SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
REGISTRATION NO. 33-86578
POST-EFFECTIVE AMENDMENT NO. 2
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-8870
AMENDMENT NO. 4
DAVIS INTERNATIONAL SERIES, INC.
(formerly, VENTURE SERIES, INC.)
124 East Marcy Street
Santa Fe, New Mexico 87501
(1-505-820-3000)
Agent For Service: Sheldon R. Stein
D'Ancona & Pflaum
30 North LaSalle Street
Suite 2900
Chicago, Illinois 60602
(1-312-580-2014)
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b)
_X__ on February 1, 1995, pursuant to paragraph (b)
----------------
____ 60 days after filing pursuant to paragraph (a)
____ on , pursuant to paragraph (a) of Rule 485
In accordance with Section 24(f) of the Investment Company Act of 1940
and Rule 24f-2 thereunder, Registrant has previously elected to register
an indefinite number of shares of its Common Stock. The 24f-2 was filed
on or about November 15, 1995.
<PAGE>
FORM N-1A
DAVIS INTERNATIONAL SERIES, INC.
REGISTRATION STATEMENT NO. 33-86578 UNDER THE SECURITIES ACT OF
1933 AND UNDER THE INVESTMENT COMPANY ACT OF 1940 TO
REGISTRATION STATEMENT NO. 811-8870.
CROSS REFERENCE SHEET
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N-1A
Item No. Prospectus Caption or Placement
- -------- -------------------------------
1 Front Cover
2 Summary
3 Financial Highlights
4 Summary; Investment Objective and Policies
5 Adviser, Sub-Adviser and Distributor; Distribution Plans
5a Management's Discussion of Fund Performance (contained in
the 1995 Annual Report)
6 Summary; Shareholder Inquiries; Dividends and Distributions;
Federal Taxes; Fund Shares
7 Purchase of Shares; Adviser, Sub-Adviser and Distributor;
Distribution Plans; Exchange of Shares; Determining the
Price of Shares; Dividends and Distributions
8 Redemption of Shares; Exchange of Shares
9 (Not Applicable)
Part B Caption or Placement
---------------------------
10 Cover Page
11 Table of Contents
12 (Not Applicable)
13 Fundamental Investment Restrictions; Non-Fundamental
Investment Restrictions; High Yield, High Risk Bonds;
Risk Considerations;Hedging of Foreign Currency Risks;
Options on Foreign Currencies, Lending Portfolio
Securities, Repurchase Agreements; Writing Covered
Call Options and Purchasing Options; Portfolio
Transactions and Brokerage
14 Directors and Officers
15 Certain Shareholders of the Fund
16 Investment Advisory Services; Custodian; Auditors;
Determining the Price of Shares; Distribution of Fund Shares
17 Portfolio Transactions and Brokerage
18 *
19 Determining the Price of Shares; Reduction of Class A Sales
Charge
20 Dividends, Distributions and Taxes
21 *
22 Performance Data
23 Financial Statements for the eight months ended September
30, 1995 are incorporated by reference from the 1995 Annual
Report to shareholders
____________________
* Included in Prospectus
<PAGE>
PROSPECTUS February 1, 1996
DAVIS INTERNATIONAL SERIES, INC.
Davis International Total Return Fund
124 East Marcy Street
Santa Fe, New Mexico 87501
(800) 279-0279
Minimum Investment Plans Available
Initial Purchase $1,000 Individual Retirement Account (IRA)
For Retirement Plans $250 Prototype Retirement Plans
Subsequent Investment $25 Exchange Privilege
Automatic Investment Plan
Automatic Withdrawals
Davis International Total Return Fund (the "Fund") seeks total return
through capital growth or income or both. The Fund invests principally in
foreign securities.
The Fund offers two classes of shares, Class A and Class B, each
having different expense levels and sales charges. These alternatives
permit you to choose the method of purchasing shares that is most
beneficial to you, depending on the amount of the purchase, the length of
time you expect to hold the shares and other circumstances. See
"Summary" and Purchase of Shares" for more information.
This Prospectus concisely sets forth information about the Fund that
prospective investors should know before investing. It should be read
carefully and retained for future reference. A Statement of Additional
Information dated February 1, 1996, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. A copy of
this Statement and other information about the Fund which has been filed
with the Commission may be obtained without charge by writing to or
calling the Fund at the above address or telephone number.
---------------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
SUMMARY
Fund Expenses. The following table is intended to assist you in
understanding the various costs and expenses that an investor in each
class of shares of the Fund will bear directly or indirectly. You can refer
to the section "Adviser, Sub-Adviser and Distributor" and "Purchase of
Shares" for more information on transaction and operating expenses of the
Fund.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses Class A Class B
- -------------------------------- ------- -------
<S> <C> <C>
Maximum sales load imposed on purchase........................ 4.75% None
Maximum sales load imposed on reinvested dividends............ None None
Deferred sales load (a declining percentage of the
lesser of the net asset value of the shares
redeemed or the total cost of such shares)
Redeemed during first yearNone4.00%
Redeemed during second or third yearNone3.00%
Redeemed during fourth or fifth yearNone2.00%
Redeemed during sixth yearNone1.00%
Redeemed after sixth yearNoneNone
Exchange Fee................................................ $5.00 $5.00
</TABLE>
<TABLE>
<CAPTION>
Annual Fund operating expenses (as a percentage of average net assets)
- ---------------------------------------------------------------------
<S> <C> <C>
Management fees............................................... 1.00% 1.00%
12b-1 fees<F1><F2><F3>........................................ 0.15% 0.89%
Other expenses<F1>............................................ 0.57% 0.57%
Total Fund operating expenses<F1>........................ 1.72% 2.46%
<FN>
<F1> This information is based on estimated amounts for the Fund's
current fiscal year.
<F2> The effect of a Rule 12b-1 plan is that long-term shareholders may
pay more than the maximum front-end sales charge permitted under
applicable rules of the National Association of Securities Dealers, Inc.
<F3> Up to 0.25% of the average daily net assets attributable to the
shares may be paid annually to the selling firm for services to be provided
to the investor. Up to 0.75% of the average daily net assets attributable
to the Class B shares may be paid annually to the Adviser as a commission
on the sales of new shares, most of which is reallowed to the selling firm.
If such commissions exceed the 0.75% maximum, then unpaid amounts
accrue at 1% above prime, to be paid, if possible, in future years.
</FN>
</TABLE>
Example:
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A (assuming redemption at end of period)......... $64 $99 $136 $241
Class B (assuming redemption at end of period)......... $55 $97 $141 N/A
Class B (assuming no redemption at end of period)...... $25 $77 $131 N/A
</TABLE>
The 5% annual rate of return used in the example below is only for
illustration and is not intended to be indicative of the future performance
of the Fund, which may be more or less than the assumed rate. Future
expenses may be more or less than those shown.
<PAGE>
The Company and the Fund. Davis International Series, Inc. (the
"Company") is a diversified, open-end management investment company
incorporated in Maryland in 1994 and registered under the Investment
Company Act of 1940. The Company currently offers one investment
portfolio, the Davis International Total Return Fund (the "Fund"). The Fund
offers investors the choice between two classes of shares. Class A
shares may be purchased at a price equal to their net asset value per share
plus a front-end sales charge imposed at the time of purchase. Purchases
of $1 million or more of Class A shares may be purchased at net asset
value. Class B shares may be purchased at net asset value with no
front-end sales charge, but are subject to a contingent deferred sales
charge on most redemptions made within six years of purchase. These
alternatives permit an investor to choose the method of purchasing shares
that is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares, and other circumstances.
Each class of shares pays a Rule 12b-1 distribution fee at an annual rate
not to exceed (i) for Class A shares, 0.25% of the Fund's aggregate average
daily net assets of the Class A shares and (ii) for Class B Shares, 1.00% of
the Fund's aggregate average daily net assets of the Class B shares. The
purpose and function of the deferred sales charge and distribution fees
with respect to the Class B shares is the same as those of the front-end
sales charge and distribution services fee with respect to the Class A
shares.
Each share of the Fund represents an identical interest in the
investment portfolio of the Fund. However, shares differ by class in
important respects. For example, Class B shares incur higher distribution
fees and bear certain other expenses and will thus have a higher expense
ratio and pay correspondingly lower dividends than Class A shares. 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, in the circumstances and subject to the qualifications
described in this Prospectus. The per share net asset value of the Class B
shares generally will be lower than the per share net asset value of the
Class A shares, reflecting the daily expense accruals of the additional
distribution fees and certain other expenses applicable to Class B shares.
It is expected, however, that the per share net asset value of the classes,
which differ by approximately the amount of expense accruals between
the classes, will tend to converge immediately on the ex date of the
dividends or distributions. The Board of Directors may offer additional
classes of shares in the future and may at any time discontinue the
offering of any class of shares. See "Purchase of Shares--Alternative
Purchase Arrangements".
Investment Objective. The Fund's investment objective is to obtain
total return through capital growth or income or both. It seeks its
objective principally through investment in a portfolio of foreign
securities. There is no assurance that the investment objective of the
Fund will be achieved. See "Investment Objective and Policies".
Opportunities and Risks. The Fund is designed for long-term
investors seeking the opportunity to diversify their investments in
different countries and markets, including emerging and developing
countries. These investments involve special risks including market,
currency, economic, political and regulatory risks. See "Special Risk
Factors". The Fund may invest in foreign currency contracts in order to
attempt to hedge its currency risks. The Fund may trade in forward
foreign currency exchange contracts (forward contracts), options on
currency contracts, currency futures contracts and options thereon and
securities indexed to foreign securities. See "Hedging Against Foreign
Currency Fluctuations".
Investment Adviser, Sub-Adviser and Distributor. Davis Selected
Advisers, L.P., (the "Adviser") is the investment adviser and distributor of
the shares of the Fund. Atlantic Advisers Limited is the Fund's
sub-adviser ("the Sub-Adviser"). See "Adviser, Sub-Adviser and
Distributor".
Purchases, Exchanges and Redemptions. The Fund offers two classes
of shares, as described above. Initial and subsequent minimum
investments may be made in amounts equal to $1,000 and $25,
respectively, except that the minimum initial investment for retirement
plans is $250. Shares may be exchanged under certain circumstances at
net asset value for the same class of shares of certain other funds managed and
<PAGE>
distributed by the Adviser, with a $5 service fee payable to
the Adviser for each exchange. Accounts with a market value of less than
$250 caused by shareholder redemptions are redeemable by the Fund. See
"Purchase of Shares," "Exchange of Shares" and "Redemption of Shares".
Shareholder Services. Questions regarding the Fund or your account
may be directed to Davis Selected Advisers, L.P. at 1-800-279-0279 or to
your sales representative. Written inquiries may be directed to Davis
Selected Advisers, L.P., P.O. Box 1688, Santa Fe, NM 87504-1688. During
drastic market conditions, the Adviser may experience difficulty in
accepting telephone inquires. If you are unable to contact the Adviser at
the above telephone number, you should call 1-505-820-3000 Monday
through Friday between 8:00 a.m. and 4:00 p.m. Mountain Time.
FINANCIAL HIGHLIGHTS
The following table provides you with information about the
financial history of the Fund's shares. The table expresses the
information in terms of a single Class A and B share for the eight months
of operations and is supplementary information to the Fund's financial
statements which are included in the September 30, 1995 Annual Report
to Shareholders. Such Annual Report may be obtained by writing or calling
the Fund. The Fund's financial statements and financial highlights for the
eight months ended September 30, 1995 have been audited by the Fund's
independent certified public accountants, whose opinion thereon is
contained in the Annual Report.
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B
Eight Months Eight Months
ended ended
9/30/95 9/30/95
<S> <C> <C>
Net Asset Value,
Beginning of Period....................................................... $10.00 $10.00
------ ------
Income From Investment Operations
- ---------------------------------
Net Investment Income..................................................... .05 (.01)
Net Gains on Securities
(both realized and unrealized).......................................... 1.80 1.80
------ ------
Total From Investment
Operations........................................................... 1.85 1.79
Less Distributions
- ------------------
Dividends (from net
investment income)..................................................... _ _
Distributions From
Realized Capital Gains.................................................. _ _
Distributions From
Paid In Capital......................................................... _ _
------ ------
Total Distributions...................................................... _ _
------ ------
Net Asset Value,
End of Period............................................................ $11.85 $11.79
------ -------
------ -------
Total Return <F1>........................................................... 18.50% 17.90%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of
Period (000 omitted).................................................... 13,427 2,002
Ratio of Expenses
to Average Net Assets.................................................. 1.72%<F2> 2.46%<F2>
Ratio of Net Income
to Average Net Assets.................................................. .95%<F2> (0.09)%<F2>
Portfolio Turnover
Rate................................................................... 85% 85%
<FN>
<F1> Sales charges are not reflected in calculation.
<F2> Annualized.
</FN>
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
General. The Fund's investment objective is total return through
capital growth or income or both. The Fund invests principally in foreign
securities, which are securities of issuers (i) organized outside of the
United States or (ii) wherever organized, whose principal assets or
business activities are located, or whose securities are principally
traded, outside the United States. The determination of the location of
principal assets or business activities will be based on the location of
assets, personnel and sources of sales and earnings. If at least 50% of the
value of the issuer's assets, revenues or profits are located in, or derived
from, goods produced or sold, investments made or services performed,
outside the United States, the issue will be deemed to be a foreign
security. Normally, at least 65% of the Fund's total assets will be
invested in foreign securities and the Fund will have investments
representing at least three countries outside of the United States.
Usually the Fund will be invested principally in foreign equity
securities. However, there is no limitation on the type of securities in
which the Fund may invest nor on the amount of assets that may be
invested for growth or income or both. At times when the Sub-Adviser
believes the Fund's objective would be better achieved by holding a larger
proportion of debt securities, holdings of such securities will be
increased and may represent a larger portion of the portfolio. When the
Sub-Adviser believes that economic or market conditions require a
temporary defensive strategy, part or all of the Fund's assets may be
invested in short-term obligations rated high grade or deemed by the
Sub-Adviser to be of comparable quality. Such obligations include
commercial paper and short-term notes of non-governmental firms and
obligations of the U.S. Government or of a foreign government, or any
agency or instrumentality thereof, and repurchase agreements with
respect thereto. Such strategy could be limited to only a portion of the
portfolio. For instance, the Fund may invest in short-term obligations of
the government of a foreign country as a limited defensive strategy in
order to remain in securities denominated in that currency.
Investment Concentration. Seventy-five percent of the Fund's total
assets are invested so that no investment is made that would cause more
than 5% of its total assets to be invested in any one issuer. The remaining
25% of the Fund's total assets are not so limited which would allow the
Sub-Adviser to invest 25% of the Fund's total assets in a single issuer. In
the event that the Sub-Adviser chooses to make such an investment, it
may expose the Fund to greater risk. The Fund does not invest 25% or more
of its total assets in any one industry. Securities of the U.S. Government,
its agencies and instrumentalities and, if and when the Securities and
Exchange Commission allows, securities of foreign governments and their
agencies and instrumentalities, are not deemed to be industries for this
purpose. The Fund invests less than 25% of its total assets in securities
related to any single foreign country. It may from time to time be
principally invested in one or two regions (such as Europe and the Pacific
Rim) which the Sub-Adviser believes then provide the best opportunity for
total return. Investments may include securities issued by companies
which have undergone or are currently undergoing privatization. In
determining investments between countries and the appropriate
distribution of investments among various countries and geographic
regions, the Sub-Adviser ordinarily considers such factors as prospects
for relative economic growth among foreign countries; expected levels of
inflation; relative price levels of the various capital markets; government
policies influencing business conditions; the outlook for currency
relationships and the range of individual investment opportunities
available to the international investor. In selecting securities for growth,
the Sub-Adviser considers factors such as undervalued assets or earnings
potential, product development and demand, favorable operating ratios,
resources for expansion, management abilities, reasonableness of market
price, and favorable overall business prospects. When purchasing debt
securities, the Sub-Adviser generally looks for securities with an
advantageous yield consistent with reasonable but not unusual risk.
Selection of securities for both growth and income will usually involve a
mix of these considerations.
Investment in Other Investment Companies. The Fund may invest in
foreign securities through other listed and unlisted investment companies
so long as such investment does not cause the Fund to (a) have
<PAGE>
more than 5% of the value of its total assets invested in any one such company,
(b) have more than 10% of the Fund's total assets invested in such companies,
or (c) own more than 3% of the total outstanding voting stock of any such
company. Such investments may involve the payment of premiums above
the value of the portfolio securities held by such other investment
companies. The return on such investment may be reduced both by the
Fund's own expenses, including its Advisory fees, and the management
fees and expenses of the other investment company. However, due to legal
currency, liquidity or other restrictions, investments in some countries
may be currently limited and marketable investments may be made more
readily by investing in investment companies primarily investing in
securities of these countries. See "Risk Factors" and "Federal Taxes -
Passive Foreign Investment Companies".
Debt Securities. The value of fixed-income securities is sensitive
to interest rate changes as well as the financial strength of the debtor.
When interest rates go down, debt securities in the portfolio tend to
appreciate in value. Conversely, when interest rates go up, such
securities tend to depreciate in value. Generally, the debt securities in
which the Fund invests are investment grade securities. These are
securities rated in the four highest grades assigned by Moody's Investors
Service, Inc. or Standard & Poor's Corporation or that are unrated but
deemed to be of comparable quality by the Sub-Adviser. The lowest of
these grades has speculative characteristics; changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments. The Fund may invest in
securities below investment grade (so called "junk bonds"). Such bonds
are considered speculative. The Fund will not invest in junk bonds if such
investment would cause more than 5% of net assets to be so invested and
the Fund will not invest in bonds which are in default. In the event of a
downgrade of a debt security held by the Fund to below investment grade,
the Fund is not usually required to sell the issue, but the Sub-Adviser will
consider this in determining whether to hold the security. However, if
such a downgrade would cause more than 5% of net assets to be invested
in debt securities below investment grade, steps will be taken as soon as
practicable to reduce the proportion of debt below investment grade to 5%
of net assets or less.
Since many foreign fixed-income securities are not rated, the Fund
will invest in such securities based on the Sub-Adviser's analyses without
relying on published ratings.
Risk Factors - Foreign Securities and Developing Markets.
Investments in foreign securities may involve a higher degree of risk than
investments in domestic issuers. Foreign securities are often denominated
in foreign currencies, which means that their value will be affected by
changes in exchange rates, as well as other factors that affect securities
prices. The U.S. dollar value of a foreign security denominated in a foreign
currency decreases when the value of the U.S. dollar rises against the
foreign currency, and, conversely, the U.S. dollar value of the security
rises when the value of the U.S. dollar falls against such currency. The
Fund may invest in foreign currency contracts in an attempt to hedge
against such currency fluctuations. See "Hedging Against Foreign Currency
Fluctuations". There is generally less publicly available information about
foreign securities and securities markets, and there may be less
government regulation and supervision of foreign issuers and securities
markets. There is no uniformity in accounting and financial reporting.
Foreign securities and markets are also affected by political and economic
instabilities in such countries, and may be more volatile and less liquid
than domestic securities and markets. The risks of investment may
include expropriation or nationalization of assets, confiscatory taxation,
exchange controls and limitations on the use or transfer of assets, and
significant withholding taxes. Foreign economies may differ from the
United States favorably or unfavorably with respect to inflation rates,
balance of payments, capital reinvestment, gross national product
expansion or contraction, and other relevant economic issues.
Developing Markets. The Fund may make investments in developing
or emerging market countries, which involve exposure to economic
structures that are generally less diverse and mature than in developed
countries such as the United States and Western Europe, and to political
systems that may be less stable. A "developing country" can be considered
to be a country that is in a less mature stage of the industrialization
<PAGE>
cycle than countries with more developed markets. An "emerging market
country" can be considered to be a country that is in a less mature stage
of the industrialization cycle than developing countries. Currently,
investing in many emerging markets may not be desirable or feasible
because of the lack of adequate custody arrangements for the Fund's
assets, overly burdensome repatriation and similar restrictions, the lack
of organized and liquid securities markets, unacceptable political risks or
other reasons. As opportunities to invest in securities in emerging
markets develop, the Fund may expand and further broaden the group of
emerging markets in which it invests. In the past, markets of developing
countries have been more volatile than the markets of developed
countries; however, such markets often have provided higher rates of
return to investors. The Sub-Adviser believes that these characteristics
can be expected to continue in the future.
Many of the risks described above relating to foreign securities
generally will be greatest for emerging markets, lesser for developing
markets and least for developed countries. For instance, economies in
individual emerging or developing markets may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross
domestic product, rates of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments
positions. Many emerging and developing markets have experienced
substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very
negative effects on the economies and securities markets of certain
developing markets. Economies in emerging and developing markets are
generally heavily dependent upon international trade and, accordingly,
have been and may continue to be affected adversely by trade barriers,
exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with
which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which
they trade.
The securities markets of emerging and developing countries, if
existent, are substantially smaller, less developed, less liquid and more
volatile than the securities markets of the United States and other more
developed countries. Disclosure, regulatory and accounting standards in
many respects are less stringent than in the United States and other
developed markets. There also may be a lower level of monitoring and
regulation of developing markets and the activities of investors in such
markets, and enforcement of existing regulations has been extremely
limited.
Brokerage commissions, custodial services and other costs relating
to investment in foreign markets are generally more expensive than in the
United States; this is particularly true with respect to emerging markets.
Such markets have different settlement and clearance procedures. In
certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such settlement problems may
cause emerging market securities to be illiquid. The inability of the Fund
to make intended securities purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to
dispose of a portfolio security caused by settlement problems could result
either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, in possible liability to the purchaser. Emerging markets may
lack clearing facilities equivalent to those in developed countries.
Accordingly, settlements can pose additional risks in such markets and
ultimately can expose the Fund to the risk of losses resulting from the
Fund's inability to recover from a counterparty.
The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may
cease or may be substantially curtailed and prices for the Fund's portfolio
securities in such markets may not be readily available. The Fund's
portfolio securities in the affected markets will be valued at fair market
value as determined in good faith by, or under the direction of, the Board
of Directors.
Investment in certain emerging market securities is restricted or
controlled to varying degrees. These restrictions or controls may at
times limit or preclude foreign investment in certain emerging market securities
<PAGE>
and increase the costs and expenses of the Fund. Emerging
markets may require governmental approval for the repatriation of
investment income or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments, the market could impose temporary restrictions on
foreign capital remittances.
Due to changes in the world economy and the political, economic and
investment climate in particular countries, the status of a country or its
securities markets as emerging, developing or developed can be expected
to change over time, sometimes rapidly. The Sub-Adviser will consider
such changes in determining the potential risks and rewards of investing
in a given country.
Hedging Against Foreign Currency Fluctuations. To attempt to
reduce exposure to currency fluctuations, the Fund may trade in forward
foreign currency exchange contracts (forward contracts), options on
currency contracts, currency futures contracts and options thereon and
securities indexed to foreign securities. These hedging instruments are
often referred to as "derivatives" in that they derive their value from the
value of other instruments. These techniques may be used to lock in an
exchange rate in connection with transactions in securities denominated
or traded in foreign currencies, to hedge the currency risk in foreign
securities held by the Fund and to hedge a currency risk involved in an
anticipated purchase of foreign securities. Cross-hedging, may also be
utilized, that is, entering into a hedge transaction in respect to a
different foreign currency than the one in which a trade is to be made or
in which a portfolio security is principally traded. There is no limitation
on the amount of assets that may be committed to currency hedging.
However, the Fund will not engage in a futures transaction if it would
cause the aggregate of initial margin deposits and premiums paid on
outstanding options on futures contracts which do not represent bona fide
hedging, to exceed 5% of the value of its total assets (excluding in
calculating such 5% any in-the-money amount of any option). Currency
hedging transactions may be utilized as a tool to reduce currency
fluctuation risks due to a current or anticipated position in foreign
securities. The successful use of currency hedging transactions usually
depends on the Sub-Adviser's ability to forecast interest rate and
currency exchange rate movements. Should interest or exchange rates
move in an unexpected manner, the anticipated benefits of futures
contracts, options or forward contracts may not be achieved or losses may
be realized and thus the Fund could be in a worse position than if such
strategies had not been used. Unlike many exchange-traded futures
contracts, there are no daily price fluctuation limits with respect to
options on currencies and forward contracts, and adverse market
movements could therefore continue to an unlimited extent over a period
of time. In addition, the correlation between movements in the prices of
such instruments and movements in the prices of the securities and
currencies hedged or used for cover will not be perfect and could produce
unanticipated losses. Unanticipated changes in currency prices may result
in poorer overall performance for the Fund than if it had not entered into
such contracts. When taking a position in an anticipatory hedge, the Fund
is required to set aside cash or high grade liquid securities to fully secure
the obligation.
