DAVIS INTERNATIONAL SERIES INC, 485BPOS, 1997-08-18

DAVIS INTERNATIONAL SERIES INC
485BPOS, 1997-08-18

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<PAGE> 1

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. 5

AND

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940

REGISTRATION NO. 811-8870

AMENDMENT NO. 7

DAVIS INTERNATIONAL SERIES, INC.

124 East Marcy Street
Santa Fe, New Mexico 87501
(1-505-820-3000)

Agent For Service: Samuel P. Ynzunza, Esq.
124 East Marcy Street
Santa Fe, New Mexico 87501

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

Copies To: 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 August 18, 1997, pursuant to paragraph (b)(ix)
- ------------------ 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 26, 1996.

1
<PAGE> 2

FORM N-1A
DAVIS INTERNATIONAL SERIES, INC. - CLASS A AND
CLASS B SHARES

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.

<TABLE>
CROSS REFERENCE SHEET
---------------------

<CAPTION>
N-1A
ITEM NO. PROSPECTUS CAPTION OR PLACEMENT
- -------- -------------------------------
<C> <S>
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 1996
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)

<CAPTION>
PART B CAPTION OR PLACEMENT
- ---------------------------------------
<C> <S>
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 <F*>
19 Determining the Price of Shares; Reduction of Class A Sales Charge
20 Dividends, Distributions and Taxes
21 <F*>
22 Performance Data
23 Financial Statements for the year ended September 30, 1996 are incorporated by
reference from the 1996 Annual Report to shareholders.

<FN>
____________________

<F*> INCLUDED IN PROSPECTUS
</TABLE>

2
<PAGE> 3

FORM N-1A
DAVIS INTERNATIONAL SERIES, INC. - CLASS Y SHARES

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.

<TABLE>
CROSS REFERENCE SHEET
---------------------

<CAPTION>
N-1A
ITEM NO. PROSPECTUS CAPTION OR PLACEMENT
- -------- -------------------------------
<C> <S>
1 Front Cover
2 Summary
3 Financial Highlights
4 Summary; Investment Objective and Policies
5 Adviser, Sub-Adviser and Distributor
5a Management's Discussion of Fund Performance (contained in the 1996
Annual Report)
6 Summary; Shareholder Inquiries; Dividends and Distributions;
Federal Taxes; Fund Shares
7 Purchase of Shares; Adviser, Sub-Adviser and Distributor; Exchange of
Shares; Determining the Price of Shares; Dividends
and Distributions
8 Redemption of Shares; Exchange of Shares
9 (Not Applicable)

<FN>
____________________

<F*> INCLUDED IN PROSPECTUS
</TABLE>

<PAGE> 4

PROSPECTUS FEBRUARY 1, 1997 AS REVISED AUGUST 18, 1997
CLASS A, CLASS B AND CLASS C

DAVIS INTERNATIONAL SERIES, INC.

DAVIS INTERNATIONAL TOTAL RETURN FUND

124 EAST MARCY STREET
SANTA FE, NEW MEXICO 87501
1-800-279-0279

<TABLE>
<S> <C>
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
</TABLE>

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 four classes of shares, Class A, B, C and Y, 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. The Class Y shares, available only to
certain qualified institutional investors, are offered through a separate
prospectus. For more information about the Class Y shares, see "Purchase of
Shares--Alternative Purchase Arrangements." Shares of a particular class may
be exchanged for shares of the same class offered by another Davis Fund.

This Prospectus concisely sets forth information about the Class A, Class B
and Class C shares of 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, 1997 as revised August
18, 1997, 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> 5

===============================================================================

<TABLE>
TABLE OF CONTENTS

<CAPTION>
PAGE

<S> <C>
Summary.................................................................. 2

Financial Highlights..................................................... 5

Investment Objective and Policies........................................ 6

Risk Factors............................................................. 7

Adviser, Sub-Advisers and Distributor.................................... 11

Distribution Plans....................................................... 12

Purchase of Shares....................................................... 14

Telephone Privilege...................................................... 19

Exchange of Shares....................................................... 20

Redemption of Shares..................................................... 21

Determining the Price of Shares.......................................... 23

Dividends and Distributions.............................................. 24

Federal Taxes............................................................ 24

Foreign Taxes on Fund Income............................................. 25

Fund Shares.............................................................. 25

Performance Data......................................................... 26

Shareholder Inquiries.................................................... 26
</TABLE>

===============================================================================

<PAGE> 6
SUMMARY

FUND EXPENSES. The following table is intended to assist you in
understanding the various costs and expenses that an investor in the Class A, B
and C shares of the Fund will bear directly or indirectly. The expenses for
Class C shares are estimated for the first fiscal year such shares are offered.
You can refer to the section "Adviser, Sub-Advisers 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 CLASS C
- -------------------------------- ------- ------- -------
<S> <C> <C> <C>
Maximum sales load imposed on
purchases............................. 4.75% None None
Maximum sales load imposed on reinvested
dividends............................. None 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 year.......... 0.75%<F1> 4.00% 1.00%
Redeemed during second or third
year.............................. None 3.00% None
Redeemed during fourth or fifth
year.............................. None 2.00% None
Redeemed during sixth year.......... None 1.00% None
Redeemed after sixth year........... None None None
Exchange Fee........................ None None None

<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Management fees....................... 1.00% 1.00% 1.00%
12b-1 fees<F2>,<F3>................... 0.18% 0.99% 1.00%
Other expenses........................ 0.52% 0.52% 0.52%
----- ----- -----
Total Fund operating expenses....... 1.70% 2.51% 2.52%
<FN>
- -------------
<F1> On certain Class A shares purchased after December 1, 1996 without a
sales load and redeemed during the first year after purchase, there is a
0.75% deferred sales charge.

<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.
</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 $135 $239
Class B (assuming redemption at end of
period)............................... $55 $98 $144 N/A
Class B (assuming no redemption at end
of period)............................ $25 $78 $134 N/A
Class C (assuming redemption at end of
period)............................... $26 $78 $134 $286
Class C (assuming no redemption at end
of period)............................ $26 $78 $134 $286
</TABLE>

THE 5% ANNUAL RATE OF RETURN USED IN THE EXAMPLE 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.

2
<PAGE> 7

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 four classes of shares, Class A, B, C and Y. 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, but shares
purchased after December 1, 1996 are subject to a 0.75% contingent deferred
sales charge ("CDSC") on redemptions made within one year of purchase. Class
B shares may be purchased at net asset value with no front-end sales charge,
but are subject to a CDSC on most redemptions made within six years of
purchase. Class C Shares may also be purchased at net asset value but are
subject to a CDSC of 1% on redemptions made within one year after 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 and C shares, 1.00% of the Fund's
aggregate average daily net assets attributable to such class. The purpose and
function of the deferred sales charge and distribution fees with respect to the
Class B and Class C shares is the same as those of the front-end sales charge
and distribution services fee with respect to the Class A shares. The Class Y
shares, available only to certain qualified institutional investors, are
offered through a separate prospectus. For more information about the Class Y
shares, see "Purchase of Shares--Alternative Purchase Arrangements."

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. Class C Shares, like Class B shares, will also have a higher
expense ratio and pay correspondingly lower dividends than Class A shares, as a
result of higher distribution services fees and certain other expenses. Unlike
Class B Shares, Class C shares do not have a conversion feature and therefore
will always be subject to higher distribution fees and other expenses than
Class A Shares. The per share net asset value of the Class B and Class C shares
generally will be lower than the per share net asset value of the Class A
shares, reflecting the daily expense accruals of additional distribution fees
and certain other expenses applicable to Class B and Class C shares. 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

3
<PAGE> 8

on currency contracts, currency futures contracts and options thereon and
securities indexed to foreign securities. See "Hedging Against Foreign
Currency Fluctuations".

INVESTMENT ADVISER, SUB-ADVISERS AND DISTRIBUTOR. Davis Selected Advisers,
L.P., (the "Adviser") is the investment adviser for the Fund. Davis
Distributors, LLC (the "Distributor") serves as the principal underwriter for
the Fund. Atlantic Advisers Limited is the Fund's sub-adviser (the
"Sub-Adviser"). The Adviser has entered into a Sub-Advisory Agreement with
its wholly-owned subsidiary, Davis Selected Advisers-NY, Inc. ("DSA-NY").
DSA-NY performs research and other services for the Fund on behalf of the
Adviser. For more information, see "Adviser, Sub-Advisers and Distributor".

PURCHASES, EXCHANGES AND REDEMPTIONS. Initial and subsequent minimum
investments in the Class A, B and C shares 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
by the Adviser. 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". Class A shareholders who
are eligible to purchase Class Y shares may exchange their shares for Class Y
shares of the Fund. See "Purchase of Shares--Alternative Purchase Agreements"
for Class Y eligibility requirements.

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 State Street Bank & Trust
Co., c/o The Davis Funds, P.O. Box 8406, Boston, MA, 02266-8406. During drastic
market conditions, the Distributor may experience difficulty in accepting
telephone inquires. If you are unable to contact the Distributor 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.

