price in excess of their principal amount) and may involve
additional risk of loss of principal because the premium may not have been fully
amortized at the time the obligation is repaid. The opposite is true for
pass-through securities purchased at a discount.

GNMA Certificates. Certificates of the Government National Mortgage
Association ("GNMA") are mortgage-backed securities of GNMA that evidence an
undivided interest in a pool or pools of mortgages ("GNMA Certificates"). The
GNMA Certificates that the Fund may purchase are of the "modified pass-through"
type, which entitle the holder to receive timely payment of all interest and
principal payments due on the mortgage pool, net of fees paid to the "issuer"
and GNMA, regardless of whether the mortgagor actually makes the payments when
due.

The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA"). The GNMA guarantee is backed by the full faith
and credit of the U.S. Government. GNMA is also empowered to borrow without
limitation from the U.S. Treasury, if necessary, to make any payments required
under its guarantee.

The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that the Fund has
purchased the certificates at a premium in the secondary market.

FNMA Securities. The Federal National Mortgage Association ("FNMA") was
established to create a secondary market in mortgages insured by the FHA. FNMA
issues guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA
Certificates resemble GNMA Certificates in that each FNMA Certificate represents

8
<PAGE>

a pro rata share of all interest and principal payments made and owed on the
underlying pool. FNMA guarantees timely payment of interest and principal on
FNMA Certificates. The FNMA guarantee is not backed by the full faith and credit
of the U.S. Government.

FHLMC Securities. The Federal Home Loan Mortgage Corporation ("FHLMC")
was created to promote development of a nationwide secondary market for
conventional residential mortgages. FHLMC issues two types of mortgage
pass-through certificates ("FHLMC Certificates"): mortgage participation
certificates ("PCs"); and, guaranteed mortgage certificates ("GMCs"). PCs
resemble GNMA Certificates in that each PC represents a pro rata share of all
interest and principal payments made and owed on the underlying pool. FHLMC
guarantees timely monthly payment of interest on PCs and the ultimate payment of
principal. The FHLMC guarantee is not backed by the full faith and credit of the
U.S. Government.

GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal once
a year in guaranteed minimum payments. The expected average life of these
securities is approximately ten years. The FHLMC guarantee is not backed by the
full faith and credit of the U.S. Government.

Stripped Mortgage-Backed Securities. Stripped mortgage-backed
securities are securities in which the principal and interest portions of the
security are separated and sold. Stripped mortgage-backed securities usually
have at least two classes, each of which receives different proportions of
interest and principal distributions on the underlying pool of mortgage assets.
One common variety of stripped mortgage-backed security has one class that
receives some of the interest and most of the principal, while the other class
receives most of the interest and the remainder of the principal. In some cases,
one class will receive all of the interest (the "interest-only" or "IO" class),
while the other class will receive all of the principal (the "principal-only" or
"PO" class). Interest-only securities are extremely sensitive to interest rate
changes and prepayments of principal on the underlying mortgage assets. An
increase in principal payments or prepayments will reduce the income available
to the IO security. In other types of CMOs, the underlying principal payments
may apply to various classes in a particular order, and therefore the value of
certain classes or "tranches" of such securities may be more volatile than the
value of the pool as a whole, and losses may be more severe than on other
classes.

Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are fully
collateralized bonds that are the general obligations of the issuer by either
the U.S. Government, a U.S. government instrumentality, or a private issuer
which may be a domestic or foreign corporation. Such bonds generally are secured
by an assignment to a trustee (under the indenture pursuant to which the bonds
are issued) of collateral consisting of a pool of mortgages. Payments with
respect to the underlying mortgages generally are made to the trustee under the
indenture. Payments of principal and interest on the underlying mortgages are
not passed through to the holders of the CMOs as such (i.e., the character of
payments of principal and interest is not passed through, and therefore payments
to holders of CMOs attributable to interest paid and principal repaid on the
underlying mortgages do not necessarily constitute income and return of capital,
respectively, to such holders), but such payments are dedicated to payment of
interest on and repayment of principal of the CMOs. CMOs often are issued in two
or more classes with different characteristics such as varying maturities and
stated rates of interest. Because interest and principal payments on the
underlying mortgages are not passed through to holders of CMOs, CMOs of varying
maturities may be secured by the same pool of mortgages, the payments on which
are used to pay interest on each class and to retire successive maturities in
sequence. Unlike other mortgage-backed securities (discussed above), CMOs are
designed to be retired as the underlying mortgages are repaid. In the event of
prepayment on such mortgages, the class of CMO first to mature generally will be
paid down. Therefore, although in most cases the issuer of CMOs will not supply
additional collateral in the event of such prepayment, there will be sufficient
collateral to secure CMOs that remain outstanding.

ASSET-BACKED SECURITIES. The Fund may invest in "asset-backed"
securities. These represent interests in pools of consumer loans and other trade
receivables, similar to mortgage-backed securities. They are issued by trusts
and "special purpose corporations." They are backed by a pool of assets, such as
credit card or auto loan receivables, which are the obligations of a number of
different parties. The income from the underlying pool is passed through to
holders, such as the Fund. These securities may be supported by a credit
enhancement, such as a letter of credit, a guarantee, or a preference right.
However, the extent of the credit enhancement may be different for different
securities and generally applies to only a fraction of the security's value.
These securities present

9
<PAGE>

special risks. For example, in the case of credit card receivables, the issuer
of the security may have no security interest in the related collateral.

The value of an asset-backed security is affected by changes in the
market's perception of the asset backing the security, the creditworthiness of
the servicing agent for the loan pool, the originator of the loans, or the
financial institution providing any credit enhancement, and is also affected if
any credit enhancement has been exhausted. The risks of investing in
asset-backed securities are ultimately dependent upon payment of consumer loans
by the individual borrowers. As a purchaser of an asset-backed security, the
Fund would generally have no recourse to the entity that originated the loans in
the event of default by a borrower. The underlying loans are subject to
prepayments, which shorten the weighted average life of asset-backed securities
and may lower their return in the same manner as described above for the
prepayments of a pool of mortgage loans underlying mortgage-backed securities.

ZERO COUPON SECURITIES. 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 Fund 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 Fund may obtain no return at all
on its investment. To the extent that the Fund invests in bonds that are
original issue discount, zero coupon, pay-in-kind or deferred interest bonds,
the Fund 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 Fund, the Fund may have to sell portfolio securities to meet its taxable
distribution requirements under circumstances that could be adverse.