Restricted and Illiquid Securities. The Fund may invest in restricted
securities, i.e., securities which, if sold, would cause the Fund to be
deemed an "underwriter" under the Securities Act of 1933 (the "1933
Act") or 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. If at any time more than 15% of the Fund's net
assets are illiquid, steps will be taken as soon as practicable to reduce
the percentage of illiquid assets to 15% or less.
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 Sub-Adviser, under
criteria established by the Company'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 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 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 appropriate in light of the policy limiting investments in such
securities. There is no limitation on the percentage of the Fund's assets
that can be invested in liquid Rule 144A 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.
Lending Portfolio Securities, Writing Covered Call Options and
Purchasing Options. For income purposes, the Fund may lend its portfolio
securities and may write covered call options on its portfolio securities.
However, the Fund does not intend to lend portfolio securities if it would
cause more than 5% of its net assets to be subject to such loans or to
write covered call options on its portfolio securities if it would cause
more than 5% of its net assets to be subject to such options. The Fund
may purchase options. However, the Fund does not intend to engage in such
a transaction if it would cause more than 2% of its total assets or 5% of
its net assets to be invested in premiums for such options.
Borrowing. The Fund may not borrow money except for temporary or
emergency purposes, and then only from banks in an amount not exceeding
33 1/3% of the value of the Fund's total assets (including the amount
borrowed). As a matter of non-fundamental policy, the Fund will not
purchase securities when its borrowings, less amounts receivable on
sales of portfolio securities, exceed 5% of the value of the Fund's total
assets.
Warrants. The Fund may invest up to 5% of its net assets in
warrants. A warrant is an option to buy a stated number of shares of
common stock at a specified price any time during the life of the warrant.
If the stock underlying the warrant is trading at a higher price than the
warrant exercise price, the warrant has value; if the stock is trading at a
lower price, it has no value and if such lower price exists at expiration of
the warrant, it will expire worthless.
Repurchase Agreements. The Fund may enter into repurchase
agreements, but normally will not enter into repurchase agreements
maturing in more than seven days, and may make repurchase agreement
transactions through a joint account with other funds which have the
same investment adviser. A repurchase agreement, as referred to herein,
involves a sale of securities to the 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.
Portfolio Transactions. The Sub-Adviser is responsible for the
placement of portfolio transactions, subject to the supervision of the
Board of Directors. It is the Fund's policy to seek to place portfolio
transactions, with brokers or dealers who will execute transactions as
efficiently as possible and at the most favorable price. Subject to this
policy, the Fund may take into account the sale of its shares and research
services provided to the Adviser and Sub-Adviser in placing portfolio
transactions. In seeking the Fund's investment objective, the Fund may
trade to some degree in securities for the short term if the Sub-Adviser
<PAGE>
believes that the growth potential of a security no longer exists,
considers that other securities have more growth potential, or otherwise
believes that such trading is advisable. 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. Portfolio turnover rates are set forth in "Financial
Highlights".
Fundamental and Non-Fundamental Policies. The investment
restrictions set forth in the Statement of Additional Information as
fundamental cannot be changed without a vote of the shareholders. The
investment objective and all other investment policies of the Fund are not
fundamental and may be changed without shareholder approval. In the
event the Fund's investment objective should ever be changed, such change
may result in an objective different from the objective the shareholder
considered appropriate at the time of investment in the Fund. Except for
the limitations on borrowing and illiquid securities, all percentage
restrictions set forth in the Prospectus or in the Statement of Additional
Information apply as of the time of investment without regard to later
increases or decreases in the values of securities or total or net assets.
ADVISER, SUB-ADVISER AND DISTRIBUTOR
Adviser, Sub-Adviser and Distributor. Davis Selected Advisers, L.P.,
(the "Adviser") whose principal office is at 124 East Marcy Street, Santa
Fe, New Mexico 87501 acts as the manager and distributor for the Fund.
Venture Advisers, Inc., is the Adviser's sole general partner. Shelby M.C.
Davis is the controlling shareholder of the Adviser's general partner.
Subject to the direction and supervision of the Company's Board of
Directors of the Company, the Adviser manages business operations and
also acts as the distributor of the Fund's shares. As discussed below, the
Adviser has hired Atlantic Advisers Limited as the Sub-Adviser for the
Fund. The Adviser also acts as investment adviser and distributor for
Davis New York Venture Fund, Inc., Davis High Income Fund, Inc., Davis
Tax-Free High Income Fund, Inc., Davis Series, Inc., (collectively with the
Fund, the "Davis Funds") and Selected American Shares, Inc., Selected
Special Shares, Inc. and Selected Capital Preservation Trust.
The Fund pays the Adviser a fee at the annual rate of 1.0% on the
first $250 million of average net assets, 0.9% on the next $250 million of
average net assets and 0.8% on average net assets in excess of $500
million. This fee is higher than that of most other mutual funds but is not
necessarily higher than that paid by funds with a similar objective. The
Fund also reimburses the Adviser for its costs of providing certain
accounting and financial reporting, shareholder services and compliance
with state securities laws.
Davis Selected Advisers, L.P., in its capacity as distributor, is also
reimbursed by the Fund for some of its distribution expenses through
Distribution Plans which have been adopted with respect to each class of
shares and approved by the Fund's Board of Directors and the shareholders
of each class in accordance with Rule 12b-1 under the Investment
Company Act of 1940. See "Distribution Plans" below for more details.
Sub-Adviser. Atlantic Advisers Limited (the "Sub-Adviser") acts as
the Sub-Adviser of the Fund. The Sub-Adviser manages the day-to-day
investment operations for the Fund. The Fund pays no fees directly to the
Sub-Adviser. The Sub-Adviser receives from the Adviser 50% of the total
annual investment advisory fees paid by the Fund to the Adviser. The Fund
pays no fees directly to the Sub-Adviser. The Sub-Adviser's principal
office is located at Charendon House, 2 Church Street, Hamilton, HM 11,
Bermuda.
Edouard F. Iselin, is the controlling owner of the Sub-Adviser. As
President of the Sub-Adviser, Mr. Iselin serves as the portfolio manager.
Mr. Iselin is also associated with E.F. Iselin, S.A., an investment advisory
firm based in Geneva, Switzerland which specializes in investments in
foreign securities and provides investment advisory services to various
individual and institutional clients. Mr. Iselin was the Managing Director
of E.F. Iselin, S.A. from 1979 to 1991 and has been the firm's Chairman and
Chief Executive Officer since 1991.
<PAGE>
DISTRIBUTION PLANS
The Fund bears some of the costs of selling its shares under
Distribution Plans adopted with respect to its Class A and Class B shares
pursuant to Rule 12b-1 under the Investment Company Act of 1940. This
rule regulates the manner in which a mutual fund may assume costs of
distributing and promoting the sale of its 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 Adviser for the fees it
pays to its salespersons and other firms for selling Fund shares, servicing
shareholders and maintaining shareholder accounts. 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
Adviser for other distribution costs (excluding overhead) not covered in
any year by any portion of the sales charges the Adviser retains. See
"Purchase of 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. Up to 0.75% of the average
daily net assets is used to pay the Adviser a 4% commission on new sales
of Class B shares. Most or all of such commissions are reallowed to
salespersons and to firms responsible for such sales. No commissions are
paid by the Fund with respect to sales by the Adviser to officers,
directors and full-time employees of the Fund, the Adviser or the
Adviser's general partner. Up to 0.25% of average net assets is used to
reimburse the Adviser for the payment of service and maintenance fees to
its salespersons and other firms for shareholder servicing and
maintenance of shareholder accounts.
If, due to the foregoing payment limitations, the Fund is unable to
pay the Adviser the 4% commission on new sales of Class B shares, the
Adviser 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
Adviser 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 Fund who are not interested persons of
the Adviser or the Fund and have no direct or indirect financial interest in
the Class B Distribution Plan (the "Independent Directors"). If the Class B
Distribution Plan is terminated, the Adviser will ask the Independent
Directors to take whatever action they deem appropriate with regard to
the payment of any excess amounts.
In addition, the Plans also provide that the Adviser, in its sole
discretion, may utilize its own resources, including any profits from its
advisory fees, for distributing and promoting sales of Fund shares.
Each of the Distribution Plans may be terminated at any time by vote
of the Independent Directors or by vote of a majority of the votes of the
respective class. Payments pursuant to a Distribution Plan are included in
the operating expenses of the class.
As described herein, dealers or others may receive different levels
of compensation depending on which class of shares they sell. The Adviser
may make expense reimbursements for special training of a dealer's
registered representatives, advertising or equipment, or to defray the
expenses of dealer meetings.
Shares of the Fund may also be sold through banks or bank-affiliated
brokers. Any determination that such banks or bank-affiliated brokers are
prohibited from selling shares of the Fund under the Glass-Steagall
<PAGE>
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.
PURCHASE OF SHARES
General. You can purchase Class A or Class B shares of the Fund
from any dealer or other person having a sales agreement with the
Adviser.
There are three ways to make an initial investment in the Fund. One
way is to fill out the Application Form included in this Prospectus and
mail it to State Street Bank and Trust Company ("State Street") at the
address on the Form. If you have a dealer, the dealer must also sign the
Form. Your dealer or sales representative will help you fill out the Form.
You should enclose a check (minimum $1,000, except $250 for retirement
plans) payable as indicated on the Form.
Another way to make an initial investment is to have your dealer
order and pay for the shares. In this case, you must pay your dealer. The
dealer can order the shares from the Adviser 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
Bank and Trust Company. Prior to an initial investment by wire, the
shareholder should telephone Davis Selected Advisers, L.P. 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 INTERNATIONAL SERIES, INC.-
DAVIS INTERNATIONAL TOTAL RETURN FUND
Shareholder Name,
Shareholder Account Number,
Federal Routing Number 011000028,
DDA Number 9904-947-0
After your initial investment, you can make additional investments
of at least $25. Simply mail a check payable to "State Street Bank and
Trust Company," c/o The Davis Funds, P.O. Box 8406, Boston, MA
02266-8406. 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
Fund. If you know your account number, you should also give it to State
Street.
The Fund 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 shares. Instead, shares purchased are automatically
credited to an account maintained for you on the books of the Fund by
State Street. You receive a statement showing the details of the
transaction and other recent transactions you had during the current year
each time you add to or withdraw from your account.
Alternative Purchase Arrangements. The Fund offers two 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
<PAGE>
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 eight
years after the end of the calendar month in which the shareholder's order
to purchase was accepted.
Depending on the amount of the purchase and the anticipated length
of time of investment, investors may choose to purchase one class of
shares rather than the other. 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 shares, in which case 100% of the purchase price is
invested immediately. The Fund 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. See also "Distribution Plans" for more
information.
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 table
below.
<TABLE>
<CAPTION>
Customary
Sales Charge Charge as Concession to Your
as Percentage Approximate Percentage Dealer as Percentage
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%<F1>
<FN>
<F1>On purchases of $1 million or more, the investor pays no front-end sales
charge or contingent deferred sales charge. However, the Adviser may pay
the financial service firm a commission during the first year after such
purchase at an annual rate as follows:
</FN>
</TABLE>
<TABLE>
<CAPTION>
Purchase Amount Commission
--------------- ----------
<S> <C> <C>
First $3,000,000.................................... .75%
Next $2,000,000.................................... .50%
Over $5,000,000.................................... .25%
</TABLE>
Such commission will be paid quarterly at the end of each fiscal quarter
for the first year after purchase. Where a commission is paid because of
purchases of $1 million or more, such payment will be made from 12b-1
distribution fees received from the Fund and, in cases where the limits of
the distribution plan in any year have been reached, from the distributor's
own resources.
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 Benefits 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
<PAGE>
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
this 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 Adviser,
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 the other Davis Funds, including Davis New York Venture Fund,
Inc., Davis High Income Fund, Inc., Davis Tax-Free High Income Fund, 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
supervised and distributed by the Adviser, the Sub-Adviser or the
Adviser's general partner, including former directors and officers and any
spouse, child, parent, grandparent, brother or sister 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 spouse, child, parent,
grandparent, brother or sister) of securities dealers having a sales
agreement with the Adviser; (4) initial purchases of Class A shares
totaling $250,000 or more, made at any one time by banks, trust
companies and other financial institutions (collectively "Institutions") on
behalf of one or more clients for which such Institution acts in a fiduciary
capacity; (5) initial purchases of Class A shares totaling $250,000 or
more by a registered investment adviser on behalf of a client for which
the adviser is authorized to make investment decisions or otherwise acts
in a fiduciary capacity; (6) Class A shares purchased by any single account
covering a minimum of 250 participants 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; (7) 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 Adviser, and (8) Class A shares
purchased by any state, county, city, department, authority or similar
agency prohibited by law from paying a sales charge. 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. 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. No deferred sales charge is imposed on amounts
redeemed after six years from 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.
<PAGE>
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 or exchange fee. The Class B shares so converted will no
longer be subject to the higher expenses borne by Class B shares. Because
the net asset value per share of the Class A shares may be higher or lower
than that of the Class B shares at the time of conversion, although the
dollar value will be the same, a shareholder may receive more or less
Class A shares than the number of Class B shares converted. Under a
private Internal Revenue Service Ruling, such a conversion will not
constitute a taxable event under the Federal income tax law. In the event
that this ceases to be the case, the Board of Directors will consider what
action, if any, is appropriate and in the best interests of the Class B
shareholders.
Any contingent deferred sales charge imposed upon the redemption
of Class B 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 above the original 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 will be waived as follows: (1)
on redemptions following a shareholder's death or disability, as defined in
Section 72(m)(7) of the Internal Revenue Code of 1986, as amended (the
"Code"); (2) on taxable periodic distributions from a qualified retirement
plan or IRA upon retirement or attainment of age 59 1/2 (e.g. the
applicable contingent deferred sales charge, if any, is imposed upon a
lump sum redemption at any age whether or not it is taxable) or
distributions necessary to make a tax-free return of contributions to
avoid tax penalty; (3) on redemptions of shares sold to directors, officers
and employees of the Company, its Adviser, its Sub-Adviser or the
Adviser's general partner, including former directors and officers and
immediate family members of all the foregoing, and any employee benefit
or payroll deduction plan established by or for such persons; (4) on
redemptions made as tax-free returns of contributions to avoid tax
penalty; and (5) 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.
Prototype Retirement Plans. The Adviser and certain qualified
dealers have available prototype retirement plans sponsored by the Fund
for corporations and self-employed individuals and prototype Individual
Retirement Account ("IRA") plans for both individuals and employers.
These plans utilize the shares of the Fund and other funds managed and
distributed by the Adviser as their investment vehicle. State Street acts
as custodian or trustee for the plans and charges the participant $10 to
establish each account and an annual maintenance fee of $10 per account.
Such fees will be redeemed automatically at year end from your account,
unless you elect to pay the fee directly.
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 Fund shares. 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 3rd 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 Plan at any time. If you desire to
utilize this plan, you may use the appropriate designation on the
Application Form.
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 the same class of
one or more of the Davis Funds, subject to state securities law
requirements and the minimum investment requirements set forth below.
You must receive a current prospectus for the other fund or funds prior to
<PAGE>
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 of at least $250 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.
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 Fund 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 Fund 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 may have
difficulty in accepting telephone requests, in which case you should
contact us by mail. See "Exchange of Shares - By Telephone", "Redemption
of Shares - By Telephone" and "Redemption of Shares - Expedited
Redemption Privilege".
EXCHANGE OF SHARES
General. You may exchange shares of the Fund for shares of the same
class of the other Davis Funds. This 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 Fund is intended as a
long-term investment and is not intended for short-term trades. Shares
of a particular class of the Fund may be exchanged only for shares of the
same class of another Davis Fund. All of the Davis Funds offer Class A and
Class B 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. There is a $5 service
charge payable to the Distributor for each exchange other than an exchange
under the Automatic Exchange Program. This service charge covers the
Distributor's expense. The Adviser receives no reimbursement from the
Fund for such expenses.
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 shares are subject at the time of
exchange will continue to apply to any Class B 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 Adviser 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.
<PAGE>
By Telephone. You may exchange shares by telephone into accounts
with identical registrations. Please see the discussion of procedures in
respect to telephone instructions in the section entitled "Telephone
Privilege," as such procedures are also applicable to exchanges.
Automatic Exchange Program. The 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 of the same class will be simultaneously
redeemed and purchased at the chosen 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 are treated as a sale and purchase.
Therefore, there will usually be a recognizable capital gain or loss due to
an exchange.
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
Adviser. Currently, more than three exchanges out of the Fund during a
twelve-month period are not permitted without the prior written approval
of the Adviser. The Fund reserves the right to terminate or amend the
exchange privilege at any time upon 60 days' notice.
REDEMPTION OF SHARES
General. You can redeem, or sell back to the Fund, 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 be the same as the way in which the shares are registered.
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, signed by the owner or owners, must be sent to State Street
with the request.
For the protection of all shareholders, the Fund also requires that
signatures appearing on a share certificate, stock power or redemption
request where the proceeds would be more than $25,000, must be
guaranteed by a bank, credit union, savings association, securities
exchange, broker, dealer or other guarantor institution. 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
signature guarantee program. This provision also applies to exchanges
when there is also a redemption for cash. A signature guarantee on
redemption requests where the proceeds would be $25,000 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.
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
<PAGE>
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 such redemption
delay by paying for your shares with a certified or cashier's check or by
bank wire or federal funds.
Your shares may also be redeemed through participating dealers.
Under this method, the Adviser repurchases the shares from your dealer, if
your dealer is a member of the Adviser's selling group. Your dealer may,
but is not required to, use this method in selling back your shares and may
place any repurchase request by telephone or wire. Your dealer may charge
you a service fee or commission. No charge is payable if you redeem your
own shares through State Street rather than having a dealer arrange for a
repurchase.
Expedited Redemption Privilege. Accounts other than prototype
retirement plans and IRAs may designate on the Expedited Redemption
Privilege Form (included in this prospectus) an account with any
commercial bank and have the cash proceeds from redemptions sent, by
either wire or electronically through the Automated Clearing House
system ("ACH"), to a pre-designated bank account. State Street will
accept instructions to redeem shares and make payment to a
pre-designated commercial bank account by (a) written request signed by
the registered shareholder, (b) telephone request by any Qualified Dealer
to Davis Selected Advisers, L.P. (1-800-279-0279), and (c) by
telegraphic request by the shareholder to State Street. At the time of
redemption, the shareholder must request that federal funds be wired or
transferred by ACH to the bank account designated on the application. The
redemption proceeds under this procedure may not be directed to a savings
bank, savings and loan or credit union account except by arrangement with
its correspondent bank or unless such institution is a member of the
Federal Reserve System. The Adviser, in its discretion, may limit the
amount that may be redeemed by a shareholder in any day under the
Expedited Redemption Privilege to $25,000. There is a $5 charge by State
Street for wire service, and receiving banks may also charge for this
service. Payment by ACH will usually arrive at your bank two banking
days after you call. Payment by wire is usually credited to your bank
account on the next business day after your call. The Expedited
Redemption Privilege may be terminated, modified or suspended by the
Fund at any time. See "Telephone Privilege".
The name of the registered shareholder and corresponding Fund
account number must be supplied. The Expedited Redemption Privilege
Form provides for the appropriate information concerning the commercial
bank and account number. Changes in ownership, account number
(including the identity of your bank) or authorized signatories of the
pre-designated account may be made by written notice to State Street
with your signature and those of new owners or signers on the account
guaranteed by a commercial bank or trust company. Additional
documentation may be required to change the designated account when
shares are held by a corporation, partnership, executor, administrator,
trustee or guardian.
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. Shares are redeemed so that you will
receive the payment you have requested approximately in the middle 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
<PAGE>
Funds will remain subject to an escrow or segregated account to which any of
the exchanged shares were subject. If you utilize this program using Class B
shares, any applicable contingent deferred sales charges will be imposed on
Class B shares redeemed. Purchase of additional shares concurrent with
withdrawals may be disadvantageous to you because of tax consequences. If the
amount you withdraw exceeds the dividends on your shares, your account will
suffer depletion. Your Automatic Withdrawals Plan may be terminated by
you at any time without charge or penalty. The Fund reserves the right to
terminate or modify the Automatic Withdrawals Plan at any time.
Involuntary Redemptions. To relieve the Fund of the cost of
maintaining uneconomical accounts, the Fund 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 Fund 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 the 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 CDSC
assessed on Class B shares will be returned to the account. Class B
shares will be deemed to have been purchased on the original purchase
date for purposes of calculating the CDSC and conversion period. This can
be done by sending the Fund or the Adviser a letter, together with a check
for the reinstatement amount. The letter must be received, together with
the payment, within 30 days after the redemption or repurchase. You can
only use this privilege once.
DETERMINING THE PRICE OF SHARES
Net Asset Value. The net asset value of the Fund's shares is the
value of the Fund's assets, minus its liabilities, divided by the total
number of shares outstanding. 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 per share net asset value of the Class B
shares will generally be lower than that of the Class A shares because of
the higher expenses borne by the Class B shares.
The price per share for purchases or redemptions made directly
through State Street normally is such value next computed after State
Street receives the purchase order or redemption request. If the purchase
order or redemption request is placed with your dealer, then the
applicable price is normally computed as of 4:00 p.m. Eastern Time on the
day the dealer receives the order, provided that the dealer receives the
order before 4:00 p.m. Eastern Time. Otherwise, the applicable price is
the next determined net asset value. It is the responsibility of your
dealer to promptly forward purchase and redemption orders to the Adviser.
Note that in the case of redemptions and repurchases of shares owned by
corporations, trusts or estates, 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. See "Redemption of Shares."
Valuation of Portfolio Securities. As more fully set forth in the
Statement of Additional Information, portfolio securities are normally
valued using current market valuations: either the last reported sales
price, or in the case of securities for which there is no reported last sale,
the closing bid price. Debt securities maturing in 60 days or less are
usually valued at amortized cost and longer term debt securities may be
valued by an independent pricing service.
Securities for which market quotations are not readily available and
other assets are appraised at fair value as determined in good faith in
accordance with methods that are authorized by the Board of Directors.
<PAGE>
Because of the difference in times of closing of markets in which
the Fund's securities are traded, events affecting portfolio values that
occur between the time their prices are determined and the time the
Fund's shares are priced will generally not be reflected in the Fund's share
price.
Conversion to U.S. dollars. The value of securities denominated in
foreign currencies and traded on foreign exchanges or in foreign markets
will have their value converted into the U.S. dollar equivalents at the
prevailing market rates as computed by State Street Bank & Trust
Company, custodian of the Fund's assets. Because the value of securities
denominated in foreign currencies must be translated into U.S. dollars,
fluctuations in the value of such currencies in relation to the U.S. dollar
may affect the net asset value of Fund shares even if there has not been
any change in the foreign-currency denominated value of such securities.
DIVIDENDS AND DISTRIBUTIONS
Shareholders have the option to receive all dividends and
distributions in cash, to have all dividends and distributions reinvested,
or to have income dividends paid in cash and short-term and long-term
capital gain distributions reinvested. The reinvestment of dividends and
distributions is made at net asset value (without any sales charge) on the
payment date.
Because Class B shares incur higher distribution services fees and
bear certain other expenses, such class will have a higher expense ratio
and will pay correspondingly lower dividends than Class A shares.
Information concerning distributions will be mailed annually to
shareholders.
For the protection of the shareholder, upon receipt of the second
dividend check which has been returned to the Transfer Agent as
undeliverable, undelivered dividends will be invested in additional shares
at the current net asset value and the account designated as a dividend
reinvestment account.
FEDERAL 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 an 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. However, to the extent that federal income tax may be
assessed on (i) certain dividends received by the Fund due to ownership of
stock in passive foreign investment companies (see discussion below) or
(ii) gains to the Fund on the sale of stock of such companies, the Fund may
be liable for such income tax whether or not the Fund distributes all of its
income. 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 Fund. The Fund intends to make
distributions during each calendar year sufficient to prevent imposition of
the excise tax.
During its initial operations, the Fund may be a personal holding
company ("PHC") under the Code due to substantial ownership of the Fund's
shares by a few shareholders. In that event, the Fund intends to distribute
all its PHC income so that there is no PHC tax imposed on the Fund.
Passive Foreign Investment Companies. The Fund may purchase the
securities of certain foreign investment funds or trusts called "passive
foreign investment companies". Capital gains on the sale of such
securities are considered ordinary income regardless of how long the Fund
held its investment. In addition, the
<PAGE>
Fund may be subject to corporate income tax and an interest charge on certain
dividends and capital gains earned from these investments, whether or not the
Fund distributes such dividends and gains to its shareholders.