4
<PAGE> 9

FINANCIAL HIGHLIGHTS

The following table provides you with information about the financial
history of the Fund's Class A and B shares. The table expresses the information
in terms of a single Class A and B since inception and is supplementary
information to the Fund's financial statements which are included in the
September 30, 1996 Annual Report to Shareholders. Such Reports 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 and the fiscal year
ended September 30, 1996, have been audited by the Fund's independent certified
public accountants, whose opinion thereon is contained in the Annual Report. No
information is presented for the Class C shares because no shares were
outstanding as of the six months ended March 31, 1997.

<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------------------------- ----------------------------------------------
SIX MONTHS SIX MONTHS
ENDED EIGHT MONTHS ENDED EIGHT MONTHS
MARCH 31, YEAR ENDED ENDED MARCH 31, YEAR ENDED ENDED
1997 SEPTEMBER 30, SEPTEMBER 30, 1997 SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 1996 1995 (UNAUDITED) 1996 1995
----------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 12.12 $ 11.85 $ 10.00 $ 12.00 $ 11.79 $10.00
------- ------- ------- ------- ------- ------
Income (Loss) From Investment
Operations
Net Investment Income
(Loss)..................... (.03) .03 .05 (.07) (.03) (.01)
Net Gains (Losses) on
Securities (both realized
and unrealized).......... (.41) .85 1.80 (.41) .82 1.80
------- ------- ------- ------- ------- ------
Total From Investment
Operations........... (.44) .88 1.85 (.48) .79 1.79
------- ------- ------- ------- ------- ------
Less Distributions
Dividends (from net
investment income)....... -- (.03) -- -- -- --
Distributions From
Realized Capital
Gains.................... (.99) (.58) -- (.99) (.58) --
------- ------- ------- ------- ------- ------
Total Distributions.... (.99) (.61) -- (.99) (.58) --
------- ------- ------- ------- ------- ------
Net Asset Value, End of
Period..................... $ 10.69 $ 12.12 $ 11.85 $ 10.53 $ 12.00 $11.79
======= ======= ======= ======= ======= ======
Total Return<F1>............. (3.51)% 7.87% 18.50% (3.89)% 7.10% 17.90%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted)............ $37,820 $41,545 $13,427 $ 7,936 $ 8,283 $2,002
Ratio of Expenses to
Average Net Assets....... 1.70%<F2><F*> 1.70%<F2>,<F3> 1.72%<F2><F*> 2.51%<F2><F*> 2.47%<F2>,<F3> 2.46%<F2><F*>
Ratio of Net Income to
Average Net Assets....... (0.57)%<F*> .23% .95%<F*> (1.38)%<F*> (.54)% (.09)%<F*>
Portfolio Turnover Rate.... 45% 78% 85% 45% 78% 85%
Average commission rate
per share................ $ .0077 $ .0050 -- $ .0077 $ .0050 --

<FN>
- ---------------
<F1> Sales charges are not reflected in calculation.

<F2> Had the Adviser not absorbed certain expenses, the ratio of expenses for
the six months ended March 31, 1997 would have been 2.08% and 2.97% for
Class A shares and Class B shares, respectively. Had the Adviser not
absorbed certain expenses, the ratio of expenses for the year ended
September 30, 1996 would have been 2.24% and 3.01% for Class A shares
and Class B shares, respectively. Had the Adviser not absorbed certain
expenses, the ratio of expenses for the eight months ended September 30,
1995 would have been 2.88% and 3.62% for Class A shares and Class B
shares, respectively.

<F3> Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement were 1.69% and 2.46% for 1996. Prior to
1996, such reductions were reflected in the expense ratios.

<F*> Annualized.
</TABLE>

5
<PAGE> 10

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 will not concentrate 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
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

6
<PAGE> 11
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 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

7
<PAGE> 12
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 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.

8
<PAGE> 13
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 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

9
<PAGE> 14
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

10
<PAGE> 15
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 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-ADVISERS AND DISTRIBUTOR

ADVISER, SUB-ADVISERS AND DISTRIBUTOR. Davis Selected Advisers, L.P., (the
"Adviser") whose principal office is at 124 East Marcy Street, Santa Fe, New
Mexico 87501, serves as the investment adviser of the Fund. Venture Advisers,
Inc., is the Adviser's sole general partner. Shelby M.C. Davis is the
controlling shareholder of the Adviser's general partner. Subject to the
direction and supervision of the Company's Board of Directors, the Adviser
manages the business operations of the Fund. Davis Distributors, LLC (the
"Distributor"), a wholly owned subsidiary of the Adviser serves as the
distributor or principal underwriter of the Fund's shares. As discussed below,
the Adviser has hired Atlantic Advisers Limited as Sub-Adviser for the Fund.
The Adviser also acts as investment adviser for Davis New York Venture Fund,
Inc., Davis High Income Fund, Inc., Davis

11
<PAGE> 16
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. In addition, Davis
Selected Advisers, NY-Inc. ("DSA-NY"), a wholly-owned subsidiary of the
Adviser, performs research and other services for the Fund on behalf of the
Adviser under a Sub-Advisory Agreement with the Adviser. This Agreement has no
affect on the services provided by Atlantic Advisers Limited. The Distributor
also acts as the principal underwriter for the Davis and Selected Funds.

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 under the
Sub-Advisory Agreement with DSA-NY, the Adviser pays all of DSA-NY's direct and
indirect costs of operation. All the fees paid to DSA-NY are paid by the
Adviser and not the Fund.

The Distributor is also reimbursed by the Fund for some of its distribution
expenses through Distribution Plans which have been adopted with respect to the
Class A, Class B and Class C shares and approved by the Fund's Board of
Directors and the shareholders of such classes 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 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.

DISTRIBUTION PLANS

The Fund bears some of the costs of selling its shares under Distribution
Plans adopted with respect to its Class A, Class B and Class C 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 Distributor for the fees it pays to its
salespersons and other firms for selling Fund shares, servicing shareholders
and maintaining shareholder accounts. Where a commission is paid for purchase
of $1 million or more of Class A shares and as long as the limits of the
distribution plan have not been reached, such payment is also made from 12b-1
distribution fees received from the Fund. Normally, such fees are at the annual
rate of 0.25% of the average net asset value of the accounts serviced and
maintained on the books of the Fund. Payments under the Class A Distribution
Plan may

12
<PAGE> 17

also be used to reimburse the Distributor for other distribution costs
(excluding overhead) not covered in any year by any portion of the sales
charges the Distributor retains. 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. The Distributor pays broker/dealers up to 4% in commissions on new
sales of Class B shares. Up to an annual rate of 0.75% of the average daily net
assets is used to reimburse the Distributor for these commission payments. Most
or all of such commissions are reallowed to Distributor's salespersons and to
firms responsible for such sales. No commissions are paid by the Fund with
respect to sales by the Distributor to officers, directors and full-time
employees of the Fund, the Distributor, the Adviser or the Adviser's general
partner. Up to 0.25% of average net assets is used to reimburse the Distributor
for the payment of service and maintenance fees to its salespersons and other
firms for shareholder servicing and maintenance of shareholder accounts.

If, due to the foregoing payment limitations, the Fund is unable to pay the
Distributor the 4% commission on new sales of Class B shares, the Distributor
intends, but is not obligated, to accept new orders for shares and pay
commissions in excess of the payments it receives from the Fund. The
Distributor intends to seek full payment from the Fund of any excess amounts
with interest at 1% over the prime rate at such future date when and to the
extent such payments on new sales would not be in excess of the limitations.
The Fund is not obligated to make such payments; the amount (if any), timing
and condition of any such payments are solely within the discretion of the
directors of the Fund who are not interested persons of the Distributor 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 Distributor will ask the Independent Directors to take
whatever action they deem appropriate with regard to the payment of any excess
amounts.

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

In addition, to the extent that any investment advisory fees paid by the
Fund may be deemed to be indirectly financing any activity which is primarily
intended to result in the sales of Fund shares within the meaning of Rule
12b-1, the Plans authorize the payment of such fees.

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 Distributor may
make expense reimbursements for special training of a dealer's registered
representatives, advertising or equipment, or to defray the expenses of dealer
meetings. Any such amounts may be paid by the Distributor from the fees it
receives under the Class A, Class B and Class C Distribution Plan.

In addition, the Distributor may, from time to time, pay additional cash
compensation or other promotional incentives to authorized dealers or agents
that sell shares of the Fund. In some instances, such cash compensation or
other incentives may be offered only to certain dealers or agents who employ
registered

13
<PAGE> 18
representatives who have sold or may sell significant amounts of shares of the
Fund and/or the other Davis Funds managed by the Adviser during a specified
period of time.

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

PURCHASE OF SHARES

GENERAL. You can purchase Class A, Class B or Class C shares of the Fund
from any dealer or other person having a sales agreement with the Distributor.

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. All purchases made by
check (minimum $1,000, except $250 for retirement plans) should be in U.S.
dollars and made payable to The Davis Funds, or in the case of a retirement
account, the custodian or trustee. Third party checks will not be accepted.
When purchases are made by check, redemptions will not be allowed until the
investment being redeemed has been in the account for 15 calendar days.

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 Distributor by telephone or wire. You can also use
this method for additional investments of at least $1,000.