TAXABLE MUNICIPAL OBLIGATIONS. Taxable municipal obligations are issued
by or on behalf of states, territories, and possessions of the U.S., and their
political subdivisions, agencies, and instrumentalities, and the District of
Columbia to obtain funds. Unlike traditional municipal bonds, the interest
earned on taxable municipal obligations is subject to federal income tax.
Taxable municipal obligations are subject to interest rate, credit, and
prepayment risks.

OTHER INVESTMENT POLICIES

TEMPORARY DEFENSIVE INVESTMENTS. For defensive purposes or to
accommodate inflows of cash awaiting more permanent investment, the Fund may
temporarily and without limitation hold high-grade short-term money market
instruments, cash and cash equivalents, including repurchase agreements. The
Fund may also invest in other investment companies which themselves invest in
temporary defensive investments. Investments in other investment companies are
limited by the Investment Company Act of 1940.

REPURCHASE AGREEMENTS. The Fund 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 Fund 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 Fund seeks to enforce
its rights thereto; (b) possible loss of all or a part of the income during this
period; and (c) expenses of enforcing its rights.

10
<PAGE>

The Fund 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 Fund 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 Fund will not enter into a
repurchase agreement maturing in more than seven days if it would cause more
than 15% of the value of its net assets to be invested in such transactions.
Repurchase agreements maturing in less than seven days are not deemed illiquid
securities for the purpose of the Fund's limitation on illiquid securities.

AVERAGE MATURITY AND MIX OF SECURITIES. The average maturity and the
mix of investments of the Fund will vary as the Adviser seeks to provide a high
level of income considering the available alternatives in the market. To limit
interest rate risk, the Adviser seeks to maintain the Fund's average maturity
from five to ten years. Since interest rates vary with changes in economic,
market, political, and other conditions, there can be no assurance that historic
interest rates are indicative of rates which may prevail in the future. Since
the values of securities in the Fund fluctuate depending upon market factors,
the credit of the issuer and inversely with current interest rate levels, the
net asset value of its shares will fluctuate. The Adviser attempts to adjust
investments as considered advisable in view of prevailing or anticipated market
and credit conditions as perceived by the Adviser. Portfolio securities may be
purchased or sold in anticipation of a rise or a decline in interest rates or a
change in credit quality.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a "when-issued" basis and may purchase or sell such securities on
a "delayed delivery" basis. These terms refer to securities that have been
created and for which a market exists, but which are not available for immediate
delivery or are to be delivered at a later date. There may be a risk of loss to
the Fund if the value of the security changes prior to the settlement date.

Although the Fund will enter into when-issued and delayed delivery
transactions for the purpose of acquiring securities for its portfolio, the Fund
may dispose of a commitment prior to settlement. When such transactions are
negotiated, the price (which is generally expressed in yield terms) is fixed at
the time the commitment is made, but delivery and payment for the securities
take place at a later date. The Fund does not intend to make such purchases for
speculative purposes. The commitment to purchase a security for which payment
will be made on a future date may be deemed a separate security and involve a
risk of loss if the value of the security declines prior to the settlement date.
During the period between commitment by the Fund and settlement, no payment is
made for the securities purchased by the purchaser, and no interest accrues to
the purchaser from the transaction. Such securities are subject to market
fluctuation, and the value at delivery may be less than the purchase price. The
Fund will identify liquid assets on its records as segregated, of any type,
including equity and debt securities of any grade at least equal to the value of
purchase commitments, until payment is made.

The Fund may engage in when-issued transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the obligation. When the Fund engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to
consummate the transaction. Failure of the buyer or seller to do so may result
in the Fund losing the opportunity to obtain a price and yield considered to be
advantageous. At the time the Fund makes a commitment to purchase or sell a
security on a when-issued or forward commitment basis, it records the
transaction and reflects the value of the security purchased, or if a sale, the
proceeds to be received, in determining its net asset value. If the Fund chooses
to (i) dispose of the right to acquire a when-issued security prior to its
acquisition, or (ii) dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss.

When-issued transactions and forward commitments allow the Fund a
technique to use against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling prices, the Fund might
sell securities in its portfolio on a forward commitment basis to attempt to
limit its exposure to anticipated falling prices. In periods of falling interest
rates and rising prices, the Fund might sell portfolio securities and purchase
the same or similar securities on a when-issued or forward commitment basis,
thereby obtaining the benefit of currently higher cash yields.

LENDING PORTFOLIO SECURITIES. The Fund may lend securities to
broker/dealers or institutional investors for their use in connection with short
sales, arbitrages, and other securities transactions. The Fund may earn interest
on

11
<PAGE>

cash collateral or receive a fee from broker/dealers for lending its portfolio
securities. The Fund will not lend portfolio securities unless the loan is
secured by collateral (consisting of any combination of cash, U.S. Government
securities or irrevocable letters of credit) in an amount at least equal (on a
daily market-to-market basis) to the current market value of the securities
loaned. In the event of a bankruptcy or breach of agreement by the borrower of
the securities, the Fund could experience delays and costs in recovering the
securities loaned. The Fund will not lend securities if such a loan would cause
more than 20% of the total value of its assets to then be subject to such loans.

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

The restricted securities which the Fund 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 Fund, 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
Fund's Board of Directors, will consider whether Rule 144A Securities being
purchased or held by the Fund are illiquid and thus subject to the Fund's 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
Fund's 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.

BORROWING. The Fund may borrow money for temporary or emergency
purposes. The Fund will not borrow money with the intent of leveraging its
investments. Borrowing activities are strictly limited as described in the
section entitled "Investment Restrictions".

PORTFOLIO TRANSACTIONS

The Adviser and Sub-Adviser are responsible for the placement of
portfolio transactions, subject to the supervision of the Board of Directors.
The Fund has 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
Fund's investment objectives, the Fund 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 or dealer
markups, 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 Fund 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.

The Fund has approved a policy which allows it to use commissions to
purchase research. The Fund will not use markups to purchase research. 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 Fund 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 Fund. Subject to the
requirements of best execution, the placement of orders by securities firms for
shares of the Fund may be taken into account as a factor in the placement of
portfolio transactions.