In accordance with industry practice, the Fund intends to treat these
securities as sold on the last day of its fiscal year and recognize any
gains for tax purposes at that time; losses will not be recognized. Such
gains will be considered ordinary income, which the Fund will be required
to distribute even though it has not actually sold such securities.
Distributions of net investment income and net realized short-term
capital gains will be taxable to shareholders as ordinary income.
Distributions of net long-term capital gains will be taxable to
shareholders as long-term capital gain regardless of how long the shares
have been held. Distributions will be treated the same for tax purposes
whether received in cash or in additional shares.
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.
FOREIGN TAXES ON FUND INCOME
Income received by the Fund from its foreign investments may be
subject to foreign income taxes. If the Fund is liable for foreign income
taxes, the Fund intends to meet the requirements of the Code to "pass
through" the amount of such taxes to the Fund's shareholders, but there
can be no assurance that the Fund will be able to do so or will elect to do
so. To the extent that foreign taxes are passed through to shareholders of
the Fund, shareholders will be required to treat as amounts distributed to
them, and may be able to claim a deduction or credit for, their pro rata
share of such taxes.
FUND SHARES
The Company is a series investment company which may issue
multiple series, each of which would represent an interest in its separate
portfolio. Currently, the Fund is the only series issued by the Company.
Shares of a series may be issued in different classes. Shares of the Fund
are currently issued in two classes, Class A and Class B. The Board of
Directors may offer additional classes in the future and may at any time
discontinue the offering of any class of shares. Each share, when issued
and paid for in accordance with the terms of the offering, is fully paid and
non-assessable. Shares have no preemptive or subscription rights and are
freely transferable. Each share of the Fund represents an interest in the
assets of the Fund and has 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 proration, as a full share. Shares do not have
cumulative voting rights; therefore, the holders of more than 50% of the
voting power of the Fund can elect all of the directors of the Fund.
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 otherwise called for special purposes.
Special meetings may be called upon the written request of shareholders
holding at least 10% of the voting power of the Company.
<PAGE>
PERFORMANCE DATA
When the Fund's performance is advertised, performance will consist
of total return, which is the average annual compounded rate of return of
an initial investment for periods of one, five and ten years and may
include such return for shorter or longer periods up to and including the
life of the Fund. Total return is calculated separately for each class.
This calculation assumes reinvestment of all dividends and distributions
and deduction of all charges and expenses, including the maximum
front-end or applicable contingent deferred sales charge. In addition, a
table showing the performance of an assumed investment of $10,000 may
be used from time to time. The Fund may also quote total return and
aggregate total return performance data for various other specified time
periods. Such data will be calculated substantially as described above,
except that (1) the rates of return calculated will not be average annual
rates, but rather, actual annual, annualized or aggregate rates of return
and (2) sales charges will not be included with respect to annual or
annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the sales charges,
actual annual or annualized total return data generally will be lower than
average annual total return data since the average annual rates of return
reflect compounding; aggregate total return data generally will be higher
than average annual total return data since the aggregate rates of return
reflect compounding over a longer period of time.
In reports or other communications to shareholders and in
advertising material, the performance of the Fund may be compared to (i)
various equity indices such as the Europe Australia Far East Index (EAFE)
and the Standard & Poor's 500 Index; and (ii) other mutual funds of
comparable size and objectives as listed in the rankings prepared by
Lipper Analytical Services, Inc., or similar independent mutual fund rating
services, and the Fund may use evaluations published by nationally
recognized independent ranking services and publications.
The Fund's Annual Reports will contain additional performance
information and will be made available upon request and without charge.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to Davis Selected Advisers,
L. P., by writing to P. O. Box 1688, Santa Fe, NM 87504-1688 or calling
(800) 279-0279.
<PAGE>
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 Selected Advisers, L.P. acts as
adviser, 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 Selected Advisers, L.P. 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
Selected Advisers, L.P. 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.
EXPEDITED REDEMPTION PRIVILEGE
/-/ If you wish the Expedited Redemption Privilege please check the box
to the left and complete the following information.
I (we) hereby authorize State Street Bank and Trust Company, Davis
Selected Advisers, L. P., and/or the Davis Funds to act upon instructions
received by telephone or telegraph, believed by them to be genuine, and to
redeem shares in my (our) account in any of the Davis Funds and to wire
the proceeds of such redemption to the predesignated bank listed below. I (we)
hereby agree that neither State Street Bank and Trust Company, nor
Davis Selected Advisers, L. P. nor the Davis Funds nor any of their
officers or employees, will be liable for any loss, liability, cost or
expense for acting upon such instructions.
- ------------------------------------- -------------------------------------
Signature of Shareholder Signature of Co-Shareholder
- ------------------------------------- -------------------------------------
Name of Commercial Bank (Title of Account at Bank)
- ------------------------------------- -------------------------------------
(Street) (Account Number at Bank)
- ------------------------------------- -------------------------------------
(City) (State) (Zip) (ABA/Transit Routing Number)
<PAGE>
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TABLE OF CONTENTS
PAGE
Summary............................................................... 2
Financial Highlights.................................................. 4
Investment Objective and Policies..................................... 6
Risk Factors.......................................................... 7
Adviser, Sub-Adviser and Distributor.................................. 11
Distribution Plans.................................................... 12
Purchase of Shares.................................................... 13
Telephone Privilege................................................... 17
Exchange of Shares.................................................... 17
Redemption of Shares.................................................. 18
Determining the Price of Shares....................................... 20
Dividends and Distributions........................................... 21
Federal Taxes......................................................... 21
Foreign Taxes on Fund Income.......................................... 22
Fund Shares........................................................... 22
Performance Data...................................................... 23
Shareholder Inquiries................................................. 23
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<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
Davis International Total Return Fund
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1996
124 East Marcy Street
Santa Fe, New Mexico 87501
1-800-279-0279
TABLE OF CONTENTS
Fundamental Investment Restrictions........................................ 2
Non-Fundamental Investment Restrictions.................................... 2
Risk Considerations........................................................ 4
High Yield, High Risk Bonds................................................ 5
Hedging of Foreign Currency Risks.......................................... 6
Options on Foreign Currencies.............................................. 7
Lending Portfolio Securities............................................... 9
Writing Covered Call Options and Purchasing Options........................ 10
Repurchase Agreements...................................................... 10
Portfolio Transactions and Brokerage....................................... 11
Directors and Officers..................................................... 11
Directors Compensation Schedule............................................ 13
Certain Shareholders of the Fund........................................... 13
Investment Advisory Services............................................... 14
Custodian.................................................................. 15
Auditors................................................................... 15
Determining the Price of Shares............................................ 15
Dividends, Distributions and Taxes......................................... 15
Performance Data........................................................... 18
Reduction of Class A Sales Charges......................................... 19
Distribution of Fund Shares................................................ 21
Appendix A - Ratings of Securities......................................... 22
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus dated February 1, 1996.
The Prospectus may be obtained from the Fund.
The Fund's September 30, 1995 Annual Report to Shareholders
accompanies this Statement of Additional Information. The Financial
Statements appearing in these reports are incorporated herein by
reference.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental and
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.
(1) Commodities. The Fund may not purchase or sell commodities or
commodity contracts, except contracts in respect to financial futures
or currencies.
(2) Real Estate. The Fund may not purchase real estate or real estate
mortgages as such, but may purchase the securities backed by real
estate or interests therein (including mortgage interests) and
securities of companies, including real estate investment trusts,
holding real estate or interests (including mortgage interests)
therein.
(3) Diversification of Fund Investments.
(a) Fund Assets. With respect to 75% of the value of its total
assets, the Fund may not buy the securities of any company if more
than 5% of the value of the Fund's total assets would then be invested
in that company. Securities issued by the U.S. Government or its
agencies or instrumentalities and repurchase agreements involving such
securities ("U.S. Government Securities"), are not subject to this
limitation.
(b) Securities of Issuers. With respect to 75% of the value of its
total assets, the Fund may not purchase the securities of any company
if after such purchase the Fund would then own more than 10% of such
company's voting securities. U.S. Government Securities are not
subject to this limitation.
(4) Industries. The Fund may not purchase the securities of companies in
any one industry if 25% or more of the value of the Fund's total
assets would then be invested in companies having their principal
business activity in the same industry. U.S. Government Securities
are not subject to this limitation. Securities issued by foreign
governments and their agencies and instrumentalities will be subject
to this limitation only so long as and to the extent that the
Securities and Exchange Commission requires their inclusion in such
industry investment limitations.
(5) Senior Securities; Borrowing. The Fund may not issue senior
securities except as permitted under the Investment Company Act of
1940. The Fund may not pledge or hypothecate any of its assets,
except in connection with permitted borrowing in amounts not exceeding
33 1/3% of the value of the Fund's total assets at the time of
borrowing. Transfers of assets in connection with currency
transactions are not subject to these limitations if appropriately
covered.
(6) Underwriting. The Fund does not engage in the underwriting of
securities. (This does not preclude it from selling restricted
securities in its portfolio.)
(7) Lending Money or Securities. The Fund may not lend money, except
that it may buy debt securities publicly distributed or traded or
privately placed and may enter into repurchase agreements. The Fund
may lend its portfolio securities subject to having 100% collateral in
cash or U.S. Government Securities. The Fund will not lend securities
if such a loan would cause more than 20% of the total value of its net
assets to then be subject to such loans.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
These policies and the Fund's investment objective set forth in the
Prospectus may be changed by the Board of Directors without shareholder
approval.
(1) Borrowing. The Fund may not purchase securities when money
borrowed exceeds 5% of its total assets.
(2) Futures Contracts. The Fund may not purchase a futures contract or
an option thereon, except in respect to currencies and then only if,
with respect to positions in futures or options on futures
<PAGE>
which do not represent bona fide hedging, the aggregate initial
margin and premiums on such positions would not exceed 5% of the
Fund's total assets (excluding from such calculation any in-the-money
amount of any option).
(3) Illiquid and Restricted Securities.
(a) The Fund may not purchase illiquid securities (including
restricted securities which are illiquid and repurchase agreements
maturing in more than seven days) if, as a result, more than 15% of
its net assets would be invested in such securities.
(b) The Fund may not purchase a restricted security if it would cause
more than 10% of total assets to be invested in such securities. For
this purpose all securities eligible for resale under Rule 144A under
the Securities Act of 1933 are not included in this 10% limitation
(but are subject to the overall 15% limitation if they are illiquid as
determined by the Sub-Adviser under criteria established by the Board
of Directors).
(4) Investment Companies. The Fund may not purchase securities of
open-end or closed-end investment companies except in compliance with
the Investment Company Act of 1940.
(5) Margin. The Fund may not purchase securities on margin, except (i)
for use of short-term credit necessary for clearance of purchases of
portfolio securities and (ii) it may make margin deposits in
connection with currency transactions or other permissible
investments.
(6) Mortgaging. The Fund may not mortgage, pledge, hypothecate or, in
any manner, transfer any security owned by the Fund as security for
indebtedness except as may be necessary in connection with permissible
borrowings and other permissible investments or investments for
currency transactions and then such mortgaging, pledging or
hypothecating may not exceed 33 1/3% of the Fund's total assets at
the time of borrowing or investment.
(7) Oil and Gas Programs; Real Estate Limited Partnership. The Fund may
not purchase participations or other direct interests or enter into
leases with respect to oil, gas, or other mineral exploration or
development programs. The Fund may not purchase real estate limited
partnership interests.
(8) Ownership of Portfolio Securities by Officers and Directors. The
Fund may not purchase or retain the securities of any issuer if those
officers and directors of the Fund, and of the Adviser or Sub-Adviser,
who each own beneficially more than 0.5% of the outstanding securities
of such issuer, together own beneficially more than 5% of such
securities.
(9) Short Sales. The Fund may not effect short sales of securities. This
restriction does not apply to currency transactions.
(10) Unseasoned Issuers. The Fund may not purchase a security (other
than obligations issued or guaranteed by the U.S., any state or local
government, or any foreign government, their agencies or
instrumentalities) if, as a result, more than 5% of the value of the
Fund's total assets would be invested in the securities of issuers
which at thetime of purchase had been in operation for less than three
years (for this purpose, the period of operation of any issuer shall
include the period of operation of any predecessor or unconditional
guarantor of such issuer). This restriction does not apply to
securities of pooled investment vehicles or mortgage or asset-backed
securities.
(11) Warrants. The Fund may not invest in warrants if, as a result
thereof, more than 2% of the value of the total assets of the Fund
would be invested in warrants which are not listed on the New York
Stock Exchange, the American Stock Exchange, or a recognized foreign
exchange, or more than 5% of the value of the total assets of the Fund
would be invested in warrants whether or not so listed. For purposes
of these percentage limitations, the warrants will be valued at the
lower of cost or market and warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.
<PAGE>
(12) Options. The Fund may not purchase or write options except that the
Fund may (i) write listed covered call options on portfolio securities
and purchase call options to close such transactions (provided that
no such call is written if it would cause more than 25% of the value
of the Fund's total assets to be subject to such calls), (ii) purchase
options (provided that no such transaction would cause more than 2% of
its total assets or more than 5% of its net assets to be invested in
premiums for such options) or, (iii) engage in option transactions in
respect to foreign currencies.
In addition to the restrictions described above, some foreign
countries limit or prohibit direct foreign investment in the securities of
their companies. However, the governments of some countries have
authorized the organization of investment funds to permit indirect foreign
investment in such securities. For tax purposes these funds may be known
as Passive Foreign Investment Companies. See "Dividends, Distributions
and Taxes - Passive Foreign Investment Companies".
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.
RISK CONSIDERATIONS
Investors should understand and consider carefully the substantial
risks involved in investing in securities of foreign companies and
governments of foreign nations, some of which are referred to below, and
which are in addition to the usual risks inherent in domestic investments.
There is generally less publicly available information about foreign
companies comparable to reports and ratings that are published about
companies in the United States. Foreign companies are also generally not
subject to uniform accounting and auditing and financial reporting
standards, practices and requirements comparable to those applicable to
United States companies.
It is contemplated that foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries
in which the respective principal offices of the issuers of the various
securities are located, if that is the best available market. Foreign
securities markets are generally not as developed or efficient as those in
the United States. While growing in volume, they usually have
substantially less volume than the New York Stock Exchange and
securities of some foreign companies are less liquid and more volatile
than securities of comparable United States companies. Similarly, volume
and liquidity in most foreign bond markets is less than in the United
States and, at times, volatility of price can be greater than in the United
States. Commissions on foreign stock exchanges are generally higher than
negotiated commissions on United States exchanges, although the Fund
will endeavor to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and
regulation of stock exchanges, brokers and listed companies than in the
United States.
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations and
interest rates, expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Fund, political or social
instability, or diplomatic developments which could affect United States
investments in those countries. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
The dividends and interest payable on certain of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the Fund's
shareholders. A shareholder otherwise subject to United States Federal
income taxes may, subject to certain limitations, be entitled to claim a
credit or deduction for U.S. Federal income tax purposes for his or her
proportionate share of such foreign taxes paid by the Fund. See
"Dividends, Distributions and Taxes - Foreign Income Taxes".
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (commonly known as the "spread") between
the price at which they
<PAGE>
are buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer.
Investors should understand that the expense ratio of the Fund can
be expected to be higher than investment companies investing in domestic
securities since, among other things, the cost of maintaining the custody
of foreign securities is higher and the purchase and sale of portfolio
securities may be subject to higher transaction charges, such as stamp
duties and turnover taxes.
Investors should further understand that all investments involve
some level of risk. There can be no guarantee against loss resulting from
an investment in the Fund, and there can be no assurance that the Fund's
investment objective will be attained. The Fund is designed for individual
and institutional investors who wish to diversify beyond the United States
in an actively researched and managed portfolio. The Fund may not be
suitable for all investors and is intended for long-term investors who can
accept the risks entailed in seeking total return through long-term growth
of capital or income by investing in foreign securities as described above.
HIGH YIELD, HIGH RISK BONDS
As discussed in the Prospectus, the Fund may invest in high yield,
high risk debt securities rated BBB or lower by Standard & Poor's
Corporation ("S & P") or Baa or lower by Moody's Investor Services, Inc.
("Moody's"). Securities rated BBB by S & P or Baa by Moody's have
speculative characteristics; changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case for higher grade bonds.
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
securities of issuers in default. The Fund intends not to purchase
securities rated BB or Ba or lower if after such purchase more than 5% of
the Fund's net assets would be invested in such securities (including
downgraded securities). Such securities are considered speculative with
respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation and generally will involve more credit risk
than securities in the higher rating categories. The Sub-Adviser will
consider the ratings assigned by S & P and Moody's as one of several
factors in its independent credit analysis of issuers. Ratings assigned by
credit agencies do not evaluate market risks. In addition, since most
foreign fixed-income securities are not rated, the Fund will invest in such
securities based on the Sub-Adviser's analyses without relying on
published ratings. The Fund will not invest in bonds which are
in default.
The market values of such securities tend to reflect individual
corporate developments to a greater extent than do higher rated
securities, which react partly to fluctuations in the general level of
interest rates. Such lower rated securities also tend to be more sensitive
to economic and industry conditions than higher rated securities. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis regarding individual lower rated bonds and the high yield, high
risk market may depress the prices for such securities. If the negative
factors such as the aforementioned adversely impact the market value of
high yield, high risk securities, the portfolio's net asset value will be
adversely affected.
The high yield, high risk bond market comprised a small piece of the
general bond market until the middle 1980s when issuance increased
dramatically. Since that time the high yield, high risk bond market has
experienced only one recessionary environment but never has been exposed
to a significant increase in interest rates. During the economic downturn
that was experienced, prices of high yield, high risk bonds declined and
defaults rose. Future economic downturns and/or significant increases in
interest rates are likely to have a negative effect on the high yield, high
risk bond market and consequently on the value of these bonds, as well as
increase the incidence of defaults on such bonds.
High yield, high risk bonds may be issued in a variety of
circumstances. Some of the more common circumstances are issuance by
corporations in the growth stage of their development, in connection with
a corporate reorganization or as part of a corporate takeover. Companies
that issue such high yielding, high risk bonds often are highly leveraged
and may not have available to them more traditional methods of financing.
Therefore, the risk associated with acquiring the bonds of such issuers
generally is greater than is the case with higher rated bonds. For
example, during an economic downturn or recession, highly leveraged
issuers of high yield, high risk bonds may experience financial stress.
During such periods, such issuers may not have sufficient revenues to
meet their principal and interest payment obligations. The issuer's ability
to service its debt obligations may also be adversely affected by specific
corporate developments, or the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing.
The risk of loss due to default by the issuer is significantly greater for the
<PAGE>
holders of high yielding bonds because such bonds are generally
unsecured and are often subordinated to other creditors of the issuer. The
costs associated with recovering principal and interest once a security
has defaulted may impact the return to holders of the security.
The Fund may have difficulty disposing of certain high yield, high
risk bonds because there may be a thin trading market for such bonds.
Because not all dealers maintain markets in all high yield, high risk bonds,
the Fund anticipates that such bonds could be sold only to a limited
number of dealers or institutional investors. The lack of a liquid
secondary market may have an adverse impact on market price and the
ability to dispose of particular issues and may also make it more difficult
to obtain accurate market quotations or valuations for purposes of valuing
the 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 bonds regardless
of a fundamental analysis of the investment merits of such bonds. To the
extent that the Fund purchases illiquid or restricted bonds, it may incur
special securities registration responsibilities, liabilities and costs, and
liquidity and valuation difficulties relating to such bonds.
Bonds may be subject to redemptions or call provisions. If an issuer
exercises these provisions when investment rates are declining, the Fund
will be likely to replace such bonds with lower yielding bonds resulting in
a decreased return. Zero coupon, pay-in-kind and deferred interest bonds
involve additional special considerations. Zero coupon bonds are debt
obligations that do not require the holder to make 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 receive
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.
HEDGING OF FOREIGN CURRENCY RISKS
The Fund may purchase or sell forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk to the
Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies. A forward contract is an obligation to purchase or sell
a specific currency for an agreed price at a future date which is
individually negotiated and privately traded by currency traders and their
customers. Such a contract gives the Fund a position in a negotiated,
currently non-regulated market. The Fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or
sale of a security denominated in a foreign currency in order to "lock in"
the U.S. dollar price of the security ("transaction hedge"). Additionally,
for example, when the Sub-Adviser believes that a foreign currency may
suffer a substantial decline against the U.S. dollar, it may enter into a
forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency, or when the Fund believes that the
U.S. dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign currency
for a fixed dollar amount in anticipation of purchasing foreign traded
securities ("position hedge"). In this situation the Fund may, in the
alternative, enter into a forward contract in respect to a different foreign
currency for a fixed U.S. dollar amount ("cross hedge"). This may be done,
for example, where the Sub-Adviser believes that the U.S. dollar value of
the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated.
The Fund may purchase and write put and call options on foreign
currencies for the purpose of protecting against declines in the U.S. dollar
value of foreign currency-denominated portfolio securities and against
increases in the U.S. dollar cost of such securities to be acquired. As in
the case of other kinds of options, however, the
<PAGE>
writing of an option on a foreign currency constitutes only a partial hedge, up
to the amount of the premium received, and the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on a foreign currency may
constitute an effective hedge against fluctuations in exchange rates although,
in the event of rate movements adverse to the Fund's position, it may forfeit
the entire amount of the premium plus related transaction costs. Options on
foreign currencies to be written or purchased by the Fund are traded on
U.S. and foreign exchanges or over-the-counter. Currently, a significant
portion or all of the value of an over-the-counter option may be treated as
an illiquid investment and subject to the restriction on such investments
as long as the SEC requires that over-the-counter options be treated as
illiquid. Generally, the Fund would utilize options traded on exchanges
where the options are standardized.
The Fund may enter into contracts for the purchase or sale for future
delivery of foreign currencies ("currency futures contracts") and may
purchase and write put and call options to buy or sell currency futures
contracts. A "sale" of a currency futures contract means the acquisition
of a contractual obligation to deliver the foreign currencies called for by
the contract at a specified price on a specified date. A "purchase" of a
currency futures contract means the incurring of a contractual obligation
to acquire the foreign currencies called for by the contract at a specified
price on a specified date. Options on currency futures contracts to be
purchased by the Fund will be traded on U.S. or foreign exchanges or
over-the-counter. The Fund will not enter into any futures contracts or
options on currency futures contracts if immediately thereafter the
aggregate of initial margin deposits on all the outstanding currency
futures contracts of the Fund and premiums paid on outstanding options on
currency futures contracts would exceed 5% of the market value of the
total assets of the Fund (excluding in such market value any in-the-money
amount of any option).
The Fund may also purchase securities (debt securities or deposits)
which have their coupon rate or value at maturity determined by reference
to the value of one or more foreign currencies. The Fund will not use
leverage. These strategies will be used for hedging purposes only. The
Fund will hold securities or other options or futures positions whose
values are expected to offset its obligations under the hedge strategies.
The Fund will not enter into a currency hedging position that exposes the
Fund to an obligation to another party unless it owns either (i) an
offsetting position in securities, options or futures positions or (ii) cash,
receivables and short-term debt securities with a value sufficient to
cover its potential obligations. The Fund will comply with requirements
established by the SEC and, to the extent applicable, the Commodities
Futures Trading Commission, with respect to coverage of options, futures
and forward contracts by mutual funds, and, if so required, will set aside
cash and high grade liquid debt securities in a segregated account with its
custodian bank in the amount prescribed. The Fund's custodian will
maintain the value of such segregated account equal to the prescribed
amount by adding or removing additional cash or liquid securities to
account for fluctuations in the value of securities held in such account.
Securities held in a segregated account cannot be sold while the futures
or option strategy is outstanding, unless they are replaced with similar
securities.
The Fund's ability to dispose of its positions in futures contracts,
options and forward contracts will depend on the availability of liquid
markets in such instruments. Markets in options and futures with respect
to currencies are still developing. It is impossible to predict the amount
of trading interest that may exist in various types of futures contracts,
options and forward contracts. If a secondary market does not exist with
respect to an option purchased or written by the Fund over-the-counter, it
might not be possible to effect a closing transaction in the option ( i.e.,
dispose of the option) with the result that (i) an option purchased by the
Fund would have to be exercised in order for the Fund to realize any profit
and (ii) the Fund may not be able to sell currencies covering an option
written by the Fund until the option expires or it delivers the underlying
futures currency upon exercise. Therefore, no assurance can be given that
the Fund will be able to utilize these instruments effectively for the
purposes set forth above.
The Fund's transactions in forward contracts, options on foreign
currencies and currency futures contracts will be subject to special tax
rules under the Internal Revenue Code that, among other things, may affect
the character of any gains or losses of the Fund as ordinary or capital and
the timing and amount of any income or loss to the Fund. This, in turn,
could affect the character, timing and amount of distributions by the Fund
to shareholders. The Fund may be limited in its foreign currency and
currency hedging transactions by tax considerations.