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

State Street Bank and Trust Company,
Boston MA, 02210
Attn.: Mutual Fund Services
DAVIS INTERNATIONAL SERIES, INC.-
DAVIS INTERNATIONAL TOTAL RETURN FUND
Shareholder Name,
Shareholder Account Number,
Federal Routing Number 011000028,
DDA Number 9904-606-2

After your initial investment, you can make additional investments of at
least $25. Simply mail a check payable to "The Davis Funds" to State Street
Bank and Trust Company, c/o The Davis Funds, P.O. Box 8406, Boston, MA
02266-8406. 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.

14
<PAGE> 19

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 or Class C shares or for accounts using the Automatic Withdrawal
Plan. Instead, shares purchased are automatically credited to an account
maintained for you on the books of the Fund by State Street. Each time you add
to or withdraw from your account, you will receive a statement showing the
details of the transaction and any other transactions you had during the
current year.

ALTERNATIVE PURCHASE ARRANGEMENTS. The Fund offers four classes of shares.
With certain exceptions described below, Class A shares are sold with a
front-end sales charge at the time of purchase and are not subject to a sales
charge when they are redeemed. Class B shares are sold without a sales charge
at the time of purchase, but are subject to a deferred sales charge if they are
redeemed within six years after purchase. Class B shares will automatically
convert to Class A eight years after the end of the calendar month in which the
shareholder's order to purchase was accepted. Class C shares are purchased at
their net asset value per share without the imposition of a front-end sales
charge but are subject to a 1% deferred sales charge if redeemed within one
year after purchase and do not have a conversion feature. Class Y shares are
offered through a separate prospectus to (i) trust companies, bank trusts,
endowments, pension plans or foundations acting on behalf of their own account
or one or more clients for which such institution acts in a fiduciary capacity
and investing at least $5,000,000 at any one time ("Institutions"); (ii) any
state, county, city, department, authority or similar agency which invests at
least $5,000,000 at any one time ("Governmental Entities"); and (iii) any
investor with an account established under a "wrap account" or other similar
fee-based program sponsored and maintained by a registered broker-dealer
approved by the Distributor ("Wrap Program Investors"). Class Y shares are
sold at net asset value without the imposition of Rule 12b-1 charges. For more
information about the Class Y shares, call the Fund at 1-800-279-0279.

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 or Class C
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. Class C
shares may be more appropriate for the short-term investor. The Fund will not
accept any purchase of Class C shares when Class A shares may be purchased at
net asset value. See also "Distribution Plans" for more information.

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

15
<PAGE> 20

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
CHARGE AS CONCESSION TO
SALES CHARGE APPROXIMATE YOUR DEALER AS
AS PERCENTAGE PERCENTAGE PERCENTAGE
OF OFFERING OF AMOUNT OF OFFERING
AMOUNT OF PURCHASE PRICE INVESTED 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%<F*>

<FN>
- -------------
<F*> On purchases of $1 million or more, the investor pays no front-end sales
charge but a contingent deferred sales charge, of 0.75% may be imposed if
shares purchased after December 1, 1996 are redeemed within the first year
after purchase. The Distributor may pay the financial service firm a
commission during the first year after purchase at an annual rate as
follows:
<CAPTION>
PURCHASE AMOUNT COMMISSION
--------------- ----------
<S> <C>
First $3,000,000........................ .75%
Next $2,000,000......................... .50%
Over $5,000,000......................... .25%

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.
</TABLE>

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 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

16
<PAGE> 21
13-month period may be made at the applicable price for the aggregate shares
actually purchased during the period. Please see "Terms and Conditions" at
the back of this prospectus.

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

(vi) Combined Purchases with other Davis Funds: Purchases of Class A shares
of the Fund may be combined with your purchases of Class A shares of 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 for which the
Adviser acts as investment adviser or officers and employees of the Adviser,
Sub-Advisers or Distributor including former directors and officers and any
spouse, child, parent, grandparent, brother or sister ("immediate family
member") of all of the foregoing, and any employee benefit or payroll
deduction plan established by or for such persons; (3) Class A shares purchased
by any registered representatives, principals and employees (and any immediate
family member) of securities dealers having a sales agreement with the
Distributor; (4) initial purchases of Class A shares totaling at least $250,000
but less than $5,000,000, made at any one time by banks, trust companies and
other financial institutions on behalf of one or more clients for which such
institution acts in a fiduciary capacity; (5) Class A shares purchased by any
single account covering a minimum of 250 participants (this 250 participant
minimum may be waived for certain fee based mutual fund marketplace programs)
and representing a defined benefit plan, defined contribution plan, cash or
deferred plan qualified under 401(a) or 401(k) of the Internal Revenue Code or
a plan established under section 403(b), 457 or 501(c)(9) of such Code or
"rabbi trusts"; (6) Class A shares purchased by persons participating in a
"wrap account" or similar fee-based program sponsored and maintained by a
registered broker-dealer approved by the Fund's Distributor or by investment
advisers or financial planners who place trades for their own accounts or the
accounts of their clients and who charge a management, consulting or other fee
for their services; and clients of such investment advisers or financial
planners who place trades for their own accounts if the accounts are linked to
the master account of such investment adviser or financial planner on the books
of the broker or agent; and (7) Class A shares amounting to less than
$5,000,000 purchased by any state, county, city, department, authority or
similar agency. 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

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<PAGE> 22
shares redeemed during the fourth calendar year after purchase; and no deferred
sales charge is imposed on amounts redeemed after four calendar years from
purchase. Class B shares will be subject to a maximum Rule 12b-1 fee at the
annual rate of 1% of the class' average daily net asset value. The Fund will
not accept any purchase of Class B shares in the amount of $250,000 or more per
investor.

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

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

The Distributor will pay a commission to the firm responsible for the sale
of Class C shares. No other fees will be paid by the Distributor during the
one-year period following purchase. The Distributor will be reimbursed for the
commission paid from 12b-1 fees paid by the Fund during the one-year period. If
Class C shares are redeemed within the one-year period after purchase, the 1%
redemption charge will be paid to the Distributor. After Class C shares have
been outstanding for more than one year, the Distributor will make quarterly
payments to the firm responsible for the sale of the shares in amounts equal to
0.75% of the annual average daily net asset value of such shares for sales fees
and 0.25% of the annual average daily net asset value of such shares for
service and maintenance fees.

CONTINGENT DEFERRED SALES CHARGE. Any contingent deferred sales charge
imposed upon the redemption of Class A, Class B or Class C shares is a
percentage of the lesser of (i) the net asset value of the shares redeemed or
(ii) the original cost of such shares. No contingent deferred sales charge is
imposed when you redeem amounts derived from (a) increases in the value of
shares 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 (CDSC) on Class A, B and C Shares that
are subject to a CDSC will be waived if the redemption relates to the
following: (a) in the event of the total disability (as evidenced by a
determination by the federal Social Security Administration) of the shareholder
(including registered joint owner) occurring after the purchase of the shares
being redeemed; (b) in the event of the death of the shareholder (including a
registered joint owner); (c) for redemptions made pursuant to an automatic
withdrawal plan in an amount, on an annual basis, up to 12% of the value of the
account at the time the shareholder elects to participate in the automatic
withdrawal plan; (d) for redemptions from a qualified retirement plan or IRA
that constitute a tax-free return of contributions to avoid tax penalty; (e) on
redemptions of shares sold to

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<PAGE> 23
directors, officers and employees of any fund for which the Adviser acts as
investment adviser or officers and employees of the Adviser, Sub-Advisers or
Distributor 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; (f) on redemptions pursuant to the
right of the Fund to liquidate a shareholder's account if the aggregate net
asset value of the shares held in such account falls below an established
minimum amount; (g) certain other exceptions related to defined contribution
plans as described in the Statement of Additional Information.

PROTOTYPE RETIREMENT PLANS. The Distributor and certain qualified dealers
have available prototype retirement plans (e.g. 401(k), profit sharing, money
purchase, Simplified Employee Pension ("SEP") plans, model 403(b) and 457
plans for charitable, educational and governmental entities) sponsored by the
Funds for corporations and self-employed individuals and prototype Individual
Retirement Account ("IRA") plans and SIMPLE IRA plans for both individuals
and employers. These plans utilize the shares of the Fund and other Davis Funds
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 (up to a maximum of $20 per social security
number). 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 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

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<PAGE> 24
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. The exchange privilege is a convenient way to buy shares in other
Davis Funds in order to respond to changes in your goals or in market
conditions. If such goals or market conditions change, the Davis Funds offer a
variety of investment objectives that includes common stock funds, tax-exempt,
government and corporate bond funds, and a money market fund. However, the 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 except that Class A shareholders
who are eligible to purchase Class Y shares may exchange their shares for Class
Y shares of the Fund. All of the Davis Funds offer Class A, Class B and Class C
shares. The shares to be received upon exchange must be legally available for
sale in your state. The net asset value of the initial shares being acquired
must be at least $1,000 unless such exchange is under the Automatic Exchange
Program described below. See "Purchase of Shares--Alternative Purchase
Arrangements" for Class Y eligibility requirements. 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 or Class C shares are subject at the time of exchange will continue to
apply to any shares acquired upon exchange.