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<PAGE>

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 and 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 Fund's portfolios. As any particular research obtained by the Adviser or
Sub-Adviser may be useful to the Fund, the Board of Directors or its Committee
on Brokerage, in considering the reasonableness of the commissions paid by the
Fund, will not attempt to allocate, or require the Adviser or Sub-Adviser to
allocate, the relative costs or benefits of research.

Most of the Fund's transactions are made on a principal basis. The
price of such transactions may include profit for the dealer. The Fund paid the
following brokerage commissions:

<TABLE>
<CAPTION>
Fiscal year ended March 31:
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Brokerage commissions paid: $xxx $xxx $xxx
Amount paid to brokers providing research: xx% xx% xx%

</TABLE>

Because of the Fund's 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 Fund anticipates that, during normal
market conditions, its annual portfolio turnover rate will be less than 100%.

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.

1. Commodities. The Fund may not buy or sell commodities or commodity
contracts.

2. Real Estate. The Fund may not purchase real estate or real estate mortgages
as such, but the Fund may purchase the liquid securities of companies,
including real estate investment trusts, holding real estate or interests
(including mortgage interests) therein.

3. Voting Securities. The Fund may not buy the securities of any company if
the Fund would then own more than 10% of such company's voting securities
or any class of such company's securities. For this purpose, all debt
securities of an issuer are deemed to comprise a single class.

13
<PAGE>

4. Diversification. The Fund may not buy the securities of any company if more
than 5% of the value of its total assets would then be invested in that
company; the Fund may, however, without limitation, invest in obligations
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities ("U.S. Government Securities") and repurchase agreements
with respect thereto.

5. Concentration. The Fund may not buy the securities of companies in any one
industry if more than 25% of the value of the Fund's total assets would
then be invested in companies in that industry.

6. Options. The Fund may not purchase or write put or call options, except
that it may write listed covered call options and make closing transactions
in respect thereof, provided that no more than 20% of the value of the
Fund's total assets would be subject to such calls.

7. Seasoned Issuers. The Fund may not buy the securities of companies in
continuous operation for less than three years (including predecessors) if
more than 5% of the value of the Fund's total assets would then be invested
in such securities.

8. Investment Companies. The Fund may not buy securities issued by other
investment companies except incident to an acquisition of assets or a
merger.

9. Selling Short, Margin, Arbitrage. The Fund may not sell short, buy on
margin or engage in arbitrage transactions.

10. Investing For Control. The Fund does not invest for the purpose of
exercising control or management of other companies.

11. Borrowing. The Fund may not borrow money except from banks for
extraordinary emergency purposes in amounts not exceeding 10% of the value
of the Fund's total assets (excluding the amount borrowed) at the time of
such borrowing. The Fund may not pledge or hypothecate any of its assets,
except in connection with permitted borrowing in amounts not exceeding 15%
of the value of its total assets (excluding the amount borrowed) at the
time of such borrowing.

12. Affiliated Securities. The Fund may not buy or continue to hold securities
if any officers or directors of the Fund, 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. The Fund does not engage in the underwriting of securities;
however, if the Fund sells "restricted" securities it may technically be
considered an "underwriter."

14. Lending. The Fund may lend its securities provided that not more than 20%
of the value of the Fund's total assets are subject to such loans. The Fund
may not lend money except through the purchase of debt obligations
(including entering into repurchase agreements) in accordance with the
Fund's investment objectives.

15. Senior Securities. The Fund may not issue senior securities nor sell short
more than 5% of its total assets. This limitation does not apply to selling
short against the box.

NON-FUNDAMENTAL POLICIES. In addition to the foregoing restrictions, the Fund is
subject to certain non-fundamental policies which may be changed without
shareholder approval. Currently, these restrictions include:

1. Futures and Options Contracts. The Fund will not invest in futures or
options contracts. In addition, the Fund will not enter into swap
transactions or forward contracts. This restriction does not limit the
Fund's ability to purchase fixed-income securities with embedded options or
to enter into repurchase agreements which are fully collateralized with
government securities.

14
<PAGE>

2. Fixed-Income Securities Denominated in U.S. Dollars. The Fund will only
purchase fixed-income securities if they are denominated in U.S. dollars.

3. High Yield, High-Risk Securities. The Fund will not invest more than 35% of
its total assets in fixed-income securities which are rated less than
investment-grade or, if unrated, judged by the Adviser to be of comparable
quality to such high yield, high-risk securities. High yield, high-risk
securities include securities rated BB, B, CCC, CC, C and D by Standard &
Poor's or Ba, B, Caa, Ca and C by Moody's.

4. Illiquid Securities. The Fund will not purchase or hold illiquid securities
if more than 15% of the Fund's net assets would then be illiquid.

5. Borrowing. In addition to the fundamental policy restricting borrowing, the
Fund may borrow money from any source for temporary purposes in an amount
not exceeding 5% of total assets. The Fund will not purchase portfolio
securities on margin and will not purchase additional portfolio securities
while borrowings exceed 5% of the total assets of the Fund

PLEASE NOTE: Except for limitations on borrowing and illiquid securities, all
percentage restrictions, whether fundamental or non-fundamental, apply as of the
time of an investment without regard to any later fluctuations in the value of
portfolio securities or other assets.

Section II: Key Persons

ORGANIZATION OF THE COMPANY

THE COMPANY. Davis Intermediate Investment Grade Bond Fund, Inc.
("Company") is an open-end, diversified, management investment company
incorporated in Maryland in 1980 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 a single series, the Davis Intermediate Investment
Grade Bond Fund ("Fund"). On October 6, 1998 the Company changed its name from
Davis High Income Fund, Inc. to Davis Intermediate Investment Grade Bond Fund,
Inc.

FUND SHARES. The Fund may issue shares in different classes. The Fund's
shares are currently divided into four classes, Class A, Class B, Class C, and
Class Y shares. The Board of Directors may offer additional series or classes in
the future and may at any time discontinue the offering of any series or 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 Fund's 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

15
<PAGE>

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 Fund. The Board approves all significant
agreements between the Company, on behalf of the Fund, and those companies that
furnish services to the Fund. 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
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.

16
<PAGE>

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.

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.

17
<PAGE>

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 LLC, the Company's legal counsel.

ARTHUR DON (9/24/53), 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 LLC, 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.