OPTIONS ON FOREIGN CURRENCIES
The Fund may purchase and write options on foreign currencies in a
manner similar to that in which futures contracts on foreign currencies,
or forward contracts, will be utilized. For example, a decline in the dollar
value of a
<PAGE>
foreign currency in which portfolio securities are denominated
will reduce the dollar value of such securities, even if their value in the
foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities; the Fund may purchase put
options on the foreign currency. If the value of the currency does decline,
the Fund will have the right to sell such currency for a fixed amount in
dollars and will thereby offset, in whole or in part, the adverse effect on
its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing
the cost of such securities, the Fund may purchase call options thereon.
The purchase of such options could offset, at least partially, the effects
of the adverse movements in exchange rates. As in the case of other types
of options, however, the benefit to the Fund deriving from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do
not move in the direction or to the extent anticipated, the Fund could
sustain losses on transactions in foreign currency options which would
require it to forego a portion or all of the benefits of advantageous
changes in such rates.
The Fund may also write options on foreign currencies for the same
purposes. For example, where the Fund anticipates a decline in the dollar
value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline
occurs, the option will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the premium
received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Fund could write a put option on the relevant currency which, if rates
move in the manner projected, will expire unexercised and allow the Fund
to hedge such increased cost up to the amount of the premium. As in the
case of other types of options, however, the writing of a foreign currency
option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to
purchase or sell the underlying currency at a loss which may not be offset
by the amount of the premium. Through the writing of options on foreign
currencies, the Fund also may be required to forego all or a portion of the
benefits which might otherwise have been obtained from favorable
movements in exchange rates.
The Fund intends to write covered call options on foreign currencies.
A call option written on a foreign currency by the Fund is "covered" if the
Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without
additional cash consideration (or for additional cash consideration held in
a segregated account by its Custodian) upon conversion or exchange of
other foreign currency held in its portfolio. A call option is also covered
if the Fund has a call on the same foreign currency and in the same
principal amount as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the difference
is maintained by the Fund in cash, U.S. Government Securities or other
appropriate liquid securities in a segregated account with its Custodian.
The Fund also intends to write call options on foreign currencies
that are not covered for cross-hedging purposes. A call option on a
foreign currency is for cross-hedging purposes if it is not covered, but is
designed to provide a hedge against a decline in the U.S. dollar value of a
security which the Fund owns or has the right to acquire and which is
denominated in the currency underlying the option due to an adverse
change in the exchange rate. In such circumstances, the Fund
collateralizes the option by maintaining in a segregated account with the
Fund's Custodian, cash or U.S. Government Securities or other appropriate
liquid securities in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked to market daily.
Additional Risks of Options on Futures Contracts, Forward Contracts and Options
on Foreign Currencies
- -------------------------------------------------------------------------------
Unlike transactions entered into by the Fund in futures contracts,
options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain
foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers,
although foreign currency options are also traded on certain national
securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. Similarly,
options on currencies may be traded over-the-counter. In an
over-the-counter trading environment, many of the protections afforded
to exchange participants will not be available. For example, there are no
daily price fluctuation
<PAGE>
limits, and adverse market movements could therefore continue to an unlimited
extent over a period of time. Although the purchaser of an option cannot lose
more than the amount of the premium plus related transaction costs, this entire
amount could be lost. Moreover, the option writer and a trader of forward
contracts could lose amounts substantially in excess of their initial
investments, due to the margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on national securities
exchanges are within the jurisdiction of the SEC, as are other securities
traded on such exchanges. As a result, many of the protections provided to
traders on organized exchanges will be available with respect to such
transactions. In particular, all foreign currency option positions entered
into on a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk of
counterparty default. Further, a liquid secondary market in options traded
on a national securities exchange may be more readily available than in
the over-the-counter market, potentially permitting the Fund to liquidate
open positions at a profit prior to exercise or expiration, or to limit
losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market
movements, margining of options written, the nature of the foreign
currency market, possible intervention by governmental authorities and
the effects of other political and economic events. In addition,
exchange-traded options on foreign currencies involve certain risks not
presented by the over-the-counter market. For example, exercise and
settlement of such options must be made exclusively through the OCC,
which has established banking relationships in applicable foreign
countries for this purpose. As a result, the OCC may, if it determines that
foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on
exercise and settlement, such as technical changes in the mechanics of
delivery of currency, the fixing of dollar settlement prices or prohibitions
on exercise.
Options on foreign currencies may be traded on foreign exchanges.
These are not regulated by any United States authorities. Such
transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of
such positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability of data on
which to make trading decisions than in the United States, (iii) delays in
the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the United States, (iv) the
imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States, and (v) lesser trading
volume.
LENDING PORTFOLIO SECURITIES
The Fund may make secured loans of portfolio securities in order to
realize additional income. The fundamental investment restrictions
provide that the Fund will not lend securities if such a loan would cause
more than 20% of the total value of its net assets to then be subject to
such loans. However, as a matter of non-fundamental policy, the Fund
does not intend to make such loans if it would cause more than 5% of its
net assets to be subject to such loans.
If the Fund were to lend securities, the borrower would provide cash
collateral which the Fund could invest in order to receive short-term
interest income. The borrower also would pay the Fund an amount equal to
the dividends or interest which the Fund would have received if the Fund
had not loaned the securities. The cash collateral which the borrower
would provide must be equal to the market value of the securities loaned.
If this market value rises, the borrower would provide more cash on each
business day. If it declines, the borrower is entitled to be paid back some
of its cash. Determinations of market value are made at the end of each
business day. If the cash collateral drops below 100% and the required
additional cash is not immediately deposited by the borrower, the loan
would immediately become due and the Fund would be entitled to replace
the securities by purchase. There can be no assurance that the borrower
would be able to deposit any required additional cash. The Fund would
exercise its right to replace the securities within such reasonable time as
the Fund deemed appropriate under the circumstances.
There are other policies which would govern the Fund's lending of
securities. The borrower must agree to return the securities after notice,
within the normal settlement time of five business days. The Fund would
invest the cash collateral only in readily marketable short-term interest
bearing securities of prime quality so that the Fund
<PAGE>
could return the borrower's cash when due. Part of the interest the Fund
receives on these investments may be paid to the borrower.
If the voting rights or rights to consent on securities loaned pass to
the borrower, the Fund would retain the right to cancel the loan and retain
its rights in time to vote upon or consent to a matter which the Fund
deems important.
The Fund would loan its portfolio securities only to brokers, dealers
and other financial institutions which have capital of not less than $10
million, and the Fund's loans would comply with applicable regulatory
requirements. The Fund may pay reasonable finder's, administrative and
custodian fees in connection with securities loans.
Some, but not all, of the Fund's policies are necessary to meet
certain requirements of the tax laws relating to the lending of securities.
The Fund's policies will not be changed unless the change is permitted
under these requirements. The Fund intends not to lend portfolio
securities if, or to the extent that, such activity would jeopardize its
qualification as a regulated investment company under the tax laws.
WRITING COVERED CALL OPTIONS AND PURCHASING OPTIONS
The Fund may write covered call options on a portion of its portfolio
securities and purchase call options in closing transactions. The
investment restrictions provide that such an option may not be written if
thereafter the market value of all of the Fund's portfolio securities
subject to options would exceed 25% of the value of its total assets.
However, as a matter of current operating policy, the Fund does not intend
to write a covered call option on its portfolio securities if it would cause
more than 5% of the Fund's net assets to be subject to such options. The
Fund would only write options on securities in its portfolio and would not
write options on loaned securities. The Fund will limit income derived
from the writing of options that expire in less than 3 months so as to
continue to meet the requirements for qualification as a regulated
investment company under the Internal Revenue Code.
A covered call option gives the purchaser of the option the right to
buy the underlying security at the price specified in the option (the
"exercise price") at any time until the option expires, generally within
three to nine months, in return for the payment to the writer upon the
issuance of the option of an amount called the "premium." A commission
may be charged in connection with the writing of the option. The premium
received for writing a call option is determined by the option markets.
The premium paid plus the exercise price will always be greater than the
market price of the underlying securities at the time the option is
written. By writing a covered call option, the Fund forgoes, in exchange
for the premium, the opportunity to profit from an increase in the market
value of the underlying security above the exercise price, if the option is
exercised.
The obligation is terminated upon exercise of the call option, its
expiration or when the Fund effects a closing purchase transaction. A
closing purchase transaction is one in which the writer purchases another
call option in the same underlying security (identical as to exercise price,
expiration date and number of shares). The writer thereby terminates its
obligation and substitutes the second writer as the obligor to the original
option purchaser. A closing purchase transaction would normally involve
the payment of a brokerage commission. During the remaining term of the
option, if the Fund cannot enter into a closing purchase transaction, it
would lose the opportunity for realizing any gain over and above the
premium through sale of the underlying security and if the security is
declining in price the Fund would continue to experience such decline.
Purchasing Options. Purchasing a call on a stock would give the Fund
the right to buy the stock as described above. This would give the Fund a
position in a security for a significantly lower price than purchasing the
stock outright. Purchasing a put would give the Fund a right to sell the
stock at a specified price at any time until the option expires. Ownership
of a put can be a hedge against a decline in the price of a security which
the Fund owns. However, the risk of purchasing an option, whether a call
or a put, is that the option could expire without any gain to the Fund. The
Fund would then have lost the premium it paid for the option and any
related brokerage expense.
REPURCHASE AGREEMENTS
A repurchase agreement involves a sale of securities to the Fund,
with the concurrent agreement of the seller (a bank or securities dealer
which the Adviser or Sub-Advisers believes to be financially sound) 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, which are
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. 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.
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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Atlantic Advisers Limited (the "Sub-Adviser") makes investment
decisions and arranges for the placement of buy and sell orders and the
execution of portfolio transactions for the Fund subject to review by the
Board of Directors. In this regard, the Sub-Adviser will seek to obtain the
most favorable price and execution for the transaction given the size and
risk involved. In placing executions and paying brokerage commissions,
the 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 Sub-Adviser's staff. In
accordance with this policy, brokerage transactions may not be executed
solely on the basis of the lowest commission rate available for a
particular transaction. Research services provided to the Sub-Adviser by
or through brokers who effect portfolio transactions for the Fund may be
used in servicing other accounts managed by the Sub-Adviser and likewise
research services provided by brokers used for transactions of other
accounts may be utilized by the 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 brokerage.
The Sub-Adviser is under common control with E.F. Iselin S.A., an
investment advisory firm based in Geneva, Switzerland. Edouard F. Iselin,
the President and Chief Investment Officer of the Sub-Adviser is also the
Chairman and CEO of E.F. Iselin S.A. Research services obtained either on
behalf of the Fund or on behalf of clients of E.F. Iselin, S.A. may be used to
benefit clients of the other related entity. In addition, there may be times
when an investment decision may be made to purchase or sell the same
security for the Fund and one or more clients of E.F. Iselin, S.A. If the Fund
and E.F. Iselin S.A. simultaneously engage in the purchase or sale of the
same security, the transactions will be allocated as to amount and price
in a manner considered equitable to each. In some instances, this
procedure could adversely affect the Fund but the Fund deems that any
disadvantage in the procedure would be outweighed by the increased
selection available and the increased opportunity to engage in volume
transactions.
The Sub-Adviser believes that research from brokers and dealers is
desirable, although not essential, in carrying out its functions, in that
such outside research supplements the efforts of the Sub-Adviser by
corroborating data and enabling the 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
Sub-Adviser researches, at its own expense, each security included in, or
being considered for inclusion in, the Fund's portfolio. As any particular
research obtained by the 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 Sub-Adviser to allocate, the relative costs or
benefits of research.
During the eight months ended September 30, 1995, the Fund paid
brokerage commissions of $144,415.
DIRECTORS AND OFFICERS
The names and addresses of the directors and officers of the Fund
are set forth below, together with their principal business affiliations
and occupations for the last five years. As indicated below, certain
directors and
<PAGE>
officers of the Fund hold similar positions with the following funds that are
also managed by the Adviser: Davis New York Venture Fund, Inc., Davis High
Income Fund, Inc., Davis Tax-Free High Income Fund, Inc. and Davis
Series, Inc.
Jeremy H. Biggs (8/16/35)<F1>, Two World Trade Center, 94th Floor,
New York, NY 10048. Director and Chairman of the Fund and each of the
Davis 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.
Shelby M.C. Davis (3/20/37)<F1>, P.O. Box 205, Hobe Sound, FL 33455.
Director and President of the Fund and each of the Davis Funds;
Director/Trustee and Executive Vice President of Selected American
Shares, Inc., Selected Special Shares, Inc. and Selected Capital
Preservation Trust; Director, Chairman and Chief Executive Officer,
Venture Advisers, Inc. effective August 15, 1995; Employee of Capital
Ideas, Inc. (financing consulting firms); Consultant to Fiduciary Trust
Company International; Director, Shelby Cullom Davis Financial
Consultants, Inc.
Keith R. Kroeger (5/13/36), Director. Partner, Kroeger, Woods
Associates, Architects, 255 King Street, Chappaqua NY 10514.
The Very Reverend James R. Leo (8/24/33), Director. Christ Church
Cathedral, 318 East Fourth Street, Cincinnati, OH 45202. Dean, Christ
Church Cathedral since 1991. Formerly, Dean of The American Cathedral
in Paris from 1980 until 1991.
Richard M. Murray (11/21/22), Director. Retired since 1987. Liaison
Office of Grupo Nacional Provincial, Mexico, 80 Broad St., 35th Floor, New
York, NY 10004-2203. Currently, Vice Chairman, La Prov Corporation;
Director, SCOR U.S. Corporation; Director Preferred Life Insurance
Company of N.Y.; Director, United Americas Insurance Company, N.Y.;
Director, Firemark Global Insurance Fund; Director, International
Insurance Society, Inc.
Martin H. Proyect (10/24/32)<F1>, P.O. Box 80176, Las Vegas, Nevada
89180-0176. Director of the Fund and each of the Davis Funds;
Director/Trustee and President of Selected American Shares, Inc.,
Selected Special Shares, Inc. and Selected Capital Preservation Trust;
Chairman and President of the Fund until July 26, 1995 and Chairman,
Director and Treasurer, Venture Advisers, Inc. until August 15, 1995.
Theodore B. Smith, Jr. (12/23/32), Director. John Hassall, Inc.
Westbury, Long Island NY 11590, Chairman, President and CEO of John
Hassall, Inc.; Managing Director John Hassall, Ltd.; Chairman of John
Hassall Japan, Ltd.; Chairman of Cantrock Realty; Chairman of McCallum
Die; Trustee, Deputy Mayor and Commissioner of Public Services for the
Incorporated Village of Mill Neck.
Carl R. Luff (4/30/54), 124 East Marcy Street, Santa Fe, NM 87501.
Vice President, Treasurer and Assistant Secretary of the Fund and each of
the Davis Funds, Selected American Shares, Inc., Selected Special Shares,
Inc., Selected Capital Preservation Trust; Director, Co-President and
Treasurer, Venture Advisers, Inc., effective August 15, 1995.
Raymond O. Padilla (2/22/51), 124 East Marcy Street, Santa Fe, NM
87501. Vice President, Secretary and Assistant Treasurer of the Fund and
each of the Davis Funds; Vice President and Assistant Secretary of
Selected American Shares, Inc., Selected Special Shares, Inc. and Selected
Capital Preservation Trust; Senior Vice President, Venture Advisers, Inc.
Carolyn H. Spolidoro (11/19/52), 124 East Marcy Street, Santa Fe,
NM 87501. Vice President of the Fund and each of the Davis Funds; Vice
President, Venture Advisers, Inc.
Andrew A. Davis (6/25/63), 124 East Marcy Street, Santa Fe, NM
87501. Vice President of the Fund and each of the Davis Funds; Director
and Co-President, Venture Advisers, Inc. effective August 15, 1995;
formerly, Vice President and head of convertible security research,
PaineWebber, Incorporated.
<PAGE>
Eileen R. Street (3/11/62), 124 East Marcy Street, Santa Fe, NM
87501. Assistant Treasurer and Assistant Secretary of the Fund and each
of the Davis Funds, Selected American Shares, Inc., Selected Special
Shares, Inc. and Selected Capital Preservation Trust; Senior Vice
President, Venture Advisers, Inc.
Sheldon R. Stein (11/29/28), 30 North LaSalle Street, Suite 2900,
Chicago, IL 60602. Assistant Secretary of the Fund and each of the Davis
Funds, Selected American Shares, Inc., Selected Special Shares, Inc. and
Selected Capital Preservation Trust; Partner, D'Ancona & Pflaum, the
Fund's legal counsel.
Arthur Don (9/24/53), 30 North LaSalle Street, Suite 2900, Chicago,
IL 60602. Assistant Secretary of the Fund and each of the Davis Funds,
Selected American Shares, Inc., Selected Special Shares, Inc. and Selected
Capital Preservation Trust; Partner, D'Ancona & Pflaum, the Fund's legal
counsel.
_____________________________
[FN]
<F1>The asterisk following the names of Mr. Martin H. Proyect, Shelby M.C.
Davis and Jeremy H. Biggs indicates that each director is considered to be
an "interested person" of the Fund, as defined in the Investment Company
Act of 1940.
[/FN]
The Fund does not pay salaries to any of its officers. Davis Selected
Advisers, L.P. performs certain services on behalf of the Fund. The Adviser
is reimbursed by the Fund for the costs of providing these services. See
"Investment Advisory Services."
DIRECTORS' COMPENSATION SCHEDULE
During the eight months ended September 30, 1995, the
compensation paid to the directors who are not considered to be
interested persons of the Company was as follows:
<TABLE>
<CAPTION>
Aggregate Fund Total Complex
Name Compensation Compensation<F1>
<S> <C> <C>
The Very Reverend James R. Leo $2,500 $2,500
Theodore B. Smith, Jr. $2,500 $2,500
Richard M. Murray $2,500 $2,500
Keith R. Kroeger $2,500 $2,500
<FN>
<F1> Complex Compensation is the aggregate compensation paid, for service
as a Director, by all mutual funds with the same investment adviser.
</FN>
</TABLE>
CERTAIN SHAREHOLDERS OF THE FUND
The following table sets forth, as of December 29, 1995 the name
and holdings of each person known by the Fund to be record owner of more
than 5% of its outstanding Class A and Class B shares. As of such date,
there were 2,533,985.699 Class A shares outstanding and the directors
and officers of the Fund, as a group, owned 100,834.561 Class A shares, or
approximately 3.98% of the Fund's outstanding Class A shares. As of such
date there were 222,637.501 Class B shares outstanding. The directors
and officers of the fund do not presently own or intend to own any Class B
shares of the Fund.
<TABLE>
<CAPTION>
Number of Shares Percent of Class
Name and Address Owned Outstanding
- ---------------- ----- -----------
<S> <C> <C>
Class A shares
Shelby Cullom Davis & Co. 1,151,920.606 45.17%
70 Pine Street
New York, NY 10270-0002
Class B shares
Alex Brown & Sons Incorporated 25,683.327 11.53%
P.O. Box 1346
Baltimore, MD 21203-1346
</TABLE>
<PAGE>
INVESTMENT ADVISORY SERVICES
Davis Selected Advisers, L.P. serves as investment adviser for the
Fund pursuant to an investment advisory agreement between the Fund and
the Adviser (the "Advisory Agreement") adopted in accordance with the
requirements of the Investment Company Act of 1940. Pursuant to the
Advisory Agreement, the Adviser, subject to the general supervision of
the Fund's Board of Directors, provides management services and
investment advice, and furnishes statistical, executive and clerical
personnel, bookkeeping, office space, and equipment necessary to carry
out its management functions and such corporate managerial duties as are
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 and transaction
and accounting matters related to its custodian bank, transfer agency,
custodial and shareholder services, qualification of its shares under
federal and state securities laws, legal and audit services. For the
Adviser's services, the Fund pays the Adviser a monthly fee at the annual
rate based on average net assets, as follows: 1.0% on the first $250
million; 0.9% on the next $250 million; and 0.8% on average net assets in
excess of $500 million. The aggregate advisory fee paid by the Fund to the
Adviser during the eight months ended September 30, 1995 was $67,449.
Atlantic Advisers Limited serves as the Sub-Adviser of the Fund,
managing the day-to-day investments of the Fund, under a Sub-Advisory
Agreement between the Adviser and the Sub-Adviser which was adopted in
accordance with the requirements of the Investment Company Act of 1940.
For the Sub-Adviser's services, the Adviser pays the Sub-Adviser 50% of
the total annual investment advisory fees paid by the Company to the
Adviser. The Sub-Adviser receives no fees directly from the Fund.
Under the Advisory Agreement, if expenses borne by the Fund in any
fiscal year (including the advisory fee, but excluding interest, taxes,
brokerage fees and payments made under a Rule 12b-1 Distribution Plan
and, where permitted, extraordinary expenses) exceed limitations imposed
by applicable state securities laws or regulations, the Adviser must
reimburse the Fund for any such excess at least annually, up to the amount
of its advisory fee. These expense limitations may be raised or lowered
from time to time. The present maximum operating expense limitations
are 2-1/2% of the first $30 million of average net assets, 2% of the next
$70 million of average net assets and 1-1/2% of average net assets over
$100 million.
The reimbursable cost for certain accounting and administrative
services for the eight months ended September 30, 1995 was $5,336. The
reimbursable cost for qualifying the Fund's shares for sale with state
agencies for such period was $8,000, and the reimbursable cost for
providing shareholder services for such period was $1,145.
The Advisory and Sub-Advisory Agreements also make provisions for
the placement of portfolio transactions and other brokerage policies of
the Fund which are discussed herein under "Portfolio Transactions ".
In accordance with the Investment Company Act, the Advisory
Agreement and the Sub-Advisory Agreement will terminate automatically
upon assignment and are subject to cancellation upon 60 days' written
notice by the Fund's Board of Directors, the vote of the holders of a
majority of the Fund's outstanding shares or the Adviser. The continuance
of each 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 agreement or interested persons of any such party.
The Advisory and the Sub-Advisory Agreement provide that the
Adviser and Sub-Adviser, in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of their duties, will not be liable
for any act or omission in the cause of, or connected with rendering
service under the Agreements or for any losses that may be sustained in
the purchase, holding or sale of any security.
The Adviser and the Sub-Adviser have both adopted Codes of Ethics
which regulate the personal securities transactions of the Adviser's and
Sub-Adviser's investment personnel and other employees and affiliates
with access to information regarding securities transactions of the Fund.
Both Codes of Ethics require investment personnel to disclose personal
securities holdings upon commencement of employment and all subsequent
trading activity to the firm'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.
<PAGE>
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.
CUSTODIAN
The Custodian of the Fund's assets is State Street Bank and Trust
Company ("State Street"), One Heritage Drive, North Quincy, Massachusetts
02171. The Custodian maintains all of the instruments representing the
investments of the Fund and all cash. The Custodian delivers securities
against payment upon sale and pays for securities against delivery upon
purchase. The Custodian also remits Fund assets in payment of Fund
expenses, pursuant to instructions of officers or resolutions of the Board
of Directors.
AUDITORS
The Fund's auditors are Tait, Weller & Baker, Two Penn Center, Suite
700, Philadelphia, Pennsylvania 19102-1707. The audit includes
examination of annual financial statements furnished to shareholders and
filed with the Securities and Exchange Commission, consultation on
financial accounting and reporting matters, and meeting with the Audit
Committee of the Board of Directors. In addition, the auditors review
federal and state income tax returns and related forms.
DETERMINING THE PRICE OF SHARES
Securities traded on U.S. or foreign exchanges are valued at the last
quoted sales prices on such exchanges prior to the time when assets are
valued. Securities listed or traded on certain foreign exchanges whose
operations are similar to the U.S. over-the-counter market, other
securities that are not traded on a particular day and securities regularly
traded in the over-the-counter market are valued at the closing bid price.
A security which is listed or traded on more than one exchange is valued
at the quotations on the exchange determined to be the primary market for
such security by the Board of Directors.
Debt securities are generally traded in the over-the-counter market
and are valued at a price deemed best to reflect fair value as quoted by
dealers who make markets in these securities or by an independent pricing
service. Debt securities with maturities of 60 days or less are valued at
amortized cost unless the Board of Directors determines that such cost is
not a fair value.
In the instances where the price of a security determined above is
deemed not to be representative, the security is valued in such a manner
as prescribed by the Board of Directors to reflect its fair value. The Board
of Directors will monitor the Fund's methods of valuation on an ongoing
basis.
Trading in securities on exchanges and over-the-counter markets in
Europe and the Far East is normally completed at various times prior to
4:00 p.m. New York time, the current closing time of the New York Stock
exchange (the "Exchange"). Trading on foreign exchanges may not take
place on every day the Exchange is open. Conversely, trading in various
foreign markets may take place on days when the Exchange is not open and
on other days when the Fund's net asset value is not calculated.