Before you decide to make an exchange, you must obtain the current
prospectus of the desired fund. Call your broker or the Distributor for
information and a prospectus for any of the other Davis Funds registered in
your state. Read the prospectus carefully. If you decide to exchange your
shares, send State Street a written unconditional request for the exchange and
follow the instructions regarding delivery of share certificates contained in
the section on "Redemption of Shares". A signature guarantee is not required
for such an exchange. However, if shares are also redeemed for cash in
connection with the exchange transaction, a signature guarantee may be
required. See "Redemption of Shares". Your dealer may charge an additional
fee for handling an exercise of the exchange privilege.

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

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.

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<PAGE> 25

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

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

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 correspond to the account from which the
shares are being redeemed.

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

If shares to be redeemed are represented by a certificate, the certificate,
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 $50,000, 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 $50,000 or less is not
required, provided that such proceeds are being sent to the address of record
and, in order to ensure authenticity of an address change, such address of
record has not been changed within the last 30 days.

Redemption proceeds are normally paid to you within seven days after State
Street receives your proper redemption request. Payment for redemptions can be
suspended under certain emergency conditions determined by the Securities and
Exchange Commission or if the New York Stock Exchange is closed for other than
customary or holiday closings. If any of the shares redeemed were just bought
by you, payment to you may be delayed until your purchase check has cleared
(which usually takes up to 15 days from the purchase date). You can avoid any
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 Distributor repurchases the shares from your dealer, if your dealer
is a member of the Distributor's selling group. Your dealer may, but is not
required to, use this method in selling back your shares and may place any
repurchase

21
<PAGE> 26
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. Investors with 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 Distributors, LLC (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 Distributor, 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 on the 25th day of the month. Withdrawals involve
redemption of shares and may produce gain or loss for income tax purposes.
Shares of the Fund initially acquired by exchange from any of the other Davis
Funds will remain subject to an escrow or segregated account to which any of
the exchanged shares were subject. If you utilize this program using Class B or
Class C shares, any applicable contingent deferred sales charges will be
imposed on such shares redeemed. Purchase of additional shares concurrent with
withdrawals may be disadvantageous to you because of tax and sales load
consequences. If the amount you withdraw exceeds the dividends on your shares,
your account will suffer depletion. Your Automatic Withdrawals Plan

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<PAGE> 27
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 or Class C
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
Distributor a letter, together with a check for the reinstatement amount. The
letter must be received, together with the payment, within 30 days after the
redemption or repurchase. You can only use this privilege once.

DETERMINING THE PRICE OF SHARES

NET ASSET VALUE. The net asset value per share of each class is determined
daily by dividing the total value of investments and other assets, less any
liabilities by the total outstanding shares. The net asset value of the Fund is
determined daily as of the earlier of the close of the New York Stock Exchange
(the "Exchange") or 4:00 p.m., Eastern Time, on each day that the Exchange is
open for trading.

The price per share for purchases or redemptions made directly through
State Street 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 Distributor. Note that in the case of redemptions and repurchases
of shares owned by corporations, trusts or estates, or of shares represented by
outstanding certificates, State Street may require additional documents to
effect the redemption and the applicable price will be determined as of the
close of the next computation following the receipt of the required
documentation or outstanding certificates. See "Redemption of Shares."

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 will be valued at fair value as determined by or at the direction of the
Board of Directors.

Because of the difference in times of closing of markets in which the
Fund's securities are traded, events affecting portfolio values that occur
between the time their prices are determined and the time the Fund's shares are
priced will generally not be reflected in the Fund's share price.

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<PAGE> 28

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 initial or contingent deferred sales charge) on the
payment date. Information concerning distributions will be mailed annually to
shareholders. Because Class B and Class C shares incur higher distribution
services fees and bear certain other expenses, such shares will have higher
expense ratios and will pay correspondingly lower dividends than Class A
shares. Information concerning distributions will be mailed annually to
shareholders.

Upon receipt of the second dividend check which has been returned to State
Street as undeliverable, undelivered dividends will be invested in additional
shares at the current net asset value and the account designated as a dividend
reinvestment account.

FEDERAL 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.

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 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.

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<PAGE> 29

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. Dividends declared in the last
calendar month to shareholders of record in such month and paid by the end of
the following January are treated as received by the shareholder in the year in
which they are declared.

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 four
classes, Class A, Class B, Class C and Class Y shares. Due to the differing
expenses of the classes, dividends of Class B and Class C are likely to be
lower than for Class A shares, and are likely to be higher for Class Y shares
than for any other class of shares. For more information about the Class Y
shares, call the Fund at 1-800-279-0279 to obtain the Class Y prospectus.

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.

In accordance with Maryland law and its Articles of Incorporation, the
Company does not hold regular annual shareholder meetings. Shareholder meetings
are held when they are required under the Investment

25
<PAGE> 30
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.

MAJOR SHAREHOLDERS. Shelby Cullom Davis & Co., which may be deemed to be
an affiliate of the Adviser, may be deemed to control the Company due to its
beneficial ownership of more than 25% of the Company's outstanding shares.

PERFORMANCE DATA

From time to time, the Fund may advertise information regarding its
performance. Such information may consist of "total return" and "average
annual total return" and will be calculated separately for each class. These
performance figures are based upon historical results and are not intended to
indicate future performance.

"Average annual total return" refers to the Fund's average annual
compounded rate of return over a stated period that would equate an initial
amount invested at the beginning of the period to the ending redeemable value
of the investment.

"Total return" refers to the Fund's compounded rate of return over a
stated period that would equate an initial amount invested at the beginning of
the period to the ending redeemable value of the investment. Total return is
not annualized. In the event the Fund advertises its total return or average
annual total return, the stated periods will be one, five and ten years, and
may also include longer or shorter periods, including the life of the Fund. The
computation of total and average annual total return assumes reinvestment of
all dividends and distributions, and deduction of all charges and expenses. In
addition, a table showing the performance of an assumed investment of $10,000
may be used from time to 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 1996 Annual Report contains additional performance information
and will be made available upon request and without charge.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to Davis Distributors, LLC, by
writing to State Street Bank and Trust Company, c/o the Davis Funds, P.O. Box
8406, Boston, MA 02266-8406 or by calling 1-800-279-0279. Davis Direct Access
is the Davis Funds' automated telephone system that enables shareholders to
perform a number of account transactions automatically by using a touch-tone
phone. Shareholders may obtain Fund and account specific information and make
purchases, exchanges and redemptions.

26
<PAGE> 31
TERMS AND CONDITIONS FOR A STATEMENT OF INTENTION (CLASS A SHARES ONLY)

TERMS OF ESCROW:

1. Out of my initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified in this Statement will be held in escrow by State
Street in the form of shares (computed to the nearest full share at the public
offering price applicable to the initial purchase hereunder) registered in my
name. For example, if the minimum amount specified under this statement is
$100,000 and the public offering price applicable to transactions of $100,000
is $10 a share, 500 shares (with a value of $5,000) would be held in escrow.

2. In the event I should exchange some or all of my shares to those of another
mutual fund for which Davis Distributors, LLC acts as distributor, according to
the terms of this prospectus, I hereby authorize State Street to escrow the
applicable number of shares of the new fund, until such time as this Statement
is complete.

3. If my total purchases are at least equal to the intended purchases, the
shares in escrow will be delivered to me or to my order.

4. If my total purchases are less than the intended purchases, I will remit to
Davis Distributors, LLC the difference in the dollar amount of sales charge
actually paid by me and the sales charge which I would have paid if the total
purchase had been made at a single time. If remittance is not made within 20
days after written request by Davis Distributors, LLC or my dealer, State
Street will redeem an appropriate number of the escrowed shares in order to
realize such difference.

5. I hereby irrevocably constitute and appoint State Street my attorney to
surrender for redemption any or all escrowed shares with full power of
substitution in the premises.

6. Shares remaining after the redemption referred to in Paragraph No. 4 will
be credited to my account.

7. The duties of State Street are only such as are herein provided being
purely ministerial in nature, and it shall incur no liability whatever except
for willful misconduct or gross negligence so long as it has acted in good
faith. It shall be under no responsibility other than faithfully to follow the
instructions herein. It may consult with legal counsel and shall be fully
protected in any action taken in good faith in accordance with advice from such
counsel. It shall not be required to defend any legal proceedings which may be
instituted against it in respect of the subject matter of this Agreement unless
requested to do so and indemnified to its satisfaction against the cost and
expense of such defense.

8. If my total purchases are more than the intended purchases and such total
is sufficient to qualify for an additional quantity discount, a retroactive
price adjustment shall be made for all purchases made under such Statement to
reflect the quantity discount applicable to the aggregate amount of such
purchases during the thirteen-month period.

27
<PAGE> 32

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., Davis Distributors, LLC, 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 Davis Distributors, LLC 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.