DIRECTORS' COMPENSATION SCHEDULE

During the fiscal year ended March 31, 1999, 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 xxx xxx
Marc P. Blum xxx xxx
Jerry D. Geist xxx xxx
D. James Guzy xxx xxx
G. Bernard Hamilton xxx xxx
LeRoy E. Hoffberger xxx xxx
Laurence W. Levine xxx xxx
Christian R. Sonne xxx xxx
Edwin R. Werner** xxx xxx
Marsha Williams***

- ----------
*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 as a Director December 31, 1997, but still serves
in a non-voting emeritus status.

*** Ms. Williams was elected to the Board as of January 1, 1999.

CERTAIN SHAREHOLDERS OF THE FUND

As of July 2, 1999, officers and directors owned the following
percentages of each Class of shares issued by the Fund:

<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Davis Intermediate Investment Grade Bond Fund x.xx x.xx x.xx* x.xx

</TABLE>

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

18
<PAGE>

The following table sets forth, as of July 2, 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 shares. The Fund is not aware of
any shareholder that beneficially owns in excess of 25% of the Fund's total
outstanding shares.

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

xxxx xxx%

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 of the Fund. 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 Fund. Davis Distributors, LLC ("the Distributor"), a
subsidiary of the Adviser, serves as the distributor or principal underwriter of
the Fund's shares. Davis Selected Advisers-NY, Inc., ("DSA-NY") a wholly owned
subsidiary of the Adviser, performs investment management, research and other
services for the Fund 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 Tax-Free High Income Fund, Inc., Davis Series, 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, the Fund pays
the Adviser a fee according to a separate negotiated fee schedule. Advisory fees
are allocated among each Class of shares in proportion to each Class's relative
total net assets.

The Fund pays the Adviser a monthly fee at the annual rate of 0.55% of
average net assets. Prior to October 6, 1998, the Fund paid the Adviser a
monthly fee at the annual rate of 0.70% of average net assets to manage an
investment portfolio of high yield, high-risk securities. Prior to October 6,
1998, the Fund invested primarily in high yield, high-risk securities. At that
time the Fund and the Adviser retained Stamper Capital & Investments, Inc. to
serve as sub-adviser to the Fund.

The aggregate advisory fee paid by the Fund to the Adviser was:

For fiscal year ended March 31:
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Davis Intermediate Investment Grade Bond Fund $xxx $xxx $xxx

</TABLE>

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.

The Adviser has entered into a Sub-Advisory Agreement with its wholly
owned subsidiary, Davis Selected Advisers-NY, Inc. ("DSA-NY"), where DSA-NY
performs research and other services on behalf of the Adviser. Under the
Agreement, the Adviser pays all of DSA-NY' s direct and indirect costs of
operation. All of the fees paid to DSA-NY are paid by the Adviser and not the
Fund.

The Advisory Agreement also makes provisions for portfolio transactions
and brokerage policies of the Fund 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 Fund's

19
<PAGE>

outstanding shares, or the Adviser. The continuance of the Advisory Agreement
and Sub-Advisory Agreement must be approved at least annually by the Fund's
Board of Directors or by the vote of holders of a majority of the outstanding
shares of the Fund. In addition, any new agreement, or the continuation of the
existing agreement, must be approved by a majority of Directors who are not
parties to the agreements or interested persons of any such party.

Pursuant to the Advisory Agreement, the Adviser, subject to the general
supervision of the Fund's 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 Fund. The Fund bears 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. The Fund
reimburses the Adviser for providing certain services including accounting and
administrative services, qualifying shares for sale with state agencies, and
shareholder services. Such reimbursements are detailed below:

<TABLE>
<CAPTION>
Fiscal year ended March 31:
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Davis Intermediate Investment Grade Bond Fund
- ---------------------------------------------
Accounting and administrative services: $xxx $xxx $xxx
Qualifying shares for sale with state agencies: $xxx $xxx $xxx
Shareholder services: $xxx $xxx $xxx

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

DISTRIBUTION OF COMPANY SHARES

DISTRIBUTION PLANS. Class A, Class B, and Class C shares have each
adopted Distribution Plans under which the Fund reimburses the Distributor for
some of its distribution expenses. The Distribution Plans were approved by the
Fund's 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 Fund's 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 Fund.
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 the 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

20
<PAGE>

of 0.75% of the average daily net assets is used to reimburse the Distributor
for these commission payments. Most or all of such commissions are reallowed to
salespersons and to firms responsible for such sales. No commissions are paid by
the Company with respect to sales by the Distributor to officers, directors, and
full-time employees of the Fund, the Distributor, the Adviser, the Adviser's
general partner, or DSA-NY. Up to 0.25% of average net assets is used to
reimburse the Distributor for the payment of service and maintenance fees to its
salespersons and other firms for shareholder servicing and maintenance of its
shareholder accounts.

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

CARRYOVER PAYMENTS. If, due to the foregoing payment limitations, the
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 Fund 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 Fund is 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 the 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 March 31, 1999 the cumulative totals of
these carryover payments were $xx, representing xx% of Class B shares net
assets.

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

Shares of the Fund 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 Fund under the Glass-Steagall Act would
have no material adverse effects on the Fund. State securities laws may require
such firms to be licensed as securities dealers in order to sell shares of the
Fund.

21
<PAGE>

FUND SUPERMARKETS. The Fund participates 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 Fund pays the supermarket
sponsor a negotiated fee for distributing the Fund's 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 Fund 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 Fund. The Fund 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 Fund. The amount of shareholder servicing fees which the Fund 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 Fund 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 Fund's Rule 12b-1 Plan. Under the Services
Agreement, KRC will provide shareholder maintenance services to clients with
respect to 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 Fund's shares on a continuing basis. 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 Fund's shares to the public, including reports to
shareholders to the extent they are used as sales literature. The Distributor
also pays for the preparation and printing of prospectuses other than those
forwarded to existing shareholders. The continuance and assignment provisions of
the Distributing Agreement are the same as those of the Advisory Agreement.

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

Fiscal year ended March 31:
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Davis Intermediate Investment Grade Bond Fund: $xxx $xxx $xxx
Amount reallowed to dealers: $xxx $xxx $xxx

</TABLE>

22
<PAGE>

The Distributor received compensation on redemptions and repurchases of
shares:

Fiscal year ended March 31, 1999:
Class A shares $xxx
Class B shares $xxx
Class C shares $xxx

The Distributor or the Adviser, in its capacity as distributor,
received the following amounts as reimbursements under the Distribution plans:

Fiscal year ended March 31:
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Class A shares $xxx $xxx $xxx
Class B shares $xxx $xxx $xxx
Class C shares $xxx $xxx $xxx

</TABLE>

OTHER IMPORTANT SERVICE PROVIDERS

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

AUDITORS. KPMG LLP ("KPMG"), 707 17th Street, Suite 2300, Denver,
Colorado 80202, serves as independent auditors for the Fund. 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 LLC, 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, Exchange and Redemption of Shares

PURCHASE OF SHARES

CLASS A, B, AND C SHARES. You can purchase Class A, Class B, or Class C
shares of the 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 Fund. 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.