Consequently, the calculation of the net asset value for the Fund may not
occur contemporaneously with the determination of the most current
market prices of the securities included in such calculation. Events
affecting the values of portfolio securities that occur between the time
that their prices are determined and the close of the Exchange will not be
reflected in the Fund's calculation of net asset value unless the Board of
Directors deems that the particular event would materially affect net
asset value, in which case an adjustment will be made.
The Fund 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, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following discussion relates solely to U.S. Federal income taxes
on dividends and distributions by the Fund and assumes that the Fund
qualifies as a regulated investment company. Investors should consult
their own counsel for further details, including their entitlement to
credits or deductions for foreign tax that
<PAGE>
might be "passed through" to them under the rules described below, and the
application of state and local tax laws to their particular situation.
Dividends and distributions of any realized short-term capital gains
are included in the income of U.S. shareholders as ordinary income and
distributions of net long-term capital gains are included in the income of
U.S. shareholders as long-term capital gains irrespective of the length of
time they have held their shares in the Fund. The dividends-received
deduction for corporate shareholders of the Fund may be applicable to a
portion of the Fund's distributions of net ordinary income. The amount of
distributions eligible for the dividends received deduction is limited to
the amount of dividends received by the Fund during the fiscal year from
United States corporations. A corporation's dividends-received deduction
will be disallowed in the case of any shares held by the corporation for 45
days or less. Furthermore, the dividends-received deduction will be
disallowed to the extent a corporation's investment in shares of the Fund
is financed with indebtedness. Capital gains distributions by the Fund are
not eligible for this deduction.
In view of the Fund's investment policies, it is expected that
dividends from United States corporations will, at most, be only a small
part of the Fund's gross income and that, accordingly, only a small part, if
any, of distributions by the Fund will be eligible for the
dividends-received deduction; however, this is largely dependent on the
Fund's investment activities and accordingly cannot be predicted with
certainty. The Fund will advise its shareholders annually as to the Federal
income tax status of distributions made during the year.
Currency Fluctuations. Under section 988 of the Internal Revenue
Code, any gain or loss attributable to fluctuations in exchange rates which
occurs between the time the Fund accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency
and the time the Fund actually collects such receivables or pays such
liabilities, is treated as ordinary income or ordinary loss. Similarly,
gains or losses upon the disposition of (i) foreign currencies, (ii) debt
securities denominated in a foreign currency, (iii) over-the-counter
options with respect to a foreign currency, or (iv) forward contracts
denominated in a foreign currency (and from certain regulated futures
contracts and non-equity options if the Fund so elects) which are
attributable to fluctuations in the value of the foreign currency between
the date of acquisition of the asset and the date of disposition also are
treated as ordinary income or loss. These gains or losses increase or
decrease the amount of the Fund's taxable income available to be
distributed to its shareholders as ordinary income, rather than increasing
or decreasing the amount of the Fund's net capital gain. Because losses on
foreign currency reduce the amount of net ordinary income available for
distribution in a taxable year, they may result in all or a portion of prior
dividends for such year being re-characterized as a non-taxable return of
capital to shareholders, rather than net ordinary income, thereby reducing
each shareholder's basis in Fund shares. To the extent that such dividends
exceed a shareholder's basis in his Fund shares, the excess will be treated
as a gain from the sale of such shares.
Options, Futures Contracts, and Forward Foreign Currency Contracts.
Certain listed options, forward foreign currency contracts and regulated
futures contracts are considered "section 1256 contracts" for Federal
income tax purposes. Section 1256 contracts held by the Fund at the end
of each taxable year will be "marked to market" and treated for Federal
income tax purposes as though they had been sold for their fair market
value on the last business day of such year. Gain or loss realized by the
Fund on forward foreign currency contracts will be treated as gain or loss
under section 988, as described above. In general, gain or loss realized by
the Fund on other types of section 1256 contracts will be considered 60%
long-term and 40% short-term capital gain or loss. The Fund can elect to
exempt its section 1256 contracts which are part of a "mixed straddle"
(as described below) from the application of section 1256. These results
could vary if the Fund makes one or more elections available under
sections 988 and 1256.
The Treasury Department has the authority to issue regulations that
would permit or require the Fund either to integrate a foreign currency
hedging transaction with the investment that is hedged and treat the two
as a single transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. Recently issued
regulations under this authority generally should not apply to the type of
hedging transactions in which the Fund intends to engage.
Gain or loss realized by the Fund upon the lapse or sale of put and
call equity options held by the Fund will be either long-term or
short-term capital gain or loss depending upon the Fund's holding period of
the options. Gain or loss realized upon the lapse or closing out of equity
options that are written by the Fund
<PAGE>
will be treated as short-term capital gain or loss. In general, if the Fund
exercises an option, or if an option that the Fund has written is exercised, no
gain or loss on the option will be separately recognized and the premium
received or paid by the Fund will be included in the calculation of the basis of
the property acquired upon exercise or the gain or loss upon disposition of the
property underlying the option.
Gain or loss realized by the Fund on the lapse or sale of put and call
options on foreign currencies which are traded over-the-counter or on
certain foreign exchanges will be treated as gain or loss under section
988 and therefore will be characterized as ordinary income or loss and
will increase or decrease the amount of the Fund's income available to be
distributed to shareholders as ordinary income, as described above. In
general, if the Fund exercises an option on a foreign currency, or if an
option on a foreign currency that the Fund has written is exercised, gain
or loss on the option will be recognized in the same manner as if the Fund
had sold the option (or paid another person to assume the Fund's obligation
to make delivery under the option) on the date on which the option is
exercised, for the fair market value of the option.
Straddles. Any option, futures contract, or other position entered
into or held by the Fund in conjunction with any one or more other
positions held by the Fund may constitute a "straddle" for federal income
tax purposes. A straddle of which at least one, but not all, the positions
are section 1256 contracts may constitute a "mixed straddle." In general,
straddles are subject to certain rules that may affect the character and
timing of the Fund's gains and losses by requiring, among other things,
that (i) the loss realized on the disposition of one position of a straddle
not be recognized to the extent that the Fund has unrealized gains with
respect to one or more other positions in the straddle; (ii) the Fund's
holding period in straddle positions be suspended while the straddle
exists (possibly resulting in gain being treated as short-term capital gain
rather than long-term capital gain); (iii) losses recognized with respect
to certain straddle positions which are part of a mixed straddle and which
are not section 1256 contracts be treated as 60% long-term and 40%
short-term capital loss; (iv) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital
losses be treated as long-term capital losses; and (v) the deduction of
interest and carrying charges attributable to certain straddle positions be
deferred. Various elections are available to the Fund which may mitigate
the effects of the straddle rules, particularly with respect to mixed
straddles.
Passive Foreign Investment Companies. Any foreign investment
company in which the Fund invests may be treated as a "passive foreign
investment company" ("PFIC") under the Code. In general a foreign
corporation is a PFIC if either 75% or more of its gross income is passive
income or 50% or more of the average value of its assets produce, or are
held for the production of, passive income. If the Fund acquires and holds
stock in a PFIC beyond the end of the year of its acquisition, the Fund will
be subject to Federal income tax and an interest charge on a portion of any
"excess distribution" received on that stock or of any gain from the
disposition of that stock (collectively "PFIC Income"), even if the Fund
distributes all of the PFIC Income as a taxable dividend to its
shareholders. The balance of the PFIC Income will be included in the
Fund's taxable income and, accordingly, will not be taxable to it to the
extent that such income is distributed to its shareholders. Proposed
regulations provide that the Fund may make a mark-to-market election
with respect to any stock of a PFIC that it holds. If the election is in
effect, at the end of each taxable year of the Fund any gain that results
from this mark-to-market election will be treated as ordinary income to
the Fund for that year and will increase its basis in the PFIC stock. Any
loss that results from this election will not be recognized and no basis
adjustment will be made.
Alternatively, the Fund may elect to treat any PFIC in which it
invests as a "qualified electing fund," in which case, in lieu of the
potential PFIC tax liability and interest obligation, the Fund will be
required to include in income each year its pro rata share of the qualified
electing fund's annual ordinary earnings and net capital gain, even if they
are not distributed to the Fund, and those amounts then would be subject
to the distribution requirements applicable to the Fund. This election
would require the Fund to obtain certain financial information from the
PFIC. It may be very difficult, if not impossible, to obtain this
information and, accordingly, it is unlikely that the Fund would make this
election.
Foreign Income Taxes. Income received by the Fund from sources
within foreign countries may be subject to withholding and other taxes
imposed at the source. The United States has entered into tax treaties
with many foreign countries which may reduce or eliminate these taxes.
It is impossible to determine in advance the effective rate of foreign tax
to which the Fund will be subject, since the amount of the Fund's assets to
be invested in foreign countries will vary.
If the Fund is liable for foreign income taxes and if more than 50%
of the value of the Fund's total assets at the close of its taxable year
consists of the stock or securities of foreign corporations, the Fund may
elect to "pass through" to the Fund's shareholders the amount of foreign
income taxes paid by the Fund. Pursuant to such election,
<PAGE>
shareholders would be required to (i) include in gross income their pro-rata
shares of foreign taxes paid by the Fund and (ii) treat their pro-rata share of
these taxes as paid by them. Shareholders would then be permitted to either
deduct their pro-rata share of foreign taxes in computing their taxable
income or use it as a foreign tax credit against Federal income taxes. No
deduction for foreign taxes could be claimed by a shareholder who does
not itemize deductions, and the amount of foreign taxes for which any
shareholder may claim a credit in any year may be subject to limitations
under the Code. Shareholders who are not liable for Federal income taxes,
such as retirement plans qualified under Section 401 of the Code, will not
be affected by any "pass through" of foreign tax payments.
The Fund intends to meet, for each fiscal year, the requirements of
the Code to "pass through" to its shareholders foreign income taxes paid,
but there can be no assurance that the Fund will be able to do so or will
elect to do so. Each shareholder will be notified within 60 days after the
close of each taxable year of the Fund whether the foreign taxes paid by
the Fund will "pass through" for that year, and, if so, the amount of each
shareholder's pro-rata share (by country) of the foreign taxes paid by the
Fund and the dividend paid by the Fund which represents income derived
from foreign sources.
Taxation of Foreign Shareholders. The foregoing discussion relates
only to U.S. Federal income tax law as it affects shareholders who are U.S.
citizens or residents or U.S. corporations. The effects of Federal income
tax law on shareholders who are non-resident aliens or foreign
corporations may be substantially different. Foreign investors should
consult their counsel for further information as to the particular U.S. tax
consequences to them of an investment in the Fund.
PERFORMANCE DATA
The average annual total return (as defined below) with respect to
the Fund's Class A and B shares for the period indicated below is as
follows:
<TABLE>
<CAPTION>
Class A
<S> <C>
Eight Months ended September 30, 1995.............................. 20.10%
Class B
Eight Months ended September 30, 1995.............................. 21.79%
</TABLE>
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 = a 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 or (b) all recurring fees,
such as advisory fees, charged as expenses to all shareholder accounts.
<PAGE>
Total return is the cumulative rate of investment growth which
assumes that income dividends and capital gains are reinvested. It is
determined by assuming a hypothetical investment at the net asset value
at the beginning of the period, 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,
subtracting the amount of the original investment and dividing this result
by the original investment. This calculated amount is then expressed as a
percentage by multiplying by 100.
The total return (as defined above) for the Fund's Class A and B
shares for the period indicated below is as follows:
<TABLE>
<CAPTION>
Class A
<S> <C>
Eight Months ended September 30, 1995........................... 12.86%
Class B
Eight Months ended September 30, 1995........................... 13.90%
</TABLE>
In advertising and sales literature, the Fund's performance may be
compared with those of market indices and other mutual funds.
Advertisements quoting performance rankings or ratings of the Fund as
measured by financial publications or by independent organizations such
as Lipper Analytical Services, Inc., and Morningstar, Inc. and
advertisements presenting the historical performance of the Fund may
also from time to time be sent to investors or placed in newspapers and
magazines such as The New York Times, The Wall Street Journal, Barrons,
Investor's Daily, Money Magazine, Changing Times, Business Week and
Forbes or other media on behalf of the Fund.
In reports or other communications to shareholders and in
advertising material, the Fund may also include evaluations of the Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Business Week,
Forbes, Kiplinger's, Institutional Investor and Money Magazine. Any given
performance comparison should not be considered representative of the
Fund's performance for any future period.
REDUCTION OF CLASS A SALES CHARGES
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.
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, (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.
Statements of Intention
Another way to reduce the sales charge is by signing a Statement of
Intention. A Statement is included in the Application Form. Please read it
carefully before completing it.
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
<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 at one time the total amount indicated. 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 shares 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.
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 need not 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 the
Fund's Class A shares (at offering price) already owned by you.
For example, if you owned $100,000 worth (at offering price) of the
Fund's Class A shares and invest $5,000 in additional shares, the sales
charge on that $5,000 investment would be 3-1/2%, not 4-3/4%.
If you claim this right of accumulation, you or your dealer must so
notify the Adviser (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.
Combined Purchases with other Davis Funds
Your ownership or purchase of Class A shares of other Funds advised
and distributed by the Adviser, including Davis New York Venture Fund,
Inc., Davis High Income Fund, Inc., Davis Tax-Free High Income Fund, Inc.,
and Davis Series, Inc. (collectively with the Fund, the "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 the Fund's Class A shares and $150,000 in the
Class A shares of Davis High Income Fund, Inc. 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
Fund'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 applies also to the Class A 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 High Income Fund, Inc. and
Davis Series, Inc. Davis Financial Value Fund
<PAGE>
(formerly, Financial Value Fund) and Davis Convertible Securities Fund
(formerly, Convertible Securities Fund), (valued at the applicable current
offering price) and invest $5,000 in the Fund's shares, the sales charge on your
investment would be 3-1/2%, not 4-3/4%.
In all the above instances where you wish to claim this right of
combining the Fund's shares with shares you own of the other Davis Funds
you or your dealer must notify the Adviser (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.
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. 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.
DISTRIBUTION OF FUND SHARES
The Adviser acts as principal underwriter of the Fund's shares on a
continuing basis pursuant to a Distributing Agreement. Pursuant to such
Distributing Agreement, the Adviser, in its capacity as 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 Adviser also pays for prospectuses
in excess of those which the Fund must file with the Securities and
Exchange Commission or those forwarded to existing shareholders. The
continuance and assignment provisions of the Distributing Agreement are
the same as those of the Advisory Agreements.
In addition, the Fund has adopted distribution plans with respect to
each class of its shares pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "Distribution Plans"). 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. Payments under the Class B
Distribution Plan are limited to an annual rate of 1.00% of the average
daily net asset value of the Class B shares.
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 shares of the Company within the meaning
of Rule 12b-1, the payments of such fees are authorized under this Plan.
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 Fund's Independent Directors or
a majority of the Fund's outstanding shares. The Adviser 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. Presently, Rule
12b-1 requires, among other procedures, that it be continued only if a
majority of the Independent Directors approve continuation at least
annually and that amendments materially increasing the amount to be
spent for distribution be approved by the Independent Directors and the
shareholders. As long as the Distribution Plans are in effect, the Fund
must commit the selection and nomination of candidates for new
Independent Directors to the sole discretion of the existing Independent
Directors.
During the eight months ended September 30, 1995, the Adviser
received $5,565 under the Class A Distribution Plan, all of which was paid
to dealers and sales personnel. During such period, the Adviser earned
$73,453 under the Class B Distribution Plan, all of which was reallowed
to qualified selling dealers.
<PAGE>
APPENDIX A
QUALITY RATINGS OF DEBT SECURITIES
Moody's Investors Service, Inc. 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
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 greater 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; 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 Corporation 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.
<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.
<PAGE>
FORM N-1A
DAVIS INTERNATIONAL SERIES, INC.
(formerly, VENTURE SERIES, INC.)
POST-EFFECTIVE AMENDMENT NO. 3 UNDER THE
SECURITIES ACT OF 1933
REGISTRATION STATEMENT No. 33-86578
AND
AMENDMENT NO. 3 UNDER THE
INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-8870
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
Included in Part A:
(i) Financial Highlights
Included in Part B:
(i) Schedule of Investments at September 30, 1995.
(ii) Statement of Assets & Liabilities.
(iii) Statement of Operations for the eight months ended
September 30, 1995.
(iv) Statement of Changes in Net Asset Value for the eight months
ended September 30, 1995.
(v) Notes to Financial Statements.
(vi) Financial Highlights.
(vii) Report of Tait, Weller & Baker.
(b) Exhibits:
(1) Articles of Incorporation.
(2) By-Laws.
(3) Not Applicable.
(4) Not Applicable.
<PAGE>
(5) (a) Investment Advisory Agreement.
(5) (b) Investment Sub-Advisory Agreement.
(6) Distributing Agreement.
(7) Not Applicable.
(8) Custodian Agreement, incorporated by reference to Exhibit (8)
to Registrant's Registration Statement on Form N-1A, File No.
33-86578.
(9) Transfer Agency Contract, incorporated by reference to Exhibit
(9) to Registrant's Registration Statement on Form N-1A, File
No. 33-86578.
(10) Opinion and Consent of Counsel as to Legality of Shares Being
Registered.
(11) Consent of Auditors.
(12) Not Applicable.
(13) Financial Statements, included in Statement of Additional
Information.
(14)(a) Prototype Money Purchase Pension and Profit Sharing Plan,
Prototype Defined Contribution Trust and Adoption Agreements,
incorporated by reference to Exhibit (14) (a) to Registrant's
Registration Statement on Form N-1A, File No. 33-86578.
(14)(b) Prototype Profit Sharing/401(k) Plan, Prototype Profit
Sharing/401(k) Trust and Adoption Agreements, incorporated by
reference to Exhibit (14) (b) to Registrant's Registration
Statement on Form N-1A, File No. 33-86578.
(14)(c) 403(b) (7) Retirement Plan Custodial Account, incorporated by
reference to Exhibit (14) (c) to Registrant's Registration
Statement on Form N-1A, File No. 33-86578.
(15)(a) Distribution Plan for Class A shares.
(15)(b) Distribution Plan for Class B shares.
(15)(c) Distribution Plan for Class C shares.
(16) Schedule for Computation of Performance Quotation, incorporated
by reference to Exhibit (16) to Registrant's Registration
Statement on Form N-1A, File No. 33-86578.
(17) Not Applicable.
<PAGE>
(18)(a) Powers of Attorney, incorporated by reference to Exhibit (16)
(a) of Registrant's Post-Effective Amendment No. 1 File
No. 33-86578.
(18)(b) Plan Pursuant to Rule 18f-3, incorporated by reference to
Exhibit (16) (b) of Registrant's Post-Effective Amendment No.
1 File No. 33-86578.
Item 25. Persons Controlled by or Under Common Control With Registrant
--------------------------------------------------------------
Not applicable
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class as of December 29, 1995
-------------- ------------------------
Common Stock
Davis International Total Return Fund Class A 479
Davis International Total Return Fund Class B 203
Item 27. 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.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
The Investment Adviser of the Registrant, Davis Selected Advisers,
L.P. (formerly, Selected/Venture Advisers, L.P.), is also the investment
adviser for Davis New York Venture Fund, Inc. (formerly, New York Venture
Fund, Inc.), Davis High Income Fund, Inc., (formerly, Venture Income (+)
Plus, Inc.), Davis Tax-Free High Income Fund, Inc. (formerly, Venture Muni
(+) Plus, Inc.), Dais Series, Inc. (formerly, Retirement Planning Funds of
<PAGE>
America, Inc., Selected Special Shares Inc., Selected American Shares, Inc.
and Selected Capital Preservation Trust. It also may engage as an
investment adviser for accounts other than mutual funds, although this is
not presently business of a substantial nature.
Shelby M.C. Davis is a Director, Chairman, Chief Executive Officer
and principal owner of Venture Advisers, Inc. (the "General Partner") and
is a Director of Shelby Cullom Davis Financial Consultants, Inc., ("SCDFC")
70 Pine Street, New York, New York 10270. Carl R. Luff is a Director,
Executive Vice President and Secretary of the General Partner.
Item 29. Principal Underwriters
----------------------
(a) Davis Selected Advisers, L.P. 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 High Income Fund, Inc., Davis Tax-Free High Income Fund, Inc., Davis
Series, Inc., Selected American Shares, Inc., Selected Special Shares, Inc.
and Selected Capital Preservation Trust.
(b) Management of the General Partner of the Principal Underwriters
<TABLE>
<CAPTION>
Positions and
Name and Principal Positions and Offices with the Offices with
Business Address general partner of the Underwriter Registrant
- ---------------- ---------------------------------- ----------
<S> <C> <C>
Shelby M.C. Davis Director, Chairman and Director and President
P.O. Box 205 Chief Executive Officer
Hobe Sound, FL 33455
Andrew A. Davis Co-President Vice President
124 East Marcy Street
Santa Fe, NM 87501
Carl R. Luff Director, Co-President Vice President,
124 East Marcy Street and Secretary Treasurer and Assistant
Santa Fe, NM 87501 Secretary
Raymond O. Padilla Senior Vice President Vice President,
124 East Marcy Street Secretary & Assistant
Santa Fe, NM 87501 Treasurer
Carolyn H. Spolidoro Vice President Vice President
124 East Marcy Street
Santa Fe, NM 87501
Christopher C. Davis Director Vice President
70 Pine Street, 43rd Floor
New York, NY 10270-0108
Eileen R. Street Senior Vice President Assistant Treasurer and
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501
</TABLE>
Item 30. 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 officers of the Registrant's
<PAGE>
custodian, State Street
Bank and Trust Company, One Heritage Drive, North Quincy, Massachusetts
02171; and the Registrant's transfer agent, State Street Bank and Trust
Company, c/o Service Agent, BFDS, Two Heritage Drive, 7th Floor, North
Quincy, Massachusetts 02171.
Item 31. Management Services
-------------------
Not applicable
Item 32. Undertakings
------------
Registrant undertakes to furnish to each person to whom a
prospectus is delivered, a copy of the Registrant's latest Annual Report to
Shareholders, upon request and without charge.
The registrant undertakes to assist in shareholder communications
concerning the removal of a director consistent with Section 16 (c) of the
Investment Company Act of 1940.
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
SIGNATURES
Registrant certifies that this Amendment meets all of the
requirements for effectiveness pursuant to Rule 485(b).
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 8th day of January, 1996.
DAVIS INTERNATIONAL SERIES, INC.
*By: /s/Sheldon R. Stein
-----------------------
Sheldon R. Stein,
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 and on the dates indicated.
Signature Title Date
- --------- ----- ----
Shelby M.C. Davis* President January 8, 1996
Shelby M.C. Davis (Chief Executive
Officer) and
Director
Carl R. Luff* Principal January 8, 1996
Carl R. Luff Financial and
Accounting Officer
*By: /s/ Sheldon R. Stein
-------------------------
Sheldon R. Stein,
Attorney-in-Fact
* Sheldon R. Stein signs this document on behalf of the Registrant
and the foregoing officers pursuant to the powers of attorney filed as
Exhibit (18)(a) to Post-Effective Amendment No. 1 Registrant's
Registration Statement on Form N-1A.
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed on January 8, 1996 by the
following persons in the capacities indicated.
Signature Title
--------- -----
Jeremy H. Biggs* Director
- ------------------------------
Jeremy H. Biggs
Keith R. Kroeger* Director
- ------------------------------
Keith R. Kroeger
The Very Reverend James R. Leo* Director
- ------------------------------
The Very Reverend James R. Leo
Richard M. Murray* Director
- ------------------------------
Richard M. Murray
Martin H. Proyect* Director
- ------------------------------
Martin H. Proyect
Theodore B. Smith, Jr.* Director
- ------------------------------
Theodore B. Smith, Jr.
*Sheldon R. Stein signs this document on behalf of each of the
foregoing persons pursuant to the powers of attorney filed as Exhibit
18(a) to Post-Effective Amendment No. 1 Registrant's Registration
Statement on Form N-1A.
/s/ Sheldon R. Stein
--------------------------
Sheldon R. Stein,
Attorney-in-Fact
EXHIBIT (1)
UNOFFICIAL FORM
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DAVIS INTERNATIONAL SERIES, INC.
(EFFECTIVE AS OF OCTOBER 1, 1995)
FIRST: Incorporation: The undersigned, Sheldon R. Stein, whose
address is 30 North LaSalle Street, Chicago, Illinois 60602, being at least
18 years of age, is acting as sole incorporator with the intention of
forming a corporation under and by virtue of the General Laws of the State
of Maryland authorizing the formation of corporations.