<TABLE>
<S> <C>
- ------------------------------------------------------------- -------------------------------------------------------------
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)
</TABLE>

<PAGE> 33
PROSPECTUS FEBRUARY 1, 1997

CLASS Y SHARES AS REVISED AUGUST 18, 1997

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 $5,000,000 Exchange Privilege
Wrap Fee Program Minimum
Investment subject to
Sponsor's Minimums

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 four classes of shares, Class A, Class B, Class C and
Class Y, each having different expense levels and sales charges. This
Prospectus provides information regarding the Class Y shares offered by the
Fund. Class Y shares are offered only to certain qualified purchasers, as
described in this Prospectus. Class A, Class B and Class C shares are
offered under a separate prospectus.

This Prospectus concisely sets forth information about the Class Y
shares of 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, 1997 as revised August 18, 1997,
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> 34

SUMMARY

FUND EXPENSES. The following table is intended to assist you in
understanding the various costs and expenses that an investor in the Class Y
shares of the Fund will bear directly or indirectly. Because Class Y shares
were not offered prior to September 1, 1996, the information is based on the
expenses of the Class A shares for the Fund's fiscal year ended September 30,
1996. The information concerning "other expenses" is estimated for the first
full fiscal year that Class Y share are offered. Expenses have been restated
to give effect to the elimination of 12b-1 fees and the reduction of transfer
agent fees for Class Y shares. You can refer to the section "Adviser,
Sub-Advisers and Distributor" and "Purchase of Shares" for more information
on transaction and operating expenses of the Fund.

<TABLE>
<CAPTION>
Shareholder Transaction Expenses Class Y
- -------------------------------- -------
<S> <C>
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends 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 year None
Redeemed during second or third year None
Redeemed during fourth or fifth year None
Redeemed during sixth year None
Redeemed after sixth year None
Exchange Fee None

Annual Fund operating expenses (as a percentage of average net assets)
- ----------------------------------------------------------------------

Management fees 1.00%
12b-1 fees 0.00%
Other expenses 0.40%
------
Total Fund operating expenses 1.40%
</TABLE>

Example:

You would pay the following expenses on a $1,000 investment, assuming a
5% annual return and redemption at the end of each time period:

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
- --------------------------------------------------- ------- ------- --------
<S> <C> <C> <C> <C>
Class Y $14 $44 $77 $168
</TABLE>

THE 5% ANNUAL RATE OF RETURN USED IN THE EXAMPLE ABOVE 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.

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 is 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 four
classes of shares. Class A, Class B and Class C shares are sold
through a separate prospectus. Class Y shares are offered through this
Prospectus to (i) trust companies, bank trusts, endowments, pension
plans or foundations ("Institutions") acting on behalf of their own
account or one or more clients for which such Institution acts in a
fiduciary capacity and investing at least $5,000,000 at any one time;
(ii) any state, county, city, department, authority or similar agency
which invests at least $5,000,000 ("Government Entities"); and (iii)

<PAGE> 35

any investor with an account established under a "wrap account" or
other fee based program, sponsored and maintained by a registered
broker-dealer approved by the Adviser ("Wrap Program Investors").

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-ADVISERS AND DISTRIBUTOR. Davis
Selected Advisers, L.P., (the "Adviser") is the investment adviser for the
Fund. Davis Distributors, LLC (the "Distributor") serves as the principal
underwriter for the Fund. Atlantic Advisers Limited is the Fund's
sub-adviser ("the Sub-Adviser"). The Adviser has entered into a Sub-Advisory
Agreement with its wholly-owned subsidiary, Davis Selected Advisers-NY, Inc.
("DSA-NY"). DSA-NY performs research and other services for the Fund on
behalf of the Adviser. For more information see "Adviser, Sub-Advisers and
Distributor".

PURCHASES, EXCHANGES AND REDEMPTIONS. Class Y shares are sold at
net asset value without a sales charge. The initial minimum investment for
Institutions and Government Entities is $5,000,000. The initial minimum
investment for Wrap Program Investors is set by the sponsor of the program.
Shares may be exchanged under certain circumstances at net asset value for
the same class of shares of certain other funds managed and distributed by
the Adviser. 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 Distributors, LLC at 1-800-279-0279 or to your sales
representative. Written inquiries may be directed to State Street Bank &
Trust Co., c/o The Davis Funds, P.O. Box 8406, Boston, MA 02266-8406.
During drastic market conditions, the Distributor may experience difficulty
in accepting telephone inquiries. If you are unable to contact the
Distributor 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.

<PAGE> 36

FINANCIAL HIGHLIGHTS

The following financial highlights are derived from the financial
statements of the Fund and have been audited by Tait, Weller and Baker,
independent auditors. The table expresses the information in terms of a
single Class A share for the of operations since inception of that Class and
is supplementary information to the Fund's financial statements which are
included in the March 31, 1997 Semi-Annual Report to Shareholders. Such
Reports 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 and the fiscal year ended September 30, 1996, have been audited by the
Fund's independent certified public accountants, whose opinion thereon is
contained in the Annual Report. No information is presented for the Class Y
shares as they were not offered until September 1, 1996 and as of March 31,
1997, no Class Y shares were outstanding.

<TABLE>
CLASS A
<CAPTION>
SIX MONTHS EIGHT MONTHS
ENDED YEAR ENDED ENDED
MARCH 31, 1997 SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 1996 1995
----------- ---- ----

<S> <C> <C> <C>
Net Asset Value, Beginning of Period $12.12 $11.85 $10.00
------ ------ ------

Income From Investment Operations
- ---------------------------------

Net Investment Income (.03) .03 .05

Net Gains on Securities (both realized and unrealized) (.41) .85 1.80
------ ------ ------

Total From Investment Operations (.44) .88 1.85
------ ------ ------

Less Distributions
- ------------------

Dividends (from net investment income) - (.03) -

Distributions From Realized Capital Gains (.99) (.58) -
------ ------ ------

Total Distributions (.99) (.61) -
------ ------ ------

Net Asset Value, End of Period $10.69 $12.12 $11.85
====== ====== ======

Total Return <F1> (3.51)% 7.87% 18.50%
- ------------

Ratios/Supplemental Data
- ------------------------

Net Assets, End of Period (000 omitted) $37,820 $41,545 $13,427

Ratio of Expenses to Average Net Assets 1.70%<F2><F*> 1.70%<F2>,<F3> 1.72%<F2>,<F3><F*>

Ratio of Net Income to Average Net Assets (0.57%)<F*> .23% .95%<F*>

Portfolio Turnover Rate 45% 78% 85%

Average commission rate per share $.0077 $.0050 -

<FN>
<F1> Sales charges are not reflected in calculation.

<F2> Had the Adviser not absorbed certain expenses, the ratio of expenses
for the six months ended March 31, 1997, the year ended September 30,
1996 and the eight months ended September 30, 1995 would have been
2.08%, 2.24% and 2.88% respectively.

<F3> Ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement were 1.69% for 1996.
Prior to 1996, such reductions were reflected in the expenses ratios.

<F*> Annualized.
</TABLE>

<PAGE> 37

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 will not concentrate 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

<PAGE> 38

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 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.

<PAGE> 39

country" can be considered to be a country that is in a less mature stage of
the industrialization 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
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
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

<PAGE> 40

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

<PAGE> 41

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 Adviser and Sub-Advisers are
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 or Sub-Advisers 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 Adviser or
Sub-Adviser 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.

<PAGE> 42

ADVISER, SUB-ADVISERS AND DISTRIBUTOR

ADVISER, SUB-ADVISERS 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 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, the Adviser
manages business operations of the Fund. As discussed below, the Adviser has
hired Atlantic Advisers Limited as Sub-Adviser for the Fund. The Adviser
also acts as investment adviser 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. In addition, Davis Selected Advisers-NY, Inc. ("DSA-NY"), a
wholly-owned subsidiary of the Adviser, performs research and other services
for the Fund on behalf of the Adviser under a Sub-Advisory Agreement with the
Adviser. The Distributor also acts as the principal underwriter for the
Davis and Selected Funds. This Agreement has no affect on the service
provided by Atlantic Advisers Limited.

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. Under the Sub-Advisory Agreement with DSA-NY, the Adviser
pays all of DSA-NY's direct and indirect costs of operation. All the fees
paid to DSA-NY are paid by the Adviser and not the Fund.

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.

The Distributor is reimbursed by the Fund for some of its distribution
expenses through Distribution Plans which have been adopted with respect to
the Class A, Class B and Class C shares and approved by the Fund's Board of
Directors in accordance with Rule 12b-1 under the Investment Company Act of
1940. The Class Y shares are not subject to Rule 12b-1 fees.

PURCHASE OF SHARES

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

<PAGE> 43

under the Fund's Rule 12b-1 Plan and sponsors of wrap programs utilizing Class
A shares are generally entitled to payments under the Plan. If the sponsor
has selected Class A shares, investors should discuss these charges with their
program's sponsor and weigh the benefits of any services to be provided by
the sponsor against the higher expenses paid by Class A shareholders.

PURCHASE BY BANK 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 institutional shareholder or wrap
program sponsor should telephone Davis Distributors, L.L.C. at 1-800-279-0279
to advise them of the investment and class of shares and to obtain an account
number and instructions. To assure proper credit, the wire instructions
should be made as follows:

You may make additional investments by wire or you may 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
Class Y 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 Y shares. Each time you
add to or withdraw from your account, you will receive a statement showing
the details of the transaction and any other transactions you had during the
current year.