23
<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 INTERMEDIATE INVESTMENT GRADE BOND 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 Withdrawal Plan. 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

The 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. 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 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.

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

24
<PAGE>

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 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 Fund's 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.

(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 Fund's 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 Fund's shares are in escrow pursuant to a Statement and

25
<PAGE>

such shares are exchanged for shares of another Davis Fund, the escrow will
continue with respect to the acquired shares.

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

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

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

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

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

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

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

If a "single purchaser" decides to buy the 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
New York Venture Fund's Class A shares and $150,000 in the Class A shares of
Davis Investment Grade Bond Fund and pay a sales charge of 2-1/2%, not 3-1/2%.

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

Lastly, the right of accumulation also applies to the Class A, Class B
and Class C shares of the other Davis Funds (other than Davis Government Money
Market Fund) which you own. Thus, the amount of current purchases 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 New York Venture Fund and Davis Financial Fund
and Davis Convertible Securities Fund, (valued at the applicable current
offering price) and invest $5,000 in the Fund's shares, the sales charge on your
investment would be 3-1/2%, not 4-3/4%.

In all 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.

26
<PAGE>

(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 Fund (as in employee
purchases), or because a responsible party (such as a financial institution) is
providing the necessary services usually provided by a registered
representative. In addition, the Fund occasionally may be provided with an
opportunity to purchase substantially all the assets of a public or private
investment company or to merge another such company into the Fund. This offers
the Fund the opportunity to obtain significant assets. No dealer concession is
involved. It is industry practice to effect such transactions at net asset value
as it would adversely affect the Fund's ability to do such transactions if the
Fund had to impose a sales charge.

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

(7) SALES AT NET ASSET VALUE. The sales charge will not apply to: (1)
Class A shares purchased through the automatic reinvestment of dividends and
distributions; (2) Class A shares purchased by directors, officers, and
employees of any fund for which the Adviser acts as investment adviser, or
officers and employees of the Adviser, Sub-Adviser, or Distributor, including
former directors and officers and any spouse, child, parent, grandparent,
brother or sister ("immediate family members") of all of the foregoing, and any
employee benefit or payroll deduction plan established by or for such persons;
(3) Class A shares purchased by any registered representatives, principals, and
employees (and any immediate family member) of securities dealers having a sales
agreement with the Distributor; (4) initial purchases of Class A shares totaling
at least $250,000 but less than $5,000,000, made at any one time by banks, trust
companies, and other financial institutions on behalf of one or more clients for
which such institution acts in a fiduciary capacity; (5) Class A shares
purchased by any single account covering a minimum of 250 participants (this 250
participant minimum may be waived for certain fee-based mutual fund marketplace
programs) and representing a defined benefit plan, defined contribution plan,
cash or deferred plan qualified under 401(a) or 401(k) of the Internal Revenue
Code, or a plan established under section 403(b), 457 or 501(c)(9) of such Code
or "rabbi trusts"; (6) Class A shares purchased by persons participating in a
"wrap account" or similar fee-based program sponsored and maintained by a
registered broker-dealer approved by the Fund's 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 Fund 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 Fund imposes a deferred sales charge of 4% on
shares redeemed during the first year after purchase, 3% on shares redeemed
during the second or third year after purchase, 2% on shares redeemed during the
fourth or fifth year after purchase and 1% on shares redeemed during the sixth
year after purchase. However, on Class B shares of the Fund which are acquired
in exchange from Class B shares of other Davis Funds which were purchased prior
to December 1, 1994, the Fund 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 Fund will not accept any purchase
of Class B shares in the amount of $250,000 or more per investor.

27
<PAGE>

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 Fund 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 Fund 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 Fund during the one-year period. If
Class C shares are redeemed within the one-year period after purchase, the 1%
redemption charge will be paid to the Distributor. After Class C shares have
been outstanding for more than one year, the Distributor will make quarterly
payments to the firm responsible for the sale of the shares in amounts equal to
0.75% of the annual average daily net asset value of 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 Fund 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.

28
<PAGE>

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 withdrawal 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 withdrawal plan; (d) for redemptions from a
qualified retirement plan or IRA that constitute a tax-free return of excess
contributions to avoid tax penalty; (e) on redemptions of shares sold to
directors, officers, and employees of any fund for which the Adviser acts as
investment adviser, or officers and employees of the Adviser, Sub-Adviser, or
Distributor, including former directors and officers and immediate family
members of all of the foregoing, and any employee benefit or payroll deduction
plan established by or for such persons; and (f) on redemptions pursuant to the
right of the Company to liquidate a shareholder's account if the aggregate net
asset value of the shares held in such account falls below an established
minimum amount.

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

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

SPECIAL SERVICES

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

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 Fund's 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.

29
<PAGE>

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, the Funds
are intended as long-term investments and are not intended for short-term
trades. 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.

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.

30
<PAGE>

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.

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.

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.

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<PAGE>

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.

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. 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.

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 Fund 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

32
<PAGE>

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 Withdrawal 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
the 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."

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

33
<PAGE>

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 Fund's securities are traded in markets that
close at different times, events affecting portfolio values that occur between
the time that their prices are determined and the time the Fund's shares are
priced will generally not be reflected in the Fund's share price. The value of
securities denominated in foreign currencies and traded in foreign markets will
have their value converted into the U.S. dollar equivalents at the prevailing
market rate as computed by State Street Bank & Trust Company. Fluctuation in the
value of foreign currencies in relation to the U.S. dollar may affect the net
asset value of the Fund's shares even if there has not been any change in the
foreign currency price of the Fund's investments.

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 Fund 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 Fund, the Service Providers have
advised the Fund 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 Fund invests will not experience difficulties with Year 2000 transition
issues, which may negatively affect the market value of those companies.

DIVIDENDS AND DISTRIBUTIONS

There are two sources of income, net income and realized capital gains,
paid to you by the Fund. 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, of having 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.