SECOND: Name. The name of the Corporation is Davis International
Series, Inc. (hereinafter called the "Corporation").
THIRD: Purpose. The purpose for which the Corporation is formed is
to engage in, conduct, operate and carry on the business of an open-end
management investment company under the Investment Company Act of
1940 (including any amendment thereof or other applicable Act of
Congress hereinafter enacted) (hereinafter called the "1940 Act"), and to
do any and all acts or things as are necessary, convenient, appropriate,
incidental or customary in connection therewith.
FOURTH: Principal Office and Resident Agent. The post office
address of the place at which the principal office of the Corporation in the
State of Maryland will be located is 32 South Street, Baltimore, Maryland
21202.
The Corporation's registered agent is The Corporation Trust
Incorporated whose post office address is 32 South Street, Baltimore,
Maryland 21202. Said registered agent is a corporation of the State of
Maryland.
FIFTH: Capitalization. (a) The total number of shares of capital
stock which the Corpora-tion shall have authority to issue is five billion
(5,000,000,000) shares of capital stock of the par value of $.001 per
share ("Shares"), having an aggregate par value of $5,000,000, five
hundred million (500,000,000) shares of which are classified as Shares of
the Davis International Total Return Fund series of the Corporation.
(b) The Shares may be issued by the Board of Directors in such
separate and distinct series ("Series") and classes of Series ("Classes") as
the Board of Directors shall from time to time create and establish. The
Board of Directors shall have full power and authority, in its sole
discretion, to create and establish Series and Classes having such
preferences, rights, voting powers, terms of conversion, restrictions,
limitations on dividends, qualifications, and terms and conditions of
redemption as shall be fixed and determined from time to time by
resolution or resolutions providing for the issuance of such Shares
adopted by the Board of Directors. In the event of establishment of
Classes, each Class of a Series shall represent interests in the assets of
that Series and have identical voting, dividend, liquidation and other
rights and the same terms and conditions as any other Class of that
Series, except as provided in these Articles of Incorporation and except
that expenses allocated to the Class of a Series may be borne solely by
such Class and a Class of a Series may have exclusive voting rights with
respect to matters affecting only that Class. Expenses related to the
distribution of, and other identified expenses that should properly be
allocated to, the Shares of a particular Class or Series shall be charged to
and borne solely by such Class or Series and the bearing of expenses solely
by a Class or Series may be appropriately reflected and cause differences
in the net asset value
<PAGE>
attributable to, and the dividend, redemption and
liquidation rights of, the Shares of each Class or Series. In addition, the
Board of Directors is hereby expressly granted authority to increase or
decrease the number of Shares of any Series or Class, but the number of
Shares of any Series or Class shall not be decreased by the Board of
Directors below the number of Shares thereof then outstanding.
(c) Subject to the authority granted to the Board of Directors
in paragraphs (b) and (d) of this Article Fifth, two hundred million
(200,000,000) Shares of the Davis International Total Return Fund are
hereby designated as Class A Shares, two hundred million (200,000,000)
Shares are hereby designated as Class B Shares, and twenty five million
(25,000,000) Shares are hereby designated as Class C Shares. The
remaining seventy five million (75,000,000) Shares of the Davis
International Total Return Fund Series shall be undesignated. The Class A,
Class B and Class C Shares shall represent investment in the same pool of
assets and shall have the same preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications,
and terms and conditions of redemption except as set forth elsewhere in
these Articles of Incorporation and as set forth below:
(i) Expenses related to the distribution of each class of stock
and such other expenses as may be permitted by rule or order of the Securities
and Exchange Commission and as the Board of Directors shall deem
appropriate shall be borne solely by each class, and the bearing of such
expenses shall be appropriately reflected (in the manner determined by
the Board of Directors) in the net asset value, dividends, distribution and
liquidation rights of the shares of such Class;
(ii) The Class A Common Stock may be subject to a front-end load
and a Rule 12b-1 service and distribution fee as determined by the Board
of Directors from time to time;
(iii) The Class B Common Stock may be subject to a contingent
deferred sales charge and a Rule 12b-1 service and distribution fee as
determined by the Board of Directors from time to time and shall be
converted to Class A Common Shares at the end of eight (8) years after
purchase or such earlier period as determined by the Board of Directors
giving effect to reciprocal exchange privileges;
(iv) The Class C Common Stock may be sold without a front-end
sales load or contingent sales charge and may be subject to a Rule 12b-1
service and distribution fee as determined by the Board of Directors from
time to time;
(v) Each class shall vote separately on matters pertaining only to
that class, as the Board of Directors shall from time to time determine.
(vi) Nothing herein shall prohibit the imposition of a redemption
fee or exchange fee upon any Class.
(d) The Board of Directors, in its sole discretion, may classify
or reclassify any unissued Shares from time to time by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such Shares. Without limiting the generality
of the foregoing, the Board of Directors may, from time to time and in its
sole discretion, (i) classify or reclassify any unissued Shares into
Series having "assets belonging to" such
<PAGE>
Series, as described in Paragraph (e)(i) of this Article, (ii) divide any Series
having "assets belonging to" such Series into Classes and classify or reclassify
any unissued Shares of such Class, and (iii) name and change the name of any
Series or Class of outstand-ing or unissued Shares.
(e) Subject to the authority granted to the Board of Directors
in subparagraphs (b) and (d) of this Article FIFTH, each Series of Shares
hereafter designated as a Series which shall have assets belonging to such
Series shall have the following described powers, preferences and rights
and the qualifications, limita-tions and restrictions thereof shall be as
follows:
(i) All consideration received by the Corporation for the issue or
sale of Shares of a particular Series, together with all income, earnings,
profits and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation thereof, and any assets derived from any
reinvestment of such proceeds, in whatever form the same may be, are
herein referred to as "assets belonging to" such Series.
(ii) The assets belonging to a particular Series of Shares shall be
charged with the liabilities (including, in the discretion of the Board of
Directors or its delegate, accrued expenses and reserves) incurred in
respect of such Series, and such Series shall also be charged with its
share of any general liabilities of the Corporation not incurred in respect
of any particular Series, such general liabilities to be allocated in
proportion to the net asset value of the respective Series. The allocation
of such liabilities to any Class shall be determined by the Board of
Directors or its delegate. The determination of the Board of Directors or
its delegate shall be final and conclusive as to the amount of assets and
liabilities, including accrued expenses and reserves, which are to be
allocated to one or more particular Series or Class. The power to make
such determinations may be delegated by the Board of Directors from time
to time to one or more of the directors and officers of the Corporation, or
to an agent of the corporation appointed for such purpose.
(iii) In the event of the liquidation or dissolution of the
Corpora-tion (for whatever reason), stockholders of each Series shall be
entitled to receive as a class, out of the assets of the Corporation
available for distribution to stockholders the assets belonging to such
Series; and the assets so distributable to the stockholders of any Series
shall be distributed among such stockholders in proportion to the relative
aggregate net asset values of the Shares held by such stockholders. In the
event that there are any general assets available for distribution not
belonging to any particular Series, any distribution thereof shall be made
to the holders of all such Series in proportion to the net asset value of the
respective Series or any Class thereof.
(iv) The voting rights of the Shares of each Series shall be as set
forth in subparagraph (f) of this Article FIFTH.
(v) The relative rights of the Shares of each Series to be
redeemed or repurchased shall be as set forth in Article
SEVENTH.
(vi) The relative rights of the Shares of each Series to receive
dividends shall be as set forth in Article NINTH.
<PAGE>
(f) At any meeting of the stockholders, each stockholder shall
have one vote for each dollar of net asset value per Share for each Share
held irrespective of the Series or Class thereof. On any matter submitted
to a vote of stockholders, all Shares then issued and outstanding and
entitled to vote shall be voted in the aggregate and not by Series or Class
except to the extent Series or Class voting is required as to any matter by
the laws of the State of Maryland, the 1940 Act or any rule or regulation
thereunder or by the Board of Directors.
(g) Fractional Shares shall carry proportionately all the rights
of a whole Share.
SIXTH: Preemptive Rights. No holder of any Shares shall as such
holder have any preemptive or other right to purchase or subscribe for or
otherwise acquire any Shares of the Corporation which the Corporation
proposes to issue, reissue or sell, other than such, if any, as the Board of
Directors in its sole discretion may from time to time determine to offer.
SEVENTH: Redemption. (a) Each holder of the Shares shall be
entitled at any time to require the Corporation, to the extent that the
Corporation shall have any surplus available for such purpose and out of
such surplus, to purchase all or any part of the Shares standing in the
name of such holder on the books of the Corporation at the net asset value
of such Shares; provided, however, that the Corporation may suspend such
right of redemption or postpone payment for such Shares pursuant to the
1940 Act or any rule, regulation or order thereunder.
(b) Any redemptions or purchases of Shares by the
Corporation of any Series of the Shares shall be made solely from assets
belonging to such Series.
(c) The Corporation, without the vote or consent of the
stockholders of the Corporation, may redeem all Shares in any
stockholder's account in which the value of such Shares is less than $250,
or such other minimum amount as the Board of Directors may from time to
time establish, in its sole discretion; provided, that any such redemption
is at a price determined in accordance with the Corporation's then current
prospectus.
EIGHTH: Number of Directors. (a) The number of directors of the
Corporation shall be one (1), provided however, that the number may be
increased or decreased in accordance with the By-Laws of the Corporation
so long as after the first annual meeting, the number of directors is never
less than three (3). Martin H. Proyect is the initial director and shall act
until the first annual meeting and until his successor is elected and
qualifies.
(b) The By-laws of the corporation may divide the Directors
of the Corporation into classes and prescribe the tenure of office of the
several classes, but no class shall be elected for a period shorter than
that from the time of the election following the division into classes
until the next annual meeting and thereafter for a period shorter than the
interval between annual meetings or for a period longer than five years,
and the term of office of at least one class shall expire each year.
NINTH: Board of Directors. (a) In furtherance and not in limitation
of the powers conferred by the laws of the state of Maryland, the Board of
Directors, without the vote of the stockholders of the Corporation, is
expressly empowered:
(i) to authorize the issuance from time to time of Shares of any
Series or Class, whether now or hereafter authorized or created, provided,
however, that the consideration per Share to be received by the Corporation
<PAGE>
upon the issuance or sale of any Shares of any Series or Class
shall be the net asset value per share;
(ii)To adopt, alter and repeal the By-Laws of the Corpora-tion;
(iii)To determine the time, date and manner in which redemption
orders and purchase orders shall be made and paid for; and
(iv)To change the name of the Corporation at any time and from
time to time.
(b)In addition to the powers and authorities by these
Articles of Incorporation or by statute expressly conferred upon it, the
Board of Directors is empowered to exercise all such powers and do all
such acts and things as may be exercised or done by the Corporation,
subject, however, to the provisions of these Articles of Incorporation, the
By-Laws of the Corporation, the applicable laws of the State of Maryland,
the 1940 Act and the rules and regulations of the Securities and Exchange
Commission (or any succeeding governmental authority) there-under.
TENTH: Net Asset Value, Other Determinations. The net asset value
of Shares shall be determined by or pursuant to the direction of the Board
of Directors of the Corporation. Any determination made in good faith by
or on behalf of the Board of Directors or pursuant to its delegation or
direction, as to the amount of the assets, debts, obligations or liabilities
of the Corporation, as to the net asset value, bid price or asked price of
the Shares, as to the value of any asset or assets of the Corporation, or as
to any other matter relating to the issue, sale, redemption, purchase,
acquisition or disposition of the Shares, shall be final and conclusive and
shall be binding upon the Corporation and all holders of Shares issued by
it, and the Shares shall be issued and sold on the condition and
understanding that any and all such determinations shall be binding.
ELEVENTH: Indemnification. Subject to the provisions of the 1940
Act, the Corporation shall indemnify and advance expenses to a director or
officer, or former director or officer, of the Corporation in connection
with any proceeding to the fullest extent permitted by and in accordance
with Section 2-418 of the Maryland General Corporation Law, as amended
from time to time (the "Indemnification Section"). Subject to the
provisions of the 1940 Act, with respect to an employee or agent, other
than a director or officer of the Corporation, the Corporation may, as
determined by and in the discretion of the Board of Directors of the
Corporation, indemnify and advance expenses to such employee or agent in
connection with a proceeding to the extent permitted by and in accordance
with the Indemnification Section. As used in this Article Eleventh, any
word or words that are defined in the Indemnification Section shall have
the same meaning as provided in the Indemnification Section. The
indemnification and advancement of expenses provided or authorized by
these Articles shall not be deemed exclusive of any other rights to which
a director, officer, employee or agent of the Corporation may be entitled.
TWELFTH: Exculpation. Subject to the provisions of the 1940 Act,
no director or officer of the Corporation shall be liable to the Corporation
or its stockholders for money damages, except (i) to the extent that it is
proved that such director or officer actually received an improper benefit
or profit in money, property or services, for the amount of the benefit or
profit in money, property or services actually received, or (ii) to the
extent that a judgment or other final adjudication adverse to such
director or officer is entered in a proceeding based on a finding in the
proceeding that such director's or officer's action, or
<PAGE>
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding.
THIRTEENTH: Majority Vote. Notwithstanding any provision of the
General Corporation Law of the State of Maryland requiring that any action
be taken or authorized by the affirmative vote of the holders of a
designated propor-tion greater than a majority of votes entitled to be
cast, such action shall be effective and valid if taken or authorized by the
affirmative vote of the holders of a majority of the total number of votes
entitled to vote thereon. When Shares are voted by individual Series or
Class, any such action shall be effective and valid if taken or authorized
by the affirmative vote of the holders of a majority of the total number of
votes entitled to such vote thereon.
FOURTEENTH: Amendments. The Corporation reserves the right from
time to time to amend, alter, change, add to, or repeal any provision
contained in these Articles of Incorporation in the manner now or
hereafter prescribed or permitted by statute, including any amendment
which alters the contract rights, as expressly set forth in these Articles
of Incorporation, of any outstanding Shares, and all rights conferred on
stockholders and others herein are granted subject to this reservation.
FIFTEENTH: Meetings. The Corporation shall not be required to hold
an annual meeting of stockholders in any year in which the election of
directors is not required to be acted upon under the 1940 Act.
SIXTEENTH: Titles. The titles contained in these Articles of
Incorporation are for convenience only and shall not affect the
interpretation of any of the provisions hereof.
IN WITNESS WHEREOF, I have adopted and signed these Articles of
Incorporation and do hereby acknowledge that the adoption and signing are
my act.
/s/ Sheldon R. Stein
Sheldon R. Stein, Incorporator
EXHIBIT (2)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BYLAWS
November 3, 1994
as Revised March 25, 1995
VENTURE SERIES, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
BYLAWS OF
VENTURE SERIES, INC.
ARTICLE I
---------
STOCKHOLDERS
------------
SECTION 1. Place of Meeting. All meetings of the stockholders shall
----------------
be held at the principal office of the Corporation in the State of Maryland
or at such other place within or without the State of Maryland as may
from time to time be designated by the Board of Directors and stated in
the notice of meeting.
SECTION 2. Annual Meetings. An annual meeting of stockholders
---------------
shall be held in 1994. Thereafter annual meetings shall not be required to
be held in any year in which the election of Directors is not required to be
acted upon under the Investment Company Act of 1940 (hereinafter, the
"1940 Act"). An annual meeting shall be held in accordance with the 1940
Act in the event that less than a majority of the Directors then in office
were elected by the vote of stockholders. Any annual meeting may be
called (i) by the Board of Directors, or (ii) if required by the 1940 Act, by
the Chief Executive Officer solely for the purposes of electing Directors
and considering the ratification of the independent public accountant
selected by the Board of Directors to audit the financial statements of the
Corporation. Annual meetings called by the Chief Executive Officer may
consider other business which is proposed by the Chief Executive Officer
and properly brought before such meetings; provided, however, that
specific matters other than election of Directors and ratification of
selection of accountants may be placed on the agenda of the meeting
solely with the approval of a majority of the entire Board of Directors.
SECTION 3. Special Meetings. Special meetings of stockholders may
----------------
be called by the Chief Executive Officer or the Board of Directors, and
shall be called upon the written request of stockholders holding at least
ten percent (10%) of the outstanding shares of stock. A request by
stockholders for a meeting shall state the purpose of the meeting and the
matters proposed to be acted upon. Unless requested by stockholders
entitled to cast a majority of all the votes entitled to be cast at the
meeting, a special meeting need not be called to consider any matter
which is substantially the same as a matter voted on at any special
meeting of the stockholders held during the preceding 12 months.
Whenever ten or more stockholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate shares constituting at least one percent (1%) of the outstanding
shares of stock, shall apply to the Directors in writing, stating that they
wish to communicate with other stockholders with a view to obtaining
signatures to a request for a meeting to consider removal of a Director
and accompanied
<PAGE>
by a form of the communication and request that they wish to transmit, the
Directors shall, within five business days after receipt of such application,
inform such applicants as to the approximate cost of mailing to the stockholders
of record the proposed communication and form of request. Upon the written
request of such applicants, accompanied by a tender of the material to be mailed
and of the reasonable expenses of mailing, as determined by the Directors, the
Directors shall, with reasonable promptness, mail such material to all
stockholders of record at their addresses as recorded on the books of the
Corporation. Notwithstanding the foregoing, the Directors may refuse to
mail such material on the basis and in accordance with the procedures for
refusing to mail such material set forth in the last two paragraphs of
Section 16 (c) of the 1940 Act, or any substitute or replacement provision
therefor.
SECTION 4. Notice of Meetings of Stockholders. Not less than ten
----------------------------------
days' and not more than ninety days' written or printed notice of every
meeting of stockholders, stating the time and place thereof (and the
general nature of the business proposed to be transacted at any special
meeting), shall be given to each stockholder entitled to vote thereat and
each other stockholder entitled to notice of the meeting by leaving the
same with him or at his residence or usual place of business or by mailing
it, postage prepaid, and addressed to him or at his address as it appears
upon the books of the Corporation.
No notice of the time, place or purpose of any meeting of
stockholders need be given to any stockholder who attends in person or by
proxy or to any stockholder who, in writing executed and filed with
records of the meeting, either before or after the holding thereof, waives
such notice.
SECTION 5. Closing of Transfer Books and Record Dates. The Board
------------------------------------------
of Directors may fix the time, not exceeding twenty days preceding the
date of any meeting of stockholders, any vote at a meeting, any dividend
payment date or any date for the allotment of rights, during which the
books of the Corporation shall be closed against transfers of stock. If
such books are closed for the purpose of determining stockholders entitled
to notice of or to vote at a meeting of stockholders, such books shall be
closed for at least ten days immediately preceding such meeting. In lieu
of providing for the closing of the books against transfers of stock as
aforesaid, the Board of Directors may fix, in advance, a date, not
exceeding ninety days and not less than ten days preceding the date of any
meeting of stockholders, and not exceeding ninety days preceding any
dividend payment date or any date for the allotment of rights, as a record
date for the determination of the stockholders entitled to notice of or to
vote at such meeting, or entitled to receive such dividends or rights, as
the case may be; and only stockholders of record on such date shall be
<PAGE>
entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be.
SECTION 6. Quorum and Adjournment of Meetings. The presence in
----------------------------------
person or by proxy of the holders of record of a majority of all of the
votes entitled to be cast thereat shall constitute a quorum at all meetings
of the stockholders. If at any meeting of the stockholders there shall be
less than a quorum present, the stockholders present at such meeting may,
without further notice, adjourn the same from time to time until a quorum
shall attend, but no business shall be transacted at any such adjourned
meeting except such as might have been lawfully transacted had the
meeting not been adjourned.
SECTION 7. Voting and Inspectors. At all meetings of stockholders
---------------------
every stockholder of record entitled to vote shall be entitled to one vote
for each dollar of net asset value per share standing in his or her name on
the books of the Corporation irrespective of the Series or Class thereof,
(and such stockholders of record holding fractional shares, if any, shall
have proportionate voting rights.)
All elections shall be had and all questions decided by a majority of
the votes cast at a duly constituted meeting, except as otherwise provided
in the Articles of Incorporation or in these Bylaws or by specific
statutory provision, including requirements for approval of any matters by
the provisions of the 1940 Act.
At any election of Directors, the Board of Directors prior thereto
may, or if they have not so acted, the Chairman of the meeting may, and
upon the request of the holders of ten percent (10%) of the votes entitled
to be cast at such election shall, appoint at least one inspector of election
who shall first subscribe an oath or affirmation to execute faithfully the
duties of inspector at such election with strict impartiality and according
to the best of his or her ability, and shall after the election make a
certificate of the result of the vote taken. No candidate for the office of
Director shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken
upon any election or matter, and such vote shall be taken upon the request
of the holders of ten percent (10%) of the votes entitled to be cast at such
election or on such matter.
SECTION 8. Conduct of Stockholders' Meetings. The meetings of the
---------------------------------
stockholders shall be presided over by the President or, if the President
shall not be present, by a Vice President or, if
<PAGE>
neither the President nor any Vice President is present, by a chairman to be
elected at the meeting. The Secretary of the Corporation, if present, shall
act as Secretary of such meeting or, if the Secretary is not present, an
Assistant Secretary shall so act; if neither the Secretary nor an Assistant
Secretary is present, then the meeting shall elect its Secretary.
SECTION 9. Concerning Validity of Proxies, Ballots, Etc. At every
--------------------------------------------
meeting of the stockholders, all proxies shall be received and taken in
charge of and all ballots shall be received and canvassed by the secretary
of the meeting, who shall decide all questions touching the qualification
of voters, the validity of the proxies, and the acceptance or rejection of
votes, unless inspectors of election shall have been appointed as provided
in Section 7, in which event such inspectors of election shall decide all
such questions.
SECTION 10. Consents. Whenever stockholders are required or
--------
permitted to take any action by vote, such action may be taken without a
meeting if the following are filed with the records of stockholders
meetings: (a) a unanimous written consent which sets forth the action and
is signed by each stockholder entitled to vote on the matter, and (b) a
written waiver of any right to dissent signed by each stockholder entitled
to notice of the meeting but not entitled to vote at it.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Number, Vacancies and Tenure. The Directors may, at any
----------------------------
time when the stockholders are not assembled in meeting, establish,
increase or decrease the number of seats on the Board of Directors by
majority vote of the entire Board of Directors; provided, that after the
first annual meeting the number of Directors shall never be less than
three (3) nor more than fifteen (15). The number of Directors may not be
decreased so as to affect the term of any incumbent Director. Except as
hereinafter provided, (i) if the number of Directors is increased, the
additional Directors to fill the vacancies thus created may be elected by
majority vote of the entire Board of Directors, and (ii) any vacancy
occurring for any other cause may be filled by a majority of the remaining
Directors, even if such majority is less than a quorum. No vacancy may be
filled for any cause whatsoever unless, immediately after the filling of
such vacancy, at least two-thirds of the entire Board of Directors shall
have been elected by the stockholders of the Corporation. A Director shall
hold office until his successor is elected and qualified, or until such
Director's earlier death, resignation, retirement or removal; provided,
however, that if a Director was not elected to office by a vote of
stockholders, the term of such Director shall, in any event, end as of the
date of the next annual meeting of stockholders which is required to be
held pursuant to Article I, Section 1 of these Bylaws following such
Director's election to office. Such a Director may be a candidate
<PAGE>
for election to office at such annual meeting and, if elected at such meeting,
shall serve for the indefinite term specified above.
SECTION 2. Mandatory Retirement of Directors. A Director shall
---------------------------------
retire from the Board of Directors and cease being a Director at the close
of business on the last day of the calendar year in which the Director
attains age seventy-two (72), except that any person who was a Director
on February 1, 1995, and on that date was at least seventy-two (72) years
of age shall continue to serve as a director at the discretion of the
Nominating Committee of the Board of Directors.
SECTION 3. Removal. At any meeting of stockholders, duly called
-------
and at which a quorum is present, the stockholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be
cast thereon, remove any director or directors from office and may elect a
successor or successors to fill any resulting vacancies for the unexpired
terms of removed directors.
SECTION 4. Place of Meeting. The Directors may hold their
----------------
meetings, have one or more offices, and keep the books of the Corporation
outside the State of Maryland, at any office or offices of the Corporation
or at any other place as they may from time to time by resolution
determine, or in the case of meetings, as they may from time to time by
resolution determine or as shall be specified or fixed in the respective
notices or waivers of notice thereof.
SECTION 5. Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held at such time and on such notice, if any, as the
Directors may from time to time determine.
SECTION 6. Special Meetings. Special meetings of the Board of
----------------
Directors may be held from time to time upon call of the President or two
or more of the Directors, by oral or telegraphic or written notice
(including written notice transmitted electronically) duly served on or
sent or mailed to each Director not less than one day before such meeting.