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 Class Y shares of the Fund for Class Y
shares of the other Davis Funds. 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. The net asset value of the initial shares being acquired must be at
least $5,000,000 for Institutions and Government Entities or minimums set by
wrap program sponsors. Class A shareholders who are eligible to purchase
Class Y shares may exchange their shares for Class Y shares of the Fund.

<PAGE> 44

Before you decide to make an exchange, you must obtain the current
prospectus of the desired fund. Call the Distributor for information and a
prospectus for any of the other Davis Funds registered in your state. Read
the prospectus carefully. If you decide to exchange your shares, send State
Street a written unconditional request for the exchange and follow the
instructions regarding delivery of share certificates contained in the
section on "Redemption of Shares". A signature guarantee is not required for
such an exchange. However, if shares are also redeemed for cash in
connection with the exchange transaction, a signature guarantee may be
required. See "Redemption of Shares". Your dealer may charge an additional
fee for handling an exercise of the exchange privilege.

An exchange involves both a redemption and a purchase, and normally
both are done on the same day. However, in certain instances such as where a
large redemption is involved, the investment of redemption proceeds into
shares of other Davis Funds may take up to seven days. For federal income
tax purposes, exchanges between funds are treated as a sale and purchase.
Therefore, there will usually be a recognizable capital gain or loss due to
an exchange.

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.

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.

REDEMPTION OF SHARES

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

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

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 $50,000, must be guaranteed by
a bank, credit union, savings association, securities exchange, broker,
dealer or other guarantor institution. A signature guarantee is also
required in the event that any modification to the Company's application is
made after the account is established, including the selection of the
Expedited Redemption Privilege. In some situations such as where
corporations, trusts or estates are involved, additional documents may be
necessary to effect the redemption. The transfer agent may reject a request
from any of the foregoing eligible guarantors, if such guarantor does not
satisfy the transfer agent's written standards or procedures or if such
guarantor is not a member or participant of a 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 $50,000 or less is not required, provided that such proceeds are being
sent to the address of record and, in order to ensure authenticity of an
address change, such address of record has not been changed within the last
30 days. All notifications of address changes must be in writing.

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

<PAGE> 45

Your shares may also be redeemed through participating brokers or
dealers. The Distributor may repurchase shares from your dealer, if your
dealer is a member of the Distributor's selling group. Your dealer may, but
is not required to, use this method in selling back your shares and may place
any repurchase request by telephone or wire. Any broker 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.

DETERMINING THE PRICE OF SHARES

NET ASSET VALUE. The net asset value per share of each class is
determined daily by dividing the total value of investments and other assets,
less any liabilities, by the total number of outstanding shares of each
class. 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 Distributor. 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."

Securities for which market quotations are not readily available and
other assets will be valued at fair value as determined by or at the
direction of the Board of Directors.

Because of the difference in times of closing of markets in which the
Fund's securities are traded, events affecting portfolio values that occur
between the times their prices are determined and the time the Fund's shares
are priced will generally no 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

<PAGE> 46

Upon receipt of the second dividend check which has been returned to
State Street as undeliverable, undelivered dividends will be invested in
additional shares at the current net asset value and the account designated
as a dividend reinvestment account.

FEDERAL 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.

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 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. Dividends declared in the
last calendar month to shareholders of record in such month and paid by the
end of the following January are treated as received by the shareholder in
the year in which they are declared.

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.

<PAGE> 47

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 four classes, Class A, Class B, Class C and Class Y shares. Due to
the differing expenses of the Classes, dividends of Class B are likely to be
lower than for Class A shares, and are likely to be higher for Class Y shares
than for any other class of shares. For more information regarding the Class
A and Class B shares, please call 1-800-279-0279 to request a prospectus for
those shares.

The Board of Directors may offer additional classes in the future and
may at any time discontinue the offering of any class of shares. Each share,
when issued and paid for in accordance with the terms of the offering, is
fully paid and non-assessable. Shares have no preemptive or subscription
rights and are freely transferable. Each 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.

PERFORMANCE DATA

"Total return" refers to the Fund's compounded rate of return over a
stated period that would equate an initial amount invested at the
beginning of the period to the ending redeemable value of the
investment. Total return is not annualized. In the event the Fund
advertises its total return or average annual total return, the stated
periods will be one, five and ten years, and may also include longer or
shorter periods, including the life of the Fund. The computation of
total and average annual total return assumes reinvestment of all
dividends and distributions, and deduction of all charges and expenses.
In addition, a table showing the performance of an assumed investment
of $10,000 may be used from time to 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 1996 Annual Report contains additional performance
information and will be made available upon request and without charge.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to Davis Distributors, LLC by
writing to State Street Bank and Trust Company, c/o The Davis Funds, P.O. Box
8406, Boston, MA 02266-8406 or by calling 1-800-279-0279. Davis Direct Access
is the Davis Funds' automated telephone system that enables shareholders to
perform a number of account transactions automatically by using a touch-tone
phone. Shareholders may obtain Fund and account specific information and make
purchases, exchanges and redemptions.

<PAGE> 48

<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE

<S> <C>
Summary 2

Financial Highlights 4

Investment Objective and Policies 4

Adviser, Sub-Adviser and Distributor 9

Purchase of Shares 10

Telephone Privilege 11

Exchange of Shares 11

Redemption of Shares 11

Determining the Price of Shares 12

Dividends and Distributions 13

Federal Taxes 13

Fund Shares 14

Performance Data 14

Shareholder Inquiries 15
</TABLE>

<PAGE> 49

DAVIS INTERNATIONAL SERIES, INC.

Davis International Total Return Fund

STATEMENT OF ADDITIONAL INFORMATION

February 1, 1997 as revised August 18, 1997

124 East Marcy Street
Santa Fe, New Mexico 87501
1-800-279-0279

<TABLE>
TABLE OF CONTENTS

<S> <C>
Fundamental Investment Restrictions 2
Non-Fundamental Investment Restrictions 2
Risk Considerations 4
High Yield, High Risk Bonds 4
Hedging of Foreign Currency Risks 6
Options on Foreign Currencies 7
Lending Portfolio Securities 9
Writing Covered Call Options and Purchasing Options 9
Repurchase Agreements 10
Portfolio Transactions and Brokerage 10
Directors and Officers 11
Directors Compensation Schedule 12
Certain Shareholders of the Fund 12
Investment Advisory Services 12
Custodian 13
Auditors 14
Determining the Price of Shares 14
Dividends, Distributions and Taxes 14
Performance Data 16
Reduction of Class A Sales Charges 18
Distribution of Fund Shares 19
Appendix A - Ratings of Securities 20
</TABLE>

This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Class A, Class B and Class C Prospectus dated
February 1, 1997 as revised August 18, 1997, or the Class Y Prospectus dated
February 1, 1997 as revised August 18, 1997. The Prospectuses may be
obtained from the Fund.

The Fund's audited financial statements included in the Annual Report
to Shareholders dated September 30, 1996 are expressly incorporated herein by
reference. All interim financial information reflects all adjustments which
are, in the opinion of management, necessary to a fair statement of the
results for such interim period.

<PAGE> 50

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.

<PAGE> 51

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 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 the time 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.

<PAGE> 52

(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.

(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.

<PAGE> 53

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 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

<PAGE> 54

economic downturn that was experienced, prices of high yield, high risk bonds
declined and defaults rose. Future economic downturns and/or significant
increases in interest rates are likely to have a negative effect on the high
yield, high risk bond market and consequently on the value of these bonds, as
well as increase the incidence of defaults on such bonds.

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

<PAGE> 55

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 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.

<PAGE> 56

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 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.

<PAGE> 57

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 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.

<PAGE> 58

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 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

<PAGE> 59

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-

<PAGE> 60

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 year ended September 30, 1996 and for the eight months ended
September 30, 1995, the Fund paid brokerage commissions of $341,118 and
$144,415, respectively.

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 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)<F*>, 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)<F*>, 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; Director, Davis Selected Advisers-NY, Inc.;
Employee of

<PAGE> 61

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.

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; Director, Vice President
and Treasurer, Davis Selected Advisers-NY, 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; Director and
Vice President, Davis Selected Advisers-NY, Inc.; formerly, Vice President
and head of convertible security research, PaineWebber, Incorporated.
Kenneth C. Eich (8/14/53), 124 East Marcy Street, Santa Fe, NM 87501. Vice
President of the Fund and each of the Davis Funds, Selected American Shares,
Inc., Selected Special Shares, Inc. and Selected Capital Preservation Trust;
Chief Operating Officer, Davis Selected Advisers, L.P. Former President and
Chief Executive Officer of First of Michigan Corporation. Former Executive
Vice President and Chief Financial Officer of Oppenheimer Management
Corporation.

Eileen R. Street (3/11/62), 124 East Marcy Street, Santa Fe, NM 87501.
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 and Chief Financial
Officer, Venture Advisers, Inc.

Samuel P. Ynzunza (8/13/62), 124 East Marcy Street, Santa Fe, NM 87501.
Vice President and 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 and General Counsel, Davis
Selected Advisers, L.P. Former Corporate Counsel for INVESCO Funds Group,
Inc. and Franklin Resources, 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.