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
of having 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.

34
<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 Fund and its 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 Fund.

The Fund intends 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,
except in respect to realization of the "built-in gains" as described below. 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 Fund intends 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 (other than the built-in gains as discussed
below) 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 Fund may advertise information regarding its
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 the Fund for the
periods indicated below is as follows:

<TABLE>
<CAPTION>
Cumulative Average Annual
Total Return 1 Total Return 2
------------- -------------
<S> <C> <C>
xxx xxx

Class A Shares
One year ended March 31, 1999.........................................xxx% xxx%
Five years ended March 31, 1999.......................................xxx% xxx%
Ten years ended March 31, 1999........................................xxx% xxx%
Period from May 29, 1980 through March 31, 1999 (life of class) ....xxx% xxx%

Class B Shares
One year ended March 31, 1999.........................................xxx% xxx%
Period from December 5, 1994 through March 31, 1999 (life of class).. xxx% xxx%

35
<PAGE>

Class C Shares
One year ended March 31, 1999.........................................xxx% xxx%
Period from August 12, 1997 through March 31, 1999 (life of class)....xxx% xxx%

Class Y Shares
One year ended March 31, 1999.........................................xxx% xxx%
Period from March 20, 1997 through March 31, 1999 (life of class).....xxx% xxx%

</TABLE>

- ----------

1 "Cumulative Total Return" is a measure of a Fund's performance
encompassing all elements of return. Total return reflects the change
in share price over a given period and assumes all distributions are
taken in additional Fund shares. Total return is determined by assuming
a hypothetical investment at the beginning of the period, deducting a
maximum front-end or applicable contingent deferred sales charge,
adding in the reinvestment of all income dividends and capital gains,
calculating the ending value of the investment at the net asset value
as of the end of the specified time period and subtracting the amount
of the original investment, and by dividing the original investment.
This calculated amount is then expressed as a percentage by multiplying
by 100. Periods of less than one year are not annualized.

2 "Average Annual Total Return" represents the average annual
compounded rate of return for the periods presented. Periods of less
than one year are not annualized. Average annual total return measures
both the net investment income generated by, and the effect of any
realized or unrealized appreciation or depreciation of, the underlying
investments in the Fund's portfolio. Average annual total return is
calculated separately for each class in accordance with the
standardized method prescribed by the Securities and Exchange
Commission by determining the average annual compounded rates of return
over the periods indicated, that would equate the initial amount
invested to the ending redeemable value, according to the following
formula:

P(1+T)n = ERV

Where: P = hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value at the end
of the period of a hypothetical
$1,000 payment made at the beginning
of such period

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 Intermediate Investment Grade Bond Fund for the period ended
March 31, 1999, is as follows:

Class A shares xxx%
Class B shares xxx%
Class C shares xxx%
Class Y shares xxx%

"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 Fund's 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:

36
<PAGE>

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.

Davis Intermediate Investment Grade Bond Fund's 30 Day SEC Yield 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 Fund may be compared to recognized unmanaged
indices or averages of the performance of similar securities. Also, the
performance of the Fund 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 Fund may use evaluations published by nationally recognized
independent ranking services and publications. Any given performance comparison
should not be considered representative of the Fund's performance for any future
period.

In advertising and sales literature the Fund may publish various
statistics describing its investment portfolio such as the Fund's average Price
to Book and Price to Earnings ratios, beta, alpha, R-squared, standard
deviation, etc.

The Fund's 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 through
Friday, 7 a.m. to 4 p.m.
Mountain Time.

37
<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.

38
<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.

39
<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 INTERMEDIATE INVESTMENT GRADE BOND FUND, INC.

POST-EFFECTIVE AMENDMENT NO. 28 UNDER THE SECURITIES ACT OF 1933
REGISTRATION STATEMENT NO. 2-66935

AND

AMENDMENT NO. 27 UNDER THE INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-3007

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. 23 File 2-66935.

(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. 27, File No. 2-66935.

(b) By-laws. Amended and Restated Bylaws, incorporated by reference to
Exhibit 2 of Registrant's Post-Effective Amendment No. 23, File No.
2-66935.

(d)(1) Investment Advisory Contracts. incorporated by reference to Exhibit
5(a) of Registrant's Post-Effective Amendment No., 23, File No.
2-66935.

(d)(2) Investment Advisory Agreement, as amended, incorporated by reference to
Exhibit 5(b) of Registrant's Post-Effective Amendment No., 23, File No.
2-66935.

(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. 26 File No. 2-66935.

1
<PAGE>

(e)(1) Underwriting Contracts. Distributor's Agreement, incorporated by
reference to Exhibit 6(b) of Registrant's Post-Effective Amendment No.
17, File No. 2-66935.

(e)(2) Transfer and Assumption Agreement dated July 31, 1997, incorporated by
reference to Exhibit (6)(b) of Registrant's Post-Effective Amendment
No. 26, File No. 2-66935.

(f) Bonus or Profit Sharing Contracts. Not applicable.

(g) Custodian Agreements Custodian Contract, incorporated by reference to
Exhibit (8)(a) of Registrant's Post-Effective Amendment No. 16, File
No. 2-66935.

(h) Other Material Contracts. Transfer Agency and Service Agreement
incorporated by reference to Exhibit (8)(b) of Registrant's
Post-Effective Amendment No. 16, File No. 2-66935.

(i)* Legal Opinion. Opinion and Consent of Counsel, (D'Ancona & Pflaum LLC).

(j)(1)* Other Opinions. Consent of Auditors. KPMG, LLP.

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

(l) Initial Capital Agreements. Not Applicable

(m)(1) Rule 12b-1 Plan. Distribution Plan for Class A shares, as amended,
incorporated by reference to Exhibit (15)(a) of Registrant's
Post-Effective Amendment No. 23, File No. 2-66935.

(m)(2) Distribution Plan for Class B shares, incorporated by reference to
Exhibit (15)(b) of Registrant's Post-Effective Amendment No. 23, File
No. 2-66935.

(m)(3) Distribution Plan for Class C shares, incorporated by reference to
Exhibit (15)(c) of Registrant's Post-Effective Amendment No. 26, File
No. 2-66935.

(n) Financial Data Schedule. Not applicable

(o)** Rule 18f-3 Plan. Plan pursuant to Rule 18f-3, as amended. Filed herein.