No notice need be given to any Director who attends in person or to any
Director who, in writing executed and filed with the records of the
meeting either before or after the holding thereof, waives such notice.
Such notice or waiver of notice need not state the purpose or purposes of
such meeting.
SECTION 7. Quorum. One-third of the Directors then in office shall
------
constitute a quorum for the transaction of business, provided that a
quorum shall in no case be less than two Directors. If at any meeting of
the Board there shall be less than a quorum present, a majority of those
present may adjourn the meeting from time to time until a quorum shall
have been obtained. The act of the
<PAGE>
majority of the Directors present at any meeting at which there is a quorum
shall be the act of the Directors, except as may be otherwise specifically
provided by statute, by the Articles of Incorporation or by these Bylaws.
SECTION 8. Executive Committee. The Board of Directors may, by
-------------------
the affirmative vote of a majority of the entire Board, elect from the
Directors an Executive Committee to consist of such number of Directors,
but not less than two, as the Board may from time to time determine. The
Board of Directors by such affirmative vote shall have power at any time
to change the members of such Committee and may fill vacancies in the
Committee by election from the Directors. When the Board of Directors is
not in session, the Executive Committee shall have and may exercise any
or all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation (including the power to authorize
the seal of the Corporation to be affixed to all papers which may require
it) except as provided by law and except the power to increase or decrease
the size of, or fill vacancies on, the Board, to remove or appoint executive
officers or to dissolve or change the permanent membership of the
Executive Committee, and the power to make or amend the Bylaws of the
Corporation. The Executive Committee may fix its own rules of procedure,
and may meet, when and as provided by such rules or by resolution of the
Board of Directors, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the
Executive Committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a member of the
Board of Directors to act in the place of such absent member.
SECTION 9. Other Committees. The Board of Directors, by the
----------------
affirmative vote of a majority of the entire Board, may appoint other
committees which shall in each case consist of such number of members,
and shall have and may exercise such powers as the Board may determine
in the resolution appointing them. A majority of all members of any such
committee may determine its action, and fix the time and place of its
meetings, unless the Board of Directors shall otherwise provide. The
Board of Directors shall have power at any time to change the members
and powers of any such committee, to fill vacancies, and to discharge any
such committee.
SECTION 10. Informal Action by Directors and Committees. Any
-------------------------------------------
action required or permitted to be taken at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting, if a
written consent to such action is signed by all members of the Board, or
of such committee, as the case may be, and if such consent is filed with
the minutes of proceedings of the Board, or of such committee, as the case
may be.
<PAGE>
SECTION 11. Compensation of Directors. Directors shall be entitled
-------------------------
to receive such compensation from the Corporation for their services as
may from time to time be voted by the Board of Directors.
ARTICLE III
-----------
OFFICERS
--------
SECTION 1. Executive Officers. The executive officers of the
------------------
Corporation shall be chosen by the Board of Directors. These shall include
a President, one or more Vice Presidents (the number thereof to be
determined by the Board of Directors), a Secretary and a Treasurer. The
Board of Directors or the Executive Committee may also in its discretion
appoint a Chairman of the Board of Directors, Assistant Secretaries,
Assistant Treasurers, and other officers, agents and employees, who shall
have such authority and perform such duties as the Board or the Executive
Committee may determine. The Board of Directors may fill any vacancy
which may occur in any office. Two or more offices, except those of
President and Vice President, may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required to be executed, acknowledged
or verified by two or more officers.
SECTION 2. Term of Office. Unless a longer, shorter or indefinite
--------------
term of office is provided by the Board of Directors for any officer or all
officers, the term of office of all officers shall be one year and until their
respective successors are chosen and qualify. Any officer may be removed
from office at any time with or without cause by the vote of a majority of
the entire Board of Directors, if the Board of Directors in its judgment
finds that the best interests of the Corporation are served thereby.
SECTION 3. Powers and Duties. The officers of the Corporation shall
-----------------
have such powers and duties as generally pertain to their respective
offices, as well as such powers and duties as may from time to time be
conferred by the Board of Directors or the Executive Committee.
ARTICLE IV
CAPITAL STOCK
SECTION 1. Certificate of Shares. A stockholder of Class A Shares
---------------------
of any series shall, upon request, be entitled to a certificate for full
shares of stock in such form not inconsistent with law as the Board of
Directors shall determine. No certificate will be issued to evidence
ownership of any other class of shares.
<PAGE>
SECTION 2. Transfer of Shares. Shares of the Corporation shall be
------------------
transferable on the books of the Corporation by the holder thereof in
person or by the holder's duly authorized attorney-in-fact or legal
representative upon presentation of proper instruments of assignment and
transfer, with such proof of the authenticity of the signature and the
capacity of the signator as the Corporation or its transfer agent may
reasonably require. If certificates have been issued evidencing the
ownership of the Shares to be transferred, such certificates must be
surrendered and canceled before the transfer may be effected.
SECTION 3. Stock Ledgers. The stock ledgers of the Corporation,
-------------
containing the names and addresses of the stockholders and the number of
shares held by them respectively, shall be kept at the principal offices of
the Corporation or, if the Corporation employs a transfer agent, at the
offices of the Transfer Agent of the Corporation.
SECTION 4. Lost, Stolen or Destroyed Certificates. The Corporation
--------------------------------------
may determine the conditions upon which a new certificate of stock of the
Corporation of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may require the owner
of such certificate or his legal representative to give bond, with
sufficient surety to the Corporation and each Transfer Agent, if any, to
indemnify it and each Transfer Agent against any and all loss or claims
which may arise by reason of the issue of a new certificate in the place of
the one so lost, stolen or destroyed.
ARTICLE V
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of Directors.
ARTICLE VII
INDEMNIFICATION
Each Director and officer (and his heirs, executors and
administrators) shall be indemnified by the Corporation to the extent set
forth in the Articles of Incorporation.
ARTICLE VIII
AMENDMENT OF BYLAWS
The Bylaws of the Corporation may be altered, amended, added to or
repealed by majority vote of the entire Board of Directors.
EXHIBIT 5 (a)
VENTURE WORLDWIDE SERIES, INC.
INVESTMENT ADVISORY AGREEMENT
__________, 1994
Selected/Venture Advisers, L.P.
124 E. Marcy St.
Santa Fe, NM 87501
Dear Sirs:
We herewith confirm our agreement with you as follows:
1. We desire to employ the capital of Venture Worldwide Series, Inc.
(the "Company") by investing and reinvest-ing the same in securit-ies of
the type and in accordance with the limita-tions specified in the
registration statement under the Securi-ties Act of 1933 and the
Investment Company Act of 1940 (the "1940 Act"), of which we enclose a
copy, and in such manner and to such extent as may from time to time be
approved by our Board of Directors. We desire to employ you to supervise
and assist in the management of this business for us. You shall for all
purposes herein be deemed an independent contractor, and shall, unless
otherwise expressly provided for or authorized, have no authority to act or
represent us.
2. In this connection it is understood that you will from time to
time employ or associate with yourselves such person or persons as you
may believe to be particularly fitted to assist you in the execution of this
Agreement, it being understood that the compensation of such person or
persons shall be paid by you and that no obligation may be incurred on our
behalf in any such respect. This does not apply to such individuals as we
may in due course elect as officers of our corporation, except that no
officer, director, stockholder or employee of your firm shall receive
compensation from us for acting as director, officer or employee of our
corporation, and you agree to pay the compensa-tion of all such persons.
We understand that, during the con-tinuance of this agreement, officers of
your firm will, if elected, serve as directors of our corporation and as its
prin-cipal officers.
3. You are to have complete and exclusive authority to develop and
handle for us any business of the type above men-tioned which you may
consider advantageous for us, subject to the direction and control of our
officers and directors. You will furnish us with such statistical
information with respect to the securities which we may hold or
contemplate purchasing as we may request. We wish to be kept in touch
with important developments affecting our Company and shall expect you
on your own initiative to furnish us from time to time with such
information as you may believe appropriate for this purpose, whether
concerning the individual companies whose securities are included in our
portfo-lio or the industries in which they are engaged. We shall also
expect you of your own motion to advise us whenever in your opinion
conditions are such as to make it desirable that a specific security be
eliminated from our portfolio.
4. We shall expect of you your best judgment in rendering these
services to us, and we agree as an inducement to your undertaking the
same that you shall not be liable hereunder for any mistake of judgment or
in any other event whatsoever, except for lack of good faith, provided that
nothing herein shall be deemed to protect or purport to protect you against
any liability to us or to our security holders to which you would otherwise
be subject by reason of willful misfeasance, bad faith, or gross negligence
in the performance
<PAGE>
of your duties hereunder, or by reason of your reckless disregard of your
obligations and duties hereunder.
5. In consideration of such services, we shall pay you a monthly fee
as of the last day of each month in each year based upon the average daily
value of net assets during a month for which the monthly fee is
calculated, as follows:
<TABLE>
<CAPTION>
VALUE OF AVERAGE DAILY NET
ASSETS OF THE TOTAL RETURN
MONTHLY RATE FUND DURING THE MONTH
- ------------ ---------------------
<S> <C>
1/12 of 1.00% of ........................... First $250 Million
1/12 of .90% of ........................... Next $250 Million
1/12 of .80% of ........................... Amounts In Excess of $500 Million
</TABLE>
provided, however, that such fee for any period which shall not be a full
monthly period shall be prorated according to the proportion which such
period bears to the full month and no payment of any fee shall be made
before the commencement of the public offering of any common stock. For
this purpose, the value of our net assets shall be computed in the same
manner as the value of such net assets are computed in connection with
the determination of the net asset value of our shares.
6. Except as otherwise provided below in this paragraph, you will
attend to, or arrange for the performance, at your expense, of such
clerical and accounting work related to the investment and reinvestment
of our capital for us as we may specify. We shall, however, bear all costs
and expenses of or attendant upon: (i) preparation of our federal, state and
local tax returns; (ii) preparation of documents we must file with the
Securities and Exchange Commission; (iii) determination of the status and
payment of dividends; (iv) reconciling and reviewing output of our
custodian bank, determining the adequacy of various accruals, approving
our expenses, authorizing our bank to receive and disburse money and
securities and verifica-tions related thereto, and interfacing with our
auditors; (v) verifica-tion of our security ledger and preparation and
main-tenance of other corporate books and records; (vi) brokerage
commissions and other transaction expenses; (vii) stockholders' and
Directors' meetings; (viii) corporate reports and proxy materials,
including their prepara-tion, printing and distribution; (ix) fees of
Directors not affiliated with you or any other firm acting as an
investment adviser to us; (x) taxes and interest expenses; (xi) reports to
government authorities including all expenses and costs relating to such
reports and to state securities law compliance; (xii) custodian and
transfer agent fees; (xiii) association membership dues; (xiv) premiums on
all insurance and bonds maintained for us or on our behalf; (xv) retention
of the transfer agent and registrar for our shares and the disbursing agent
for our stock-holders, including costs and expenses attendant upon
shareholder servicing, purchase, repurchase and redemption of our shares;
(xvi) our counsel; and (xvii) our independent auditors. We may arrange for
you to provide some or all of the services relating to items (i) to (xvi)
above, and any other services not directly relating to investment and
reinvest-ment of our capital, upon such terms and conditions, including
compensation, as we may agree and subject to the approval and review of
our Board of Directors.
7. (a) You are authorized to place purchase and sale orders for
our portfolio transactions with brokers and/or dealers which, in your best
judgment are able to achieve "best execution" of such orders. "Best
execution" shall mean prompt and reliable execution at the most favorable
security price obtainable, taking into account research and other services
available and the reasonableness of commission charges. Purchases and
sales of securities not listed or traded on a securities exchange shall
ordinarily be executed with primary market makers, acting as principal,
except where, in your judgment, better prices and execution may
otherwise be obtained.
(b) You are authorized to allocate brokerage and principal
business to members of securities exchanges, brokers and dealers (such
members, brokers and dealers
<PAGE>
being hereinafter referred to as "brokers") who have provided brokerage and
re-search services, as such services are defined in Section 28(e) of the
Securities Exchange Act of 1934 (the "1934 Act") for us and/or other accounts,
if any, for which you exercise investment discre-tion (as defined in Section
3(a)(35) of the 1934 Act) and to cause us to pay a commission for effecting a
securities transac-tion in excess of the amount another broker would have
charged for effecting that transaction if you determine in good faith that such
amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker, viewed in terms
of either that particular transaction or your overall responsibilities with
respect to us and the other accounts, if any, as to which you exercise
investment discretion. In reaching such determination, you will not be
re-quired to place or attempt to place a specific dollar value on the
research or execution services of a broker or on the portion of any
commission reflecting either of said services.
(c) Portfolio transactions may be allocated to any broker or
dealer taking into account the sale by such broker or dealer of our shares.
Any such allocation shall be made in accordance with the provisions of
this agreement relating to obtaining "best execution."
8. You may act as investment adviser for any other person, firm or
corporation. We recognize that you have given us the right to use the name
"Venture" in our corporate title. If for any reason you no longer act as our
investment adviser, we shall remove the name "Venture" from our
corporate title upon demand made by you.
9. All of our expenses shall be paid by us except for those you
specifically agree to assume under this Agreement. If the total expense
payable by us for any fiscal year (inclusive of all fees payable under this
agreement but exclusive of interest, taxes, brokerage fees and payments
under any Rule 12b-1 distribu-tion plan) shall exceed the most restrictive
applicable expense limitation prescribed by any statute or regulatory
authority of any jurisdiction in which our shares are qualified for offer
and sale, you will pay or refund to us the amount by which such expenses
exceed the amount so computed.
10. This Agreement shall become effective for an initial period
through April 30, 1996, and shall continue in full force and effect
continuously there-after, if its continuance is approved at least annually
as required by the 1940 Act. The effec-tive date of this Agreement shall
be the later of (i) the effective date of the initial registration statement
covering the offer and sale of our shares under the Securities Act of 1933,
or (ii) the date this Agreement has been approved as required by the 1940
Act. As of such effective date, this Agreement shall supersede all prior
invest-ment advisory agree-ments between the parties. This Agree-ment
may be terminated at any time, without the payment of any penalty, by our
Board of Directors or by vote of a majority of our out-stand-ing voting
securities (as defined in the 1940 Act) on 60 days' written notice to you,
or by you on 60 days' written notice to us, and it shall be automatically
terminated in the event of its assignment (as defined in said Act).
11. As of the date of this Agreement, the Company has only one
series of shares (the "Total Return Fund") and this Agreement shall apply
to that series. In the event that the Company shall create future series,
this Agreement shall apply to and be effective as to each such series,
provided (i) that as to any additional series there may be a different fee
payable to you, and (ii) this Agreement, as amended to reflect any change
in fees, is approved as required by the 1940 Act. The effective date of
this Agreement as to each such series shall be the date that it is so
approved or any later date as shall be agreed to by you and the Company.
If the foregoing is in accordance with your understanding, will you
so kindly indicate by signing and returning to us the enclosed copy hereof.
<PAGE>
Very truly yours,
VENTURE WORLDWIDE SERIES, INC.
By:_____________________________________
Its:___________________________________
Accepted as of the day
and year first above written.
SELECTED/VENTURE ADVISERS, L.P.
By: VENTURE ADVISERS, INC., General Partner
By:___________________________________________
Its:_______________________________________
EXHIBIT 5 (b)
Atlantic Advisers Limited
Rosebank Centre
14 Bermudiana Road
Pembroke HM 08, Bermuda
Re: Sub-Advisory Agreement for Venture International Series
-------------------------------------------------------
Gentlemen:
This is to confirm that Selected/Venture Advisers, L.P. ("SVA") is
retaining you as investment sub-adviser for the portfolio of the Equity
Income Fund, Inc. ("Fund") of the Venture International Series
("Company").
This letter sets forth the terms and conditions of your retention. If they
are acceptable to you, please acknowledge in the space provided. Upon
your acceptance, the retention and the mutual obligations in respect
thereto shall be effective as provided herein. The terms and conditions
are as follows:
1. You shall act as the investment sub-adviser for Fund and will manage
the investment and reinvestment of the assets of Fund subject to the
supervision of the Board of Directors of Company and to any applicable
provisions as in effect from time to time of (a) the Articles of
Incorporation and Bylaws of Company, (b) the prospectus, statement of
additional information and other information set forth in Fund's
registration documents under the Securities Act of 1933 and the
Investment Company Act of 1940 ("1940 Act"), including any supplements
thereto, and (c) the Investment Advisory Agreement between the
undersigned and the Company (the "Investment Advisory Agreement") in
respect to the Fund and the Company's Code of Ethics. You acknowledge
that you have received copies of the above documents as in effect on the
date of your acceptance of this letter. The undersigned agrees that it will
promptly deliver to you any amendments, changes or additions of or to
these documents. Without limitation, you agree that all securities
transactions will conform to (a) the stated objectives and policies of
Fund, (b) the brokerage policies set forth in the Investment Advisory
Agreement (which are hereby incorporated by reference herein) and the
registration documents, and (c) those investment and brokerage policies
or guidelines directed by the Board of Directors of Company or any
committee thereof. You shall be an independent contractor. Unless
otherwise expressly provided or authorized hereunder, or by the Board of
Directors of Company, you have no authority to represent Company or Fund
in any way or otherwise be an agent of Company or Fund. You shall also
not represent or be the agent of the undersigned except as expressly
provided or authorized hereunder or as authorized by the undersigned in
any other writing.
2. You agree to provide SVA with any reasonable reports, analyses or
other documentation SVA requires to carry out its responsibilities under
its Investment Advisory Agreement with Fund including those related to
placement of security transactions, its administrative responsibilities
and its responsibility to monitor compliance with stated investment
objectives, policies and limitations and the investment performance of
Fund. You agree, directly or through an agent, to provide daily information
in respect to the portfolio transactions of Fund to SVA. You agree to
provide all documentation reasonably required by SVA to maintain Fund's
accounting records in accordance with the 1940 Act an the Investment
Advisers Act of 1940 and the regulations issued thereunder, and to
preserve copies of all documents and records related to asset
transactions, positions and valuations
<PAGE>
related to Fund in the manner and for the periods prescribed by such
regulations. You agree that all documents and records you maintain in respect to
Fund, exclusively relating to Fund, are the property of Company and will be
surrendered to SVA or Company upon the request of either. You agree to provide
information and to allow inspection of such documents and records at
reasonable times by any authorized representative of SVA, Company's
Board of Directors or any committee thereof, Company's independent
public accountants or appropriate regulatory authorities.
3. You agree to make your personnel who are engaged in activities on
behalf of Fund available at reasonable times for consultations with SVA
personnel and Company's Board of Directors or any committee thereof,
including attendance at their meetings, wherever situated. Travel, meals
and lodging expenses for such purposes shall be reimbursed.
4. You agree to provide all office facilities, equipment and personnel for
carrying out your duties hereunder at your own expense except as
specifically provided hereunder.
5. It is agreed that your services are not to be deemed exclusive and you
shall be free to render similar services or other services to others
provided that (i) your services hereunder are not impaired and are not in
violation of federal or state securities laws and (ii) that you shall not
provide services to any registered investment company other that the
Company without our prior express written permission. In the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
your obligations or duties hereunder, you shall not be subject to liability
for any act or omission in the cause of, or connected with, rendering
service hereunder or for any losses that may be sustained in the purchase,
holding or sale or any security. In the event of any claim, arbitration,
suit, or administrative proceedings in which you or SVA is a party and in
which it is finally determined that there is liability or wrongdoing by only
one of us, the party liable or found to be the wrongdoer shall pay for all
liability and expenses of such claim or proceeding including reasonable
attorneys' fees. If it is determined that there is liability or wrongdoing
by both or none of us, then each of us shall pay their own liability and
expenses. In the event of any settlement of any such claim, arbitration,
suit or proceeding before final determination by a court or arbitrator(s),
the liability and expenses shall be assumed as agreed between the parties,
but if there is no agreement within thirty (30) days of such settlement,
then the assumption of liability and expenses shall be settled by
arbitration, in accordance with the then applicable rules of the American
Arbitration Association. Judgment upon the award rendered by the
arbitrator shall be final and binding and may be entered in any court
having jurisdiction. The parties shall pay for their own costs and
expenses in respect to any such arbitration and may be included in the
arbitrator's award.
6. As investment sub-adviser, you understand that you will be responsible
for complying with all provisions of applicable law, including the 1940
Act, the Investment Advisers Act of 1940, and the Insider Trading and
Securities Fraud Enforcement Act of 1988 and all rules and regulations
thereunder. You agree to adopt and comply with the "Code of Ethics of and
for Selected/Venture Advisers, L.P. and the Companies For Which It Acts
Investment Adviser" as in effect from time to time and to keep in effect a
policy and supervisory procedures designed to prevent insider trading.
7. The undersigned shall pay to you a portion of the fee it receives from
Company with respect to Fund under the Investment Advisory Agreement,
based on the attached fee schedule and reimburse expenses expressly
approved for reimbursement by SVA. Payment for your services and
reimbursement of expenses approved by SVA shall be made monthly. From
time to time, with your express written approval, SVA may waive any part
or all of the fees due to it under the Investment Advisory Agreement for
the period specified
<PAGE>
in such writing. Such approval shall constitute a waiver by you of your portion
of the waived fees.
8. This Agreement shall become effective on the later of November 1,
1994, or the first business day after the date this Agreement is approved
in accordance with the 1940 Act. Unless sooner terminated as hereunder
provided, it shall initially remain in effect until April 30, 1996.
Thereafter, subject to the termination provision herein, this Agreement
shall continue in force from year to year thereafter, but only as long as
such continuance is specifically approved at least annually in the manner
required by the 1940 Act; provided, however, that if the continuation of
this Agreement is not approved, you may continue to serve in the manner
and to the extent permitted by the 1940 Act and the rules and regulations
thereunder.
9. This Agreement shall automatically terminate immediately in the
event of its assignment (except as otherwise permitted by the 1940 Act
or rules thereunder) or in the event of the termination of the Investment
Advisory Agreement. This Agreement may be terminated without payment
of any penalty at any time (a) upon sixty (60) days' written notice to you
by SVA or upon such sixty (60) days' written notice to you by the Company
pursuant to action by the Board of Directors of the Company or by the vote
of a majority of the outstanding voting securities of the Fund, or (b) upon
60 or more days' written notice by you to SVA and the Company. The
terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meaning set forth in the 1940 Act and the rules
and regulations thereunder. Termination of this Agreement shall not
affect your right to receive payments on any unpaid balance of the
compensation earned and reimbursable expenses incurred prior to such
termination.
10. If any provisions of this Agreement shall be held or made invalid by a
court decision, statute or rule or otherwise, the remainder shall not be
thereby affected.
11. The Agreement shall be construed according to the laws of the State
of New Mexico. It may be executed in counterparts each of which shall be
deemed and original and all of which together shall constitute one and the
same agreement.
Yours very truly,
Selected/Venture Advisers, L.P.
By Venture Advisers, Inc.,
General Partner
Martin H. Proyect, Chairman
MHP/sf
Accepted and Approved this
________day of ____________, 1994
Atlantic Advisers Limited
<PAGE>
By______________________
President
SUB-ADVISOR FEE SCHEDULE FOR
ATLANTIC ADVISERS LIMITED
50 % of total management fees paid by Company on behalf of Fund to
Selected/Venture Advisers, L.P.
EXHIBIT 6
VENTURE WORLDWIDE SERIES, INC.
DISTRIBUTING AGREEMENT
AGREEMENT dated as of __________, 1994 between VENTURE
WORLDWIDE SERIES, INC., a Maryland corporation, hereinafter called the
"Company," and SELECTED/VENTURE ADVISERS, L.P., a Colorado limited
part-ner-ship, hereinafter called the "Distributor."
W I T N E S S E T H
1. Appointment of Fund Distributor. The Company hereby appoints
-------------------------------
the Distributor as the exclusive distributor to sell as principal and not as
agent shares of capital stock of the Company during the term of this
Agreement.
2. Sales of Capital Stock. The Company agrees to sell and deliver to
----------------------
the Distributor, upon the terms set forth herein, such fully-paid and
non-assessable shares of capital stock of the Company ("Shares") then
effectively registered for continuous offering under the Securities Act of
1933 (the "1933 Act") as Dis-tributor shall order from the Company, but
only to the extent that the Distributor shall have received purchase orders
there-for. All orders from the Distributor shall be subject to
confir-mation by the Company, and the Company authorizes the
Dis-tributor to reject any purchase order.
The Distributor as principal may sell and distribute any Shares so
purchased, through dealers or otherwise, in such manner not inconsistent
with law and all applicable rules and regula-tions, including those of any
applicable self-regulatory or-ganizations, and the provisions of this
Agreement, as the Dis-tributor may from time to time determine. The
Distributor agrees to use its best efforts to effect sales of Shares, but
does not undertake to sell any specific number of Shares thereof.