<PAGE> 62

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]
- -----------------------------

<F*>The asterisk following the names of 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.

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 year ended September 30, 1996, 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<F*>
<S> <C> <C>
The Very Reverend James R. Leo $5,000 $5,000
Theodore B. Smith, Jr. $5,000 $5,000
Richard M. Murray $5,000 $5,000
Keith R. Kroeger $5,000 $5,000

<FN>
<F*> Complex Compensation is the aggregate compensation paid, for service as a
Director, by all mutual funds with the same investment adviser.
</TABLE>

CERTAIN SHAREHOLDERS OF THE FUND

The following table sets forth, as of August 12, 1997 the name and
holdings of each person known by the Fund to be record owner of more than 5%
of its outstanding Class A shares. As of such date, there were 3,549,346.207
Class A shares outstanding and the directors and officers of the Fund, as a
group, owned 137,116.894 Class A shares, or approximately 3.863% of the
Fund's outstanding Class A shares. As of such date there were 747,766.494
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. Shelby Cullom
Davis & Co., a New York Limited Partnership, may be deemed a control person
of the Fund by virtue of its Fund holdings.

Number of Shares Percent of Class
Name and Address Owned Outstanding
- ---------------- ----- -----------
<S> <C> <C>
Class A shares

Shelby Cullom Davis & Co. 1,260,118.083 35.50%
609 Fifth Avenue 11th Floor
New York, NY 10270-1021
</TABLE>

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 furnishes statistical,

<PAGE> 63

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 for the year ended
September 30, 1996 and the eight months ended September 30, 1995 were
$390,629 and $67,449, respectively.

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.

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

The reimbursable cost for certain accounting and administrative
services for year ended September 30, 1996 and for the eight months ended
September 30, 1995 were $8,004 and $5,336, respectively. The reimbursable
cost for qualifying the Fund's shares for sale with state agencies for such
periods were $12,000 and $8,000, respectively, and the reimbursable cost for
providing shareholder services for such periods were $3,208 and $1,145,
respectively.

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 Agreements provide that the Adviser,
Sub-Adviser or DSA-NY, 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, the Sub-Adviser and DSA-NY have each 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.
Each Code of Ethics requires 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. 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.

<PAGE> 64

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

<PAGE> 65

entitlement to credits or deductions for foreign tax that 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.

<PAGE> 66

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 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.

<PAGE> 67

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, 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>
Year ended March 31, 1997 (9.98)%
Life of Fund (February 1, 1995 through March 31, 1997) 7.73%

<CAPTION>
Class B

<S> <C>
Year ended March 31, 1997 (8.73)%
Life of Fund (February 1, 1995 through March 31, 1997). 8.11%
</TABLE>

<PAGE> 68

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.

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>
Year ended March 31, 1997 (9.98)%
Life of Fund (February 1, 1995 through March 31, 1997) 17.47%

<CAPTION>
Class B

<S> <C>
Year ended March 31, 1997 (8.73)%
Life of Fund (February 1, 1995 through March 31, 1997) 18.36%
</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.

<PAGE> 69

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 Distributor 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 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.

<PAGE> 70

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 (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.

EXEMPTIONS TO CLASS B SALES AND CONVERSION FEATURES

Class B shares of the Davis International Series, Inc. are made
available to Retirement Plan Participants such as 401K or 403B Plans at NAV
with the waiver of contingent deferred sales charge (CDSC) if:

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

<PAGE> 71

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

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

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

DISTRIBUTION OF FUND SHARES

Davis Distributors, LLC (the "Distributor") acts as principal underwriter of
the Fund's shares on a continuing basis pursuant to a Distributing Agreement.
Pursuant to such Distributing Agreement, the Distributor, pays for all expenses
in connection with the preparation, printing and distribution of advertising
and sales literature for use in offering the Fund's shares to the public,
including reports to shareholders to the extent they are used as sales
literature. The Distributor also pays for 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 and Class C Distribution Plans 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 Distributor is required to furnish quarterly written
reports to the Board of Directors detailing the amounts expended under the
Distribution Plans. The Distribution Plans may be amended provided that all
such amendments comply with the applicable requirements then in effect under
Rule 12b-1. 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 year ended September 30, 1996 and for the eight months ended
September 30, 1995, the Distributor (or its predecessor) received $79,591 and
$5,565, respectively, under the Class A Distribution Plan, all of which was
paid to dealers and sales personnel. During such period, the Distributor
earned $233,671, of which 222,633 was reallowed to qualified selling dealers
and $73,453, respectively, under the Class B Distribution Plan, all of which
was reallowed to qualified selling dealers.

<PAGE> 72

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> 73

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> 74

FORM N-1A
DAVIS INTERNATIONAL SERIES, INC.

POST-EFFECTIVE AMENDMENT NO. 5 UNDER THE
SECURITIES ACT OF 1933
REGISTRATION STATEMENT NO. 33-86578

AND

AMENDMENT NO. 6 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, 1996.

(ii) Statement of Assets & Liabilities.

(iii) Statement of Operations for the year ended
September 30, 1996.

(iv) Statement of Changes in Net Asset Value for the
year ended September 30, 1996.

(v) Notes to Financial Statements.

(vi) Financial Highlights.

(vii) Report of Tait, Weller & Baker.

(b) Exhibits:

(1)(a) Articles of Incorporation, incorporated by reference
to Exhibit 1 to Registrant's Amendment No. 2, File
No. 33-86578.

(1)(b) Articles Supplementary.

(2) By-Laws, incorporated by reference to Exhibit 2 to
Registrant's Amendment No. 2, File No. 33-86578.

1
<PAGE> 75
(3) Not Applicable.

(4) Not Applicable.

(5) (a) Investment Advisory Agreement, incorporated by
reference to Exhibit 5 (a) to Registrant's Amendment
No. 2, File No. 33-86578.

(5) (b) Investment Sub-Advisory Agreement, incorporated by
reference to Exhibit 5 (b) to Registrant's Amendment
No. 2, File No. 33-86578.

(5) (c) Sub-Advisory Agreement with Davis Selected
Advisers-NY, Inc. incorporporated by reference to
Exhibit 5(c) to Registrant's Amendment No. 6 File
No. 33-86578

(6)(a) Distributing Agreement, incorporated by reference to
Exhibit 6 to Registrant's Amendment No. 2, File No.
33-86578.

(6)(b) Transfer and Assumption 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, incorporated by reference
to Exhibit (10) to Registrant's Registration
Statement on Form N-1A, File No. 33-86578.

(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, incorporated
by reference to Exhibit 15(b) to Registrant's
Amendment No. 2, File No. 33-86578.

2
<PAGE> 76

(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.

(18)(a) Powers of Attorney, incorporated by reference to
Exhibit (18)(a) of Registrant's Post Effective
Amendment No.1 File No. 33-86578.

(18)(b) Plan Pursuant to Rule 18f-3, as amended.

(18)(c) Power of Attorney for Eileen R. Street.

Item 25. Persons Controlled by or Under Common Control With Registrant
--------------------------------------------------------------

Not applicable

Item 26. Number of Holders of Securities
-------------------------------

<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of July 31, 1997
-------------- -------------------
<S> <C>
Common Stock
Davis International Total Return Fund Class A 964
Davis International Total Return Fund Class B 786
Davis International Total Return Fund Class C 0
Davis International Total Return Fund Class Y 0
</TABLE>

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.

3
<PAGE> 77

Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------

The Investment Adviser of the Registrant, Davis Selected Advisers, L.P.,
(the "Adviser") is also the investment adviser for Davis New York Venture
Fund, Inc., Davis High Income Fund, Inc., Davis Tax-Free High Income Fund,
Inc., Davis Series, 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 Chairman (Director), Chief Executive Officer and
Chief Investment Officer, principal owner of Venture Advisers, Inc. (the
"General Partner") and is a Director of Shelby Cullom Davis Financial
Consultants, Inc., 70 Pine Street, New York, New York 10270. Kenneth C. Eich
is the Chief Operating Officer of the General Partner. Formerly, Mr. Eich was
the Executive Vice President and Chief Financial Officer of the Oppenheimer
Management Corporation. Samuel P. Ynzunza is the Senior Vice President and
Secretary of the General Partner. Formerly, Samuel P. Ynzunza was Corporate
Counsel for INVESCO Funds Group, Inc. and Franklin Resources, Inc.

Davis Selected Advisers - NY, Inc. ("DSA-NY"), a wholly-owned subsidiary
of the Adviser, is a Sub-Adviser of the Registrant. Certain employees of
DSA-NY are engaged in marketing activities on behalf of the Registrant. Shelby
M.C. Davis, a Director of DSA-NY and Samuel P. Ynzunza, Secretary of DSA-NY
are or were engaged in other business as disclosed above.

Atlantic Advisers, Ltd., the Sub-Adviser of the Registrant, is also
engaged as an investment adviser to individuals and institutions other than
the Registrant.