2
<PAGE>

(p)(1) Other Exhibits. Powers of Attorney of the Registrant, Officers and
Board of Directors of Davis Intermediate Investment Grade Bond, Inc.
appointing Sheldon Stein and Arthur Don as attorneys-in-fact.
Incorporated by reference to Exhibit (18)(a) of Registrant's
Post-Effective Amendment No. 27, File No. 2-66935.

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

* To be filed by amendment prior to being declared effective.

** Filed Herein

Item 24. Persons Controlled by or Under Common Control With Registrant

Not applicable

Item 25. Indemnification

Registrant's Articles of Incorporation indemnifies its directors,
officers and employees to the full extent permitted by Section 2-418 of the
Maryland General Corporation Law, subject only to the provisions of the
Investment Company Act of 1940. The indemnification provisions of the Maryland
General Corporation Law (the "Law") permit, among other things, corporations to
indemnify directors and officers unless it is proved that the individual (1)
acted in bad faith or with active and deliberate dishonesty, (2) actually
received an improper personal benefit in money, property or services, or (3) in
the case of a criminal proceeding, had reasonable cause to believe that his act
or omission was unlawful. The Law was also amended to permit corporations to
indemnify directors and officers for amounts paid in settlement of stockholders'
derivative suits.

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.

3
<PAGE>

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 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,

4
<PAGE>

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

Sharra Reed Assistant Treasurer Vice President, Treasurer and
124 East Marcy Street Assistant Secretary.
Santa Fe, NM 87501
</TABLE>

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.

5
<PAGE>

DAVIS INTERMEDIATE INVESTMENT GRADE BOND, 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 26th day of May,
1999.

DAVIS INTERMEDIATE INVESTMENT GRADE
BOND, INC.

*By: /s/ Arthur Don
---------------------------
Arthur Don
Attorney-in-Fact

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated.

Signature Title Date
--------- ----- ----
Shelby M.C. Davis* President, Chief Executive Officer May 26, 1999
- ------------------
Shelby M.C. Davis

Sharra L. Reed* Principal Financial Officer
- ------------------ and Treasurer May 26, 1999
Sharra L. Reed

*By: /s/ Arthur Don
---------------------------
Arthur Don
Attorney-in-Fact

*Arthur Don signs this document on behalf of the Registrant and each of the
foregoing officers pursuant to the powers of attorney filed as Exhibit (p)(1) to
Registrant's Post-Effective Amendment number 27 to Registrant's Registration
Statement.

*By: /s/ Arthur Don
---------------------------
Arthur Don
Attorney-in-Fact

6
<PAGE>

DAVIS INTERMEDIATE INVESTMENT GRADE BOND, INC.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on May 26, 1999 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

7
<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. 27 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)(2) to Registrant's Post-Effective
Amendment No 28 to Registrant's Registration Statement.

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

8
<PAGE>

EXHIBIT LIST

(o) Rule 18f-3 Plan
(p)(2) Power of Attorney, Marsha Williams.

<PAGE>

Exhibit (o)

Davis Intermediate Investment Grade Bond Fund, Inc.

Plan Pursuant to Rule 18f-3, as amended

---------------------------------------

Registrant elects to offer different classes of shares of its common stock
pursuant to Rule 18f-3 under the following Plan.

1. Registrant's current Plan encompasses four classes of shares that may be
offered as follows:

(a) Class A shares with a front end sales charge ("FESC") subject to certain
exceptions, a contingent deferred sales charge ("CDSC") under certain
circumstances, and to Rule 12b-1 fees ("Rule 12b-1 fees"). The applicable FESC,
including reductions and exceptions, application of the CDSC and the Rule 12b-1
fees are set forth in Exhibits "A" and "E" attached hereto.

(b) Class B shares at net asset value subject to (i) Rule 12b-1 fees and (ii) a
CDSC for redemptions or repurchases by the Registrant effected within a certain
period of time not exceeding eight years from the date of purchase. Class B
shares outstanding will automatically convert to Class A shares within eight
years after the end of the month in which the shares were purchased. (However,
for shares purchased before December 1, 1994 which are represented by stock
certificates, the stock certificates must be returned to the transfer agent to
effect conversion.) In addition, certain Class B shares held by certain defined
contribution plans automatically convert to Class A shares based on increases of
plan assets. The deferred sales charges, conversion and Rule 12b-1 fees are as
set forth in Exhibits "B" and "E" attached hereto.

(c) Class C shares at net asset value subject to a fee upon redemption within
one year of purchase and Rule 12b-1 fees. The terms and conditions of the Class
C shares are as set forth in Exhibits "C" and "E" attached hereto.

(d) Class Y shares at net asset value with no Rule 12b-1 charges. Class Y shares
are available only to certain types of investors as defined in Exhibit "D"
attached hereto.

(e) Exchange Privileges: The exchange privileges are set forth in Exhibit "F"
hereto. In summary, for a nominal exchange fee, shares of a class may be
exchanged for shares of the same class of certain other registrants with the
same investment adviser or distributor (or any series issued by such
registrants) at net asset value except that: (i) Any shares issued in exchange
for shares still subject to any unpaid FESC or CDSC or other charge payable upon
redemption remain subject to such unpaid charges; (ii) Money market series Class
A shares which were initially purchased from the money market series may be
exchanged for any class of shares at the public offering price of the acquired
shares (which may include a sales charge) and are subject to any CDSC or other
charge upon redemption normally applicable to the acquired shares; and (iii)
Class A shareholders who are eligible to purchase Class Y shares may exchange
their shares for Class Y shares of the Fund.

<PAGE>

2. Income, realized and unrealized capital gains and losses and expenses not
allocated to a particular class are allocated to each class on the basis of
relative net assets.

Expenses allocable to a specific class are expenses specifically
incurred for such class including the following:

(a) Rule 12b-1 expenses
(b) Incremental transfer agency expenses
(c) Incremental costs of preparing, printing and mailing shareholder
reports, proxy materials and prospectuses related to such class
(d) Registration fees and other expenses of registration of the shares
of such class under laws or regulations of any jurisdiction in which
the class of shares is to be offered
(e) Directors' fees and expenses incurred as a result of issues
relating solely to such class
(f) Legal and accounting expenses relating solely to such class

3. Each class will vote separately with respect to any matter as required by
applicable law or which separately affects that class. As provided in the
Articles of Incorporation, each dollar of net asset value per share is entitled
to one vote.