The Distributor may in its discretion sell the Shares to or through
such registered and qualified retail dealers as it may select. In making
agreements with its dealers or others for sale of the Shares, the
Distributor shall act only as principal and in no sense as agent for the
Company.
3. Sales by Distributor - Offering Price. All Shares, whether
-------------------------------------
purchased from the Company or otherwise, shall be offered for sale and
sold by the Distributor at a price per share (herei-nafter called the
"Offering Price") in accordance with the provisions of the current
prospectus applicable to such offer and sale. Any initial or deferred sales
charge and any reduction or elimination thereof shall be determined by the
Distributor in a manner not inconsis-tent with law and all applicable
rules and regulations and the provisions of this Agreement, and the
Company agrees to amend its current prospectus to the extent necessary
from time to time to reflect any such determination. The Company will
cause such net asset value to be determined with such frequency and as of
such times and will cause the Offering Price to be effective for such
periods as are set forth in the current prospectus of the Compan-y. The
Company will cause such determinations to be furnished to the Distributor
as often as they are made and shall make avail-able to the Distributor
upon request the computations underlying any such determination.
Anything to the contrary herein notwithstanding, the Company may
suspend the Offering Price currently in effect and may decline to accept
or confirm any orders for, or to
<PAGE>
make any sales of, any Shares to the Dis-tributor under this Agreement until
such time as it shall deem it ad-visable to accept and confirm such orders and
to make such sales. During any period during which the Offering Price currently
in effect shall be suspended or during which the Company shall decline to accept
or confirm any such orders or make any such sales, the Company shall be
under no obligation to confirm or accept any such orders or make any such
sales at any price.
4. Payment. At or prior to the time of delivery by the Company to,
-------
or on the order of the Distributor of any Shares, the Distributor will pay
or cause to be paid to the Company or to its order an amount equal to the
Offering Price of such Shares at which such order had been confirmed,
less the initial or deferred sales charge, if any, included thereon as
aforesaid. The Distributor agrees to cause to be remitted to the Company
for the benefit of the Company or to its order all such funds promptly
after receipt thereof.
5. Delivery of Share Certificates. Delivery of certifi-cates for
------------------------------
Shares shall be made as promptly as practicable after receipt by the
Company of the purchase price therefor and written request by the
Distributor for such certifi-cates. Such certifi-cates shall be registered
in such names and amounts as the Distributor may specify to the Company
in writing.
6. Compensation of Distributor. Any initial or deferred sales
---------------------------
charges and any compensation to be paid the Distributor out of any
Distribution Plan described in 7(e) below shall constitute the entire
compen-sation of the Distributor. The Distrib-utor may allow concessions
to dealers, out of sales charges, as the Distributor shall from time to
time determine.
7. Allocation of Expenses. Except as otherwise provided herein, the
----------------------
Company shall pay all expenses connected with (i) the organization of the
Company or any Series thereof and (ii) the offering of Shares, including
without limitation all expenses of:
(a) Registering Shares for offer or sale under the federal
securities laws, except for prospectus printing costs as set forth below;
and
(b) Reports required by and under the federal securi-ties laws;
and
(c) Issuance of Shares, including cost of stock certificates,
issue taxes (if any) and fees of legal counsel and of the transfer agent;
and
(d) Registering or qualifying Shares for offer or sale under the
securities laws of any state or other jurisdiction in which the Distributor
may arrange for the sale of the Shares; and
(e) Any Distribution Plan adopted in accordance with Rule
12b-1 under the Investment Company Act of 1940 (the "1940 Act")
providing for any payments by the Company or any Series thereof.
The Distributor will pay, or promptly reimburse the Company for, all
expenses in connection with:
(a) Preparing, printing and distributing advertising and sales
literature for use in offering the Shares to the public, including the cost
of printing copies of the prospectus and the additional cost of printing
reports to stockholders other than copies thereof required for distribution
to stockholders or for filing with any securities authorities; and
<PAGE>
(b) The registration or qualification of the Dis-tributor as a
dealer or broker under state or federal laws.
Transfer taxes, if any, which may be payable in connection with the
issue and delivery of certificates in a name or names other than the name
of the Distributor will not be borne by the Company and the Distributor
agrees to indemnify and hold the Company harmless against any such
transfer taxes. Any other taxes in connection with the sale of Shares
pursuant to this Agreement will be borne by the Company.
8. Company to Furnish Information. The Company shall furnish the
------------------------------
Distributor for use in connection with the sale of the Shares such
information with respect to the Company and the Shares as the Distributor
may reasonably request, including copies of documents filed with or
furnished to any federal or state securities authorities or sent to its
stockholders.
9. Representations and Agreements with Respect to Registration
------------------------------------------------------------
Statement and Prospectus.
------------------------
(a) As used in this Agreement, the term "registration
statement" shall include any registration statement with respect to the
Shares which is effective under the Act including any amendment thereto,
and the term "prospectus" shall include any prospectus and statement of
additional information filed as part of such registration statement.
(b) The Company represents that the registration statement
and prospectus will conform in all material respects to the requirements
under the 1933 Act and the 1940 Act and the rules and regulations
thereunder and will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading; provided that this
representa-tion will not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing to
the Company by the Distributor expressly for use in the registration
statement or prospectus.
(c) The Company agrees to advise the Distributor promptly:
(i) of any request of the Securities and Exchange
Commission for amendments to the registration statement or prospe-ctus
or for additional information;
(ii) in the event of the issuance by the Securiti-es and
Exchange Commission of any stop order suspending the effectiveness of
the registration statement or prospectus or the initiation of any
proceedings for that purpose;
(iii) of the happening of any event which makes untrue
any statement, or which requires the making of any change, in the
registration statement or prospectus in order to make the statements
therein not misleading; and
(iv) of all actions of the Securities and Ex-change
Commission with respect to any amendments to the regis-tra-tion
statement or prospectus which may from time to time be filed with the
Securities and Exchange Commission under the 1933 Act or the 1940 Act.
10. Indemnification. The Company agrees to indemnify, defend and
---------------
hold the Distributor, its officers and directors and any person who
controls the Distributor within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending
<PAGE>
such claims, demands or liabilities and any counsel fees incurred in
connection therewith) which the Distributor, its officers, directors or any
such controlling person may incur under the 1933 Act or the 1940 Act, or
under common law or otherwise, arising out of or based upon any untrue
statement of a material fact contained in the registration statement or
prospectus relating to the Company or arising out of or based upon any
alleged omission to state a material fact required to be stated in either
thereof or necessary to make the statements in either thereof not
misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue state-ment or
omission or alleged untrue statement or omission made in reliance upon
and in conformity with information in writing provided by the Distributor
to the Company for use in the registration statement or prospectus
relating to the Company; provided, however, that this indemnity
agreement, to the extent that it might require indem-nity for liability
arising under the 1933 Act of any person who is also an officer or
direc-tor of the Company or who controls the Company within the meaning
of Section 15 of the 1933 Act, shall not inure to the benefit of such
officer, director or controlling person unless a court of com-petent
jurisdiction shall determine, or it shall have been determined by
controlling precedent, that such result would not be against public policy
as expressed in the 1933 Act; and further provided, that in no event shall
anything contained herein be so construed as to protect the Distributor
against any liability to the Company or to its security holders to which
the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of its
duties, or by reason of its reckless disregard of its obligations under this
Agreement. The Company's agreement to indemnify the Distributor, its
officers and directors and any such controlling person as aforesaid is
expressly conditioned upon the Company being prompt-ly notified of any
action brought against the Distributor, its officers or directors, or any
such controlling person, such notification to be given by letter or
telegram addressed to the Company at its principal business office. The
Company agrees to promptly notify the Distributor of the commencement
of any litigation or proceed-ings against it or any of its officers or
directors in connection with the issue and sale of any Shares.
The Distributor agrees to indemnify, defend and hold the Company,
its officers and directors and any person who controls the Company, if
any, within the meaning of Section 15 of the 1933 Act free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
the Company, its directors or officers or any such controlling person may
incur under the 1933 Act or under common law or otherwise, but only to
the extent that such liability or expense incurred by the Company, its
directors or officers or such controlling person resulting from such
claims or demands shall arise out of or be based upon any alleged untrue
statement of a material fact contained in information furnished in writing
by the Distributor to the Company for use in the Company's registration
statement or prospec-tus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such
information not misleading or shall arise out of or be based on any false
or mis-leading or allegedly false or misleading sales literature relat-ing
to the Company and prepared by the Distributor. The Distributor's
agreement to indemnify the Company, its directors and officers, and any
such controlling person as aforesaid is expressly conditioned upon the
Distributor being promptly noti-fied of any action brought against the
Company, its officers or directors or any such controlling person, such
notification being given to the Distributor at its principal business office.
11. Compliance with Securities Laws. The Company represents
-------------------------------
that it is registered as an open-end diversified management investment
company under the 1940 Act, and agrees that it will comply with all of
<PAGE>
the provisions of such Act and of the rules and regulations thereunder.
The Company and the Distributor each agree to comply with all of the
applicable terms and provisions of the 1940 Act, the 1933 Act and,
subject to the following provisions of this paragraph 11, all applicable
state securities ("Blue Sky") laws. The Dis-tributor agrees to comply
with all of the applicable terms and provisions of the Securities Exchange
Act of 1934. The Company will cooperate with the Distributor (to the
extent of supplying all necessary documents, exhibits and information),
and will execute and permit to be filed with the proper public bodies, such
applications (including amendments and renewals thereof), instruments,
papers and exhibits as may be appropriate to enable the Shares to be
offered for sale under the laws of such states as the Distributor shall
reasonab-ly determine, and will cooperate with the Distributor in the
presen-tation of said applications (including amendments and renew-als
thereof), to the end that Shares may be qualified in such states under the
respec-tive Blue Sky laws thereof; provided that the Company shall not be
required to amend its Articles of Incorporation or By-Laws to comply with
the laws of any state, to maintain an office in any state, to change the
terms of the offering of Shares in any state from the terms set forth in
its registration state-ment and prospectus, to qualify as a foreign
corporation in any state or to consent to service of process in any state
other than with respect to claims arising out of Shares. The Distributor
will furnish to the Company any information known to the Distr-ibu-tor
which is necessary or desirable in the preparation of the Comp-any's
registration statement and prospectus and any amendments or
supplements thereto.
12. Effective Period: Termination. This Agreement shall become
-----------------------------
effective for an initial period of not more than two years from the date of
its execution, and shall continue in full force and effect continuously
thereafter provided that such continuance is approved at least annually as
required by the 1940 Act. This Agreement shall automatically terminate
in the event of its assignment (as defined by the 1940 Act). In addition,
this Agreement may be terminated at any time, without penalty, by either
party on not more than sixty days' nor less than thirty days' written notice
delivered or mailed by registered mail, postage prepaid, to the other party.
IN WITNESS WHEREOF, Venture Worldwide Series, Inc. and
Selected/Venture Advisers, L.P. have caused this instrument to be signed
in several counterparts, each of which shall be an origin-al and which
together shall constitute one and the same Agreement, by an officer or
officers thereunto duly authorized, as of the day and year first above
written.
VENTURE WORLDWIDE SERIES, INC.
By:
Its:
VENTURE ADVISERS, L.P.
By:
Its:
EXHIBIT 10
Board of Directors
Venture International Series, Inc.
124 East Marcy Street
Santa Fe, NM 87501
Re: Registration of Common Stock under
Securities Act of 1933 and Investment
Company Act of 1940
Ladies and Gentlemen:
We have acted as counsel to Venture International Series, Inc., a
Maryland corporation (the "Corporation"), in connection with the
preparation and filing with the Securities and Exchange Commission (the
"Commission") of a registration statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933 and the
Investment Company Act of 1940, relating to the registration, pursuant to
Commission Rule 24f-2(a)(1), of an indefinite number of shares of the
Corporation's authorized common stock, par value $0.001 per share (the
"Common Stock").
In this regard, we have examined originals or copies of (i) the
Articles of Incorporation and By-Laws of the Corporation, and (ii)
resolutions of the Board of Directors and such other documents and
corporate records as we have deemed appropriate for purposes of
rendering this opinion.
Based upon the foregoing, we are of the opinion that (i) the Common
Stock has been duly authorized, and (ii) the shares of Common Stock, when
issued by the corporation in the manner set forth in the Registration
Statement, will be legally issued, fully paid, and non-assessable, provided
that in the aggregate such shares do not exceed the total number of shares
of Common Stock authorized for issuance by the Corporation's Articles of
Incorporation.
We consent to the use of this opinion as an exhibit to the
Registration Statement and to the references to our name in the
prospectus and statement of additional information included in the
Registration Statement.
Very truly yours,
D'ANCONA & PFLAUM
By: /s/ Sheldon R. Stein
------------------------
Sheldon R. Stein
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm in the Registration
Statement, (Form n-1A), and related Statement of Additional Information
of Davis International Series, Inc. and to the inclusion of our report
dated November 3, 1995 to the Shareholders and Board of Directors of
Davis International Series, Inc.
/s/ Tait, Weller & Baker
------------------------
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 23, 1996
Exhibit (15) (a)
VENTURE FUNDS
MASTER RULE 12b-1 DISTRIBUTION PLAN
FOR CLASS A SHARES
The Plan:
1. Purpose. The Company shall finance the distribution of its Class
A shares pursuant to Rule 12b-1 under the Investment Company Act of
1940 ("Act") according to the terms of this Distribution Plan (the "Plan").
2. Fees. Amounts, not exceeding in the aggregate a maximum annual
amount equal to 0.25% of the averages of the daily net asset values of the
Class A shares of the Company during each fiscal year of the Company,
may be paid quarterly by the Company to the Distributor out of the assets
attributable to such shares at any time after the effective date of the
Plan to: (i) reimburse the Distributor for fees paid to its salespersons and
to other firms which offer and sell the Company's shares at such intervals
as the Distributor may determine, for the sale of the Company's shares and
the continuing servicing of shareholders of the Company towards
augmentation of Company shares in accounts of shareholders of the
Company and (ii) reimburse the Distributor its other distribution
expenses, after application of the Distributor's portion of sales charges
incurred in connection with the distribution of Company shares, excluding
overhead expense and including expenses of promotion, sales seminars,
wholesaling, advertising, and sales literature. For this purpose sales
literature shall not include reports sent to shareholders regulatory bodies
which are paid for by the Company.
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 shares of the Company within
the meaning of Rule 12b-1, the payments of such fees are authorized under
this Plan.
3. Required Approvals and Term. Subject to paragraph 8, the Plan
shall not take effect until it has been approved by the vote of at least a
majority (as defined in the Act) of the outstanding Class A shares of the
Company. In addition, the Plan shall not take effect until it has been
approved, together with any related agreements, by votes of the majority
of both (i) the Board of Directors of the Company and (ii) those directors
of the Company who are not "interested persons" of the Company as
defined in the Act and who have no direct or indirect financial interest in
the operation of the Plan or any agreements related to it ("Independent
Directors"), cast in person at a meeting called or the purpose of voting on
the Plan or such Agreements. Unless sooner terminated pursuant to the
terms hereof, the Plan shall continue in effect for a period of one year
from its effective date, and thereafter shall continue in effect so long as
such continuance is specifically approved at least annually in the manner
provided for by Rule 12b-1 under the Act.
4. Periodic Reports. Any person authorized to direct the disposition
of monies paid or payable by the Company pursuant to the Plan or any
related agreement shall provide to the Company's Board of Directors, and
the Board of Directors shall review at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures
were made.
5. Termination. Subject to paragraph 8, the Plan may be terminated
at any time by a vote of a majority of the Independent Directors, or by
vote of a majority vote of the outstanding Class A shares.
6. Related Agreements. Any agreement related to the Plan shall be
in writing, and shall provide:
(i) That such agreement may be terminated at any time, without
payment of penalty, by vote of a majority of the Independent Directors or
by a majority vote of the Class A shares on not more than 60 days written
notice to any other party to the agreement; and
<PAGE>
(ii) That such agreement shall terminate automatically in the event
of its assignment.
7. Amendments. The Plan may not be amended to increase
materially the amount of distribution expenses provided for in paragraph 2
unless such amendment is approved in the manner provided in paragraph 3,
and no material amendment to the Plan shall be made unless approved by
the Board of Directors and the Independent Directors.
8. Special Procedures For Series Company. If the Company is or
becomes a series company (as defined in Rule 18f-2 under the Act), then
the Plan shall not take effect as to the Class A shares of any series and no
amendment may be effected to increase materially the amount of
distribution expenses as to the Class A shares of any series until it has
been approved as to the Class A shares of such series by the Board of
Directors, the Independent Directors and the Class A shareholders of such
series in the manner provided in paragraph 3; and no material amendment
to the Plan in respect to such shares shall be made unless approved as to
such shares by the Board of Directors and Independent Directors. The Plan
may be terminated as to any series at any time by vote of a majority of
the Independent Directors by majority vote of the Class A shareholders of
the series.
Exhibit (15) (b)
VENTURE FUNDS
MASTER RULE 12b-1 DISTRIBUTION PLAN
FOR CLASS B SHARES
The Plan:
1. Purpose. The Company shall finance the distribution of its Class
B shares pursuant to Rule 12b-1 under the Investment Company Act of
1940 ("Act") according to the terms of this Distribution Plan (the "Plan").
2. Fees. Amounts, not exceeding in the aggregate a maximum
amount equal to the lesser of (a) .3125% of the averages of the daily net
asset values of the Company or (b) the maximum amount provided by an
applicable rule or regulation of the National Association of Securities
Dealers, Inc. during each fiscal quarter of the Company elapsed after the
inception of the Plan may be paid by the Company to the Distributor at any
time after the inception of the Plan in order: (i) to pay the Distributor
commissions in respect of shares of the Company previously sold at any
time after the inception of the Plan, all or any part of which may be or
may have been reallowed or otherwise paid to others by the Distributor in
respect of or in furtherance of sales of shares of the Company after the
inception of the Plan; and (ii) to enable the Distributor to pay or to have
paid to others who sell the Company's shares a maintenance or service
fees, at such intervals as the Distributor may determine, in respect of
that Company's shares previously sold by any such others at any time after
the inception of the Plan and remaining outstanding during the period in
respect of which such fee is or has been paid.
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 shares of the Company within the meaning
of rule 12b-1, the payments of such fees are authorized under this Plan.
3. Required Approvals and Term. Subject to paragraph 8, the Plan
shall not take effect as to the Company until it has been approved by a
vote of at least a majority (as defined in the Act) of the outstanding Class
B shares of the Company. In addition, the Plan shall not take effect until
it has been approved, together with any related agreements, by votes of
the majority of both (i) the Board of Directors of the Company and (ii)
those directors of the Company who are not "interested persons" of the
Company as defined in the Act and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it (the
"Independent Directors"), cast in person at a meeting called for the
purpose of voting on the Plan or such agreements. Unless sooner
terminated pursuant to the terms hereof, the Plan shall continue in effect
for a period of one year from its effective date, and thereafter shall
continue in effect so long as such continuance is specifically approved at
least annually in the manner provided for by Rule 12b-1 under the Act.
4. Periodic Reports. Any person authorized to direct the disposition
of monies paid or payable by the Company pursuant to the Plan or any
related agreement shall provide to the Company's Board of Directors, and
the Board of Directors shall review at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures
were made.
5. Termination. Subject to paragraph 8, the Plan may be terminated
at any time by a vote of a majority of the Independent Directors, or by a
majority vote of the Company's outstanding Class B shares.
6. Related Agreements. Any agreement related to the Plan shall be
in writing, and shall provide:
(i) That such agreement may be terminated at any time, without
payment of penalty, by vote of a majority of the Independent Directors or
by a majority vote of the Company's outstanding Class B shares on not
more than 60 days written notice to any other party to the agreement; and
<PAGE>
(ii) That such agreement shall terminate automatically in the event
of its assignment.
7. Amendments. The Plan may not be amended to increase
materially the amount of distribution expenses provided for in paragraph 2
unless such amendment is approved in the manner proved in paragraph 3,
and no material amendment to the Plan shall be made unless approved by
the Board of Directors and the Independent Directors.
8. Special Procedures For Series Company. If the Company is or
becomes a series company (as defined in Rule 18f-2 under the Act), then
the Plan shall not take effect as to the Class B shares of any series and no
amendment may be effected to increase materially the amount of
distribution expenses as to the Class B shares of any series until it has
been approved as to the Class B shares of such series by the Board of
Directors, the Independent Directors and the Class B shareholders of such
series in the manner provided in paragraph 3; and no material amendment
to the Plan in respect to such shares shall be made unless approved as to
such shares by the Board of Directors and Independent Directors. The Plan
may be terminated as to any series at any time by vote of a majority of
the Independent Directors or by majority vote of the Class B shareholders
of the series.
Exhibit (15) (c)
VENTURE FUNDS
MASTER RULE 12b-1 DISTRIBUTION PLAN
FOR CLASS C SHARES
The Plan:
1. Purpose. The Company shall finance the distribution of its Class
C shares pursuant to Rule 12b-1 under the Investment Company Act of
1940 ("Act") according to the terms of this Distribution Plan (the "Plan").
2. Fees. Amounts, not exceeding in the aggregate a maximum
amount equal to the lesser of (a) .3125% of the averages of the daily net
asset values of the Company or (b) the maximum amount provided by an
applicable rule or regulation of the National Association of Securities
Dealer, Inc. during each fiscal quarter of the Company elapsed after the
inception of the Plan may be paid by the Company to the Distributor at any
time after the inception of the Plan in order: (i) to pay the Distributor
commissions in respect of shares of the Company previously sold at any
time after the inception of the Plan, all or any part of which may be or
may have been reallowed or otherwise paid to others by the Distributor in
respect of or in furtherance of sales of shares of the Company after the
inception of the Plan; and (ii) to enable the Distributor to pay or to have
paid to others who sell the Company's shares a maintenance or service
fees, at such intervals as the distributor may determine, in respect of
that Company's shares previously sold by any such others at any time after
the inception of the Plan and remaining outstanding during the period in
respect of which such fee is or has been paid.
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 shares of the Company within the meaning
of Rule 12b-1, the payments of such fees are authorized under this Plan.
3. Required Approvals and Terms. Subject to paragraph 8, the Plan
shall not take effect as to the Company until it has been approved by a
vote of at least a majority (as defined in the Act) of the outstanding Class
C shares of the Company. In addition, the Plan shall not take effect until
it has been approved, together with any related agreements, by votes of
the majority of both (i) the Board of Directors of the Company and (ii)
those directors of the Company who are not "interest persons" of the
Company as defined in the Act and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it ( the
"Independent Directors"), cast in person at a meeting called for the
purpose of voting on the Plan or such agreements. Unless sooner
terminated pursuant to the terms hereof, the Plan shall continue in effect
for a period of one year from its effective date, and thereafter shall
continue in effect so long as such continuance is specifically approved at
least annually in the manner provided for by Rule 12b-1 under the Act.
4. Periodic Reports. Any person authorized to direct the
disposition of monies paid or payable by the Company pursuant to the Plan
or any related agreement shall provide to the Company's Board of
Directors, and the Board of Directors shall review at least quarterly, a
written report of the amounts so expended and the purposes for which
such expenditures were made.
5. Termination. Subject to paragraph 8, the Plan may be terminated
at any time by a vote of a majority of the Independent Directors, or by a
majority vote of the Company's outstanding Class C shares.
6. Related Agreements. Any agreement related to the Plan shall be
in writing, and shall provide:
(i) That such agreement may be terminated at any time, without
payment of penalty, by vote of a majority of the Independent Directors or
by a majority vote of the Company's outstanding Class C shares on not
more than 60 days written notice to any other party to the agreement; and
<PAGE>
(ii) That such agreement shall terminate automatically in the event
of its assignment.
7. Amendments. The Plan may not be amended to increase
materially the amount of distribution expenses provided in paragraph 2
unless such amendment is approved in the manner provided in paragraph 3,
and no material amendment to the Plan shall be made unless approved by
the Board of Directors and the Independent Directors.
8. Special Procedures For Series Company. If the Company is or
becomes a series company (as defined in Rule 18f-2 under the Act), then
the Plan shall not take effect as to the Class C shares of any series and no
amendment may be effected to increase materially the amount of
distribution expenses as to the Class C shares of any series until it has
been approved as to the Class C shares of such series by the Board of
Directors, the Independent Directors and the Class C shareholders of such
series in the manner provided in paragraph 3; and no material amendment
to the Plan in respect to such shares shall be made unless approved as to
such shares by the Board of Directors and Independent Directors. The Plan
may be terminated as to any series at any time by vote of a majority of
the Independent Directors or by majority vote of the Class C shareholders
of the series.