<PAGE>

Exhibit A

CLASS A SHARES. Class A shares are sold at their net asset value plus a sales
charge. The amounts of the sales charges are shown in the following table.

CLASS A SHARES SALES CHARGES

<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 to under $250,000 3.5% 3.6% 3.0%
- -------------------------------------- ------------------------ ------------------------ -----------------------
$250,000 to under $500,000 2.5% 2.6% 2.0%
- -------------------------------------- ------------------------ ------------------------ -----------------------
$500,000 to under $750,000 2.0% 2.0% 1.75%
- -------------------------------------- ------------------------ ------------------------ -----------------------
$750,000 to under $1 million 1.0% 1.0% 0.75%
- -------------------------------------- ------------------------ ------------------------ -----------------------
$1 million or more* None None None
- -------------------------------------- ------------------------ ------------------------ -----------------------
</TABLE>

- -------------------------------- -------------------------------
PURCHASE AMOUNT COMMISSION
- -------------------------------- -------------------------------
First $3 million 0.75%
- -------------------------------- -------------------------------
Next $2 million 0.50%
- -------------------------------- -------------------------------
Over $5 million 0.25%
- -------------------------------- -------------------------------

There are a number of ways to reduce the sales charge on the purchase of Class A
shares, as set forth below.

(i) Family Purchases: Purchases made by an individual, such individual's spouse
and children under 21 are combined and treated as a purchase of a single person.

(ii) Group Purchases: The purchases of an organized group, whether or not
incorporated, are combined and treated as the purchase of a single person. The
organization must have been organized for a purpose other than to purchase
shares of mutual funds.

(iii) 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.

<PAGE>

Purchases of and ownership by an individual and such individual's spouse under
an IRA are combined with their other purchases and ownership.

(iv) Purchases under a Statement of Intention: By executing the "Statement of
Intention" included in the Application Form at the back of the Prospectus,
purchases of Class A shares of $100,000 or more made over a 13-month period may
be made at the applicable price for the aggregate shares actually purchased
during the period. Please see "Terms and Conditions" at the back of this
prospectus.

(v) Rights of Accumulation: If you notify your dealer or the Distributor, you
may include the Class A shares you already own (valued at maximum offering
price) in calculating the price applicable to your current purchase.

(vi) Combined Purchases with other Davis Funds: Purchases of Class A shares of
the Fund may be combined with your purchases of Class A shares of other Davis
Funds, including Davis High Income Fund, Inc., Davis Tax-Free High Income Fund,
Inc., Davis International Series, Inc. and all funds offered by Davis Series,
Inc. (other than Davis Government Money Market Fund), separately or under
combined Statements of Intention or rights of accumulation to determine the
price applicable to your purchases of Class A shares of the Fund.

(vii) 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 (see "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 Fund's 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 Fund may also

<PAGE>

issue Class A shares at net asset value incident to a merger with or acquisition
of assets of an investment company.

<PAGE>

Exhibit B
CLASS B SHARES. Class B shares are offered at net asset value, without a
front-end sales charge. With certain exceptions described below, the Fund
imposes a deferred sales charge of 4% on shares redeemed during the first year
after purchase, 3% on shares redeemed during the second or third year after
purchase, 2% on shares redeemed during the fourth or fifth year after purchase
and 1% on shares redeemed during the sixth year after purchase. However, on
Class B shares of the Fund which are acquired upon exchange from Class B shares
of other Davis Funds which were purchased prior to December 1, 1994, the Fund
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' average daily net asset value.
The Fund 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 the Funds' 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 as described in the Statement of Additional Information.

<PAGE>

Exhibit C

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 Fund 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 Fund during the one-year period. If
Class C shares are redeemed within the one-year period after purchase, the 1%
redemption charge will be paid to the Distributor. After Class C shares have
been outstanding for more than one year, the Distributor will make quarterly
payments to the firm responsible for the sale of the shares in amounts equal to
0.75% of the annual average daily net asset value of such shares for sales fees
and 0.25% of the annual average daily net asset value of such shares for service
and maintenance fees.

<PAGE>

Exhibit D

Class Y shares. Currently, Class Y shares are offered to (i) trust companies,
bank trusts, endowments, pension plans 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; (ii) any
state, county, city, department, authority or similar agency prohibited by law
from paying a sales charge which invests at least $5,000,000; and (iii) any
investor with an account established under a "wrap account" or other similar
fee-based program sponsored and maintained by a registered broker-dealer
approved by the Fund's Adviser (A "Wrap Program Investors").

<PAGE>

Exhibit E

CONTINGENT DEFERRED SALES CHARGES. Any contingent deferred sales charge 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 contingent deferred sales charge 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 Fund
did not pay a commission on issuance, including shares acquired through
reinvestment of dividend income and capital gains distributions. Upon request
for redemption, shares not subject to the contingent deferred sales charge will
be redeemed first. Thereafter, shares held the longest will be the first to be
redeemed.

The contingent deferred sales charge (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 withdrawal 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 withdrawal plan; (d) for
redemptions from a qualified retirement plan or IRA that constitute a tax-free
return of 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; (f) on redemptions pursuant to the right of
the Fund 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;
(g) certain other exceptions related to defined contribution plans as described
in the Statement of Additional Information.

<PAGE>

Exhibit F
Exchange Privileges

Shares of a particular class of the 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 and Class C shares.
The shares to be received upon exchange must be legally available for sale in
your state. The net asset value of the initial shares being acquired must be at
least $1,000 unless such exchange is under the Automatic Exchange Program
described below.

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, to which any
Class B or Class C shares are subject at the time of exchange will continue to
apply to any shares acquired upon exchange.

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, 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 signature guarantee is not required for such an exchange. However,
if shares are also redeemed for cash in connection with the exchange
transaction, a signature guarantee may be required. See "Redemption of Shares".
Your dealer may charge an additional fee for handling an exercise of the
exchange privilege.

AUTOMATIC EXCHANGE PROGRAM.

The Fund 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 Davis Fund's applicable offering price. If you would
like to participate in this program, you may use the appropriate designation on
the Application Form.

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 a shareholder 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

<PAGE>

approval of the Distributor. The Fund reserves the right to terminate or amend
the exchange privilege at any time upon 60 or more days' notice.

<PAGE>

Exhibit (p)(2)

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:

Registrant's Name Securities Act of 1933 Investment Company
Registration No. Act of 1940
Registration No:

(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

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
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Marsha Williams