Item 29. Principal Underwriters
-----------------------

Davis Distributors, L.L.C., a wholly owned subsidiary of the
Adviser, is the principal underwriter for the Registrant and also
acts as principal underwriter for Davis New York Venture Fund, Inc.,
Davis Tax-Free High Income Fund, Inc., Davis Series, Inc., Davis
International Series, Inc., Selected American Shares, Inc., Selected
Special Shares, Inc. and Selected Capital Preservation Trust.

Management of the Principal Underwriter:

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS UNDERWRITER WITH REGISTRANT
- ---------------- ----------- ---------------
<S> <C> <C>
Kenneth C. Eich President Vice President
124 East Marcy Street
Santa Fe, NM 87501

Eileen R. Street Senior Vice President, Treasurer Treasurer and Assistant Secretary
124 East Marcy Street and Assistant Secretary
Santa Fe, NM 87501

Samuel P. Ynzunza Senior Vice President and Vice President and Secretary
124 East Marcy Street Secretary
Santa Fe, NM 87501

Russell O. Wiese Senior Vice President None
124 East Marcy Street
Santa Fe, NM 87501

Sharra Reed Assistant Treasurer None
124 East Marcy Street
Santa Fe, NM 87501

</TABLE>

4
<PAGE> 78

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 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.

DAVIS INTERNATIONAL SERIES, INC.

SIGNATURES
----------

Registrant is filing this Amendment pursuant to Rule 485(b) (ix) by permission
of the staff of the Securities and Exchange Commission.

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 18th day of
August, 1997.

DAVIS INTERNATIONAL SERIES, INC.

<F*>By: /s/ Sheldon R. Stein
--------------------
Sheldon R. Stein,
AttorneyinFact

5
<PAGE> 79

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
--------- ----- ----
<S> <C> <C>

Shelby M.C. Davis<F*> President August 18, 1997
- ----------------- (Chief Executive
Shelby M.C. Davis Officer) and
Director

Eileen R. Street<F*> Principal August 18, 1997
- ----------------- Financial and
Eileen R. Street Accounting Officer

<FN>

<F*>By: /s/ Sheldon R. Stein
----------------------------
Sheldon R. Stein,
AttorneyinFact
</TABLE>

[FN]
<F*>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 and
Exhibit (18)(c) to this Registration Statement on Form N-1A.

DAVIS INTERNATIONAL SERIES, INC.

Pursuant to the requirements of the Securities Act of 1933, this PostEffective
Amendment has been signed on August 18, 1997 by the following persons in the
capacities indicated.

Signature Title
--------- -----
<S> <C>
Jeremy H. Biggs<F*> Director
- -----------------------------------
Jeremy H. Biggs

Keith R. Kroeger<F*> Director
- -----------------------------------
Keith R. Kroeger

The Very Reverend James R. Leo<F*> Director
- -----------------------------------
The Very Reverend James R. Leo

Richard M. Murray<F*> Director
- -----------------------------------
Richard M. Murray

Theodore B. Smith, Jr.<F*> Director
- -----------------------------------
Theodore B. Smith, Jr.

<FN>
<F*>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.
</TABLE>

/s/ Sheldon R. Stein
- -------------------
Sheldon R. Stein,
AttorneyinFact

<PAGE> 1

EXHIBIT 1(b)

DAVIS INTERNATIONAL SERIES, INC.
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION PURSUANT
TO SECTIONS 2-208 AND 2-208.1 OF THE MARYLAND
GENERAL CORPORATION LAW

Davis International Series, Inc., a Maryland corporation, having its
principal office in Baltimore, Maryland, hereby certifies to the State
Department of Assessment and Taxation of Maryland that:

FIRST: Prior to the designation and reclassification of the common
stock of the corporation, the corporation had a total of 5,000,000,000 of
authorized shares, $.001 par value per share, 500,000,000 of which are
classified as Davis International Total Return Fund, 200,000,000 of which are
classified as Davis International Total Return Fund Class A Common Stock,
200,000,000 of which are classified as Davis Total Return Fund Class B Common
Stock, 25,000,000 of which are classified as Davis Total Return Fund Class C
Common Stock and 75,000,000 shares of the Davis International Total Return
Fund series which are unclassified. The aggregate par value of all the
authorized stock is $5,000,000 of which $4,500,000 is unclassified and
$5,000,000 is classified.

SECOND: The Articles of Incorporation are hereby supplemented by (i)
changing the description of certain items and conditions under which the
classes of stock may be issued, (ii) reclassifying 50,000,000 shares of the
authorized and unissued shares of the Davis International Total Return Fund
Class A Common Stock and Class B Common Stock as Davis International Total
Return Fund Class Y Common Stock and, (iii) classifying 50,000,000 shares of
the unclassified stock of the Davis International Total Return Fund series as
Davis International Total Return Fund Class Y Common Stock, all with $.001 par
value per share.

THIRD: The Class A Common Stock, Class B Common Stock, Class C Common
Stock and Class Y Common Stock 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 in the Articles of
Incorporation of the Corporation and as set forth below:

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 stock
of such Class;

The Class A Common Stock may be subject to a front-end load and a
Rule 12b-1 distribution fee as determined by the Board of
Directors from time to time prior to issuance of such stock and,
in addition, the Class A Common Stock issued after filing of these
Articles may also be subject to a

1
<PAGE> 2

contingent deferred sales charge, as determined by the Board of
Directors from time to time prior to issuance of such stock;

The Class B Common Stock may be sold without a front-end sales
load and may be subject to a contingent deferred sales charge and
a Rule 12b-1 distribution fee as determined by the Board of
Directors from time to time prior to the issuance of such stock
and shall be converted to Class A Common Stock 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;

The Class C Common Stock may be sold without a front-end sales
load and may be subject to a contingent deferred sales charge and
to a Rule 12b-1 distribution fee as determined by the Board of
Directors from time to time prior to issuance of such stock;

The Class Y Common Stock may be sold without a front-end sales
load or contingent deferred sales charge and without a Rule 12b-1
distribution fee;

Each class shall vote separately on matters pertaining only to
that class, as the Board of Directors shall from time to time
determine;

Nothing herein shall prohibit the imposition of a redemption fee
or exchange fee upon any Class as may be determined by the Board
of Directors from time to time;

FOURTH: Immediately following the designation and reclassification of stock,
the Corporation will have a total of 5,000,000,000 shares, $.001 par value per
share, 4,500,000,000 of which will be unclassified, 500,000,000 of which shall
be classified as the Davis International Total Return Fund, 150,000,000 shall
be classified as Davis International Total Return Fund Class A Common Stock,
150,000,000 of which shall be classified as Davis International Total Return
Fund Class B Common Stock, 25,000,000 of which shall be classified as Davis
International Total Return Fund Class C Common Stock and 150,000,000 shall be
classified as Davis International Total Return Fund Class Y Common Stock and
25,000,000 of which shall be unclassified, each with a par value of $.001 per
share. The aggregate par value of all of the stock is $50,000,000 of which
$45,000,000 is unclassified and $5,000,000 is classified.

FIFTH: The stock of the Corporation has been classified by the Board of
Directors of the Corporation in accordance with and pursuant to Article FIFTH,
Section (b) of the Articles of Incorporation of the Corporation.

SIXTH: The Corporation is registered as an open-end investment company with
the Securities and Exchange Commission pursuant to the Investment Company Act
of 1940.

SEVENTH: The Board of Directors duly adopted a resolution (i) re-designating
the preferences of the class A Common Stock issued after the filing of these
articles; (ii)

<PAGE> 3

reclassifying 50,000,000 shares of the authorized and unissued shares of each
of the Class A Common Stock and Class B Common Stock of the Davis International
Total Return Fund as Davis International Total Return Fund Class Y Common
Stock; and (iii) designating 50,000,000 of the authorized and unissued stock of
the Davis International Total Return Fund series as Davis International Total
Return Fund Class Y Common Stock on July 29, 1996.

EIGHTH: The effective date of these Articles Supplementary shall be
September 1, 1996.

IN WITNESS THEREOF, Davis International Total Return Fund, Inc. has caused
these presents to be signed in its name and on its behalf by its Vice
President and witnessed by its Secretary on August 18, 1996.

DAVIS INTERNATIONAL SERIES, INC.

BY:_____________________________
CARL R. LUFF, VICE PRESIDENT
- -------
ATTEST:

_______________________________
RAYMOND O. PADILLA, SECRETARY

THE UNDERSIGNED, The Vice President of DAVIS INTERNATIONAL FUND SERIES,
Inc., who executed on behalf of said Corporation the foregoing Articles
Supplementary to the Charter, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said Corporation, foregoing
Articles Supplementary to the Charter to be the corporate act of said
Corporation, and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect
to the approval thereof are true in all material respects under the penalties
of perjury.

DATED: August 28, 1996

_________________________________
CARL R. LUFF, VICE PRESIDENT

<PAGE> 1

EXHIBIT 6(b)

TRANSFER AND ASSUMPTION
-----------------------

THIS TRANSFER AND ASSUMPTION Is entered into as of June 1,
1997 by and among Davis Selected Advisors, L.P., a Colorado limited
partnership (the "Transferor"), Davis Distributors, L.L.C., a Delaware
limited liability company (the "Transferee") and Davis International Series,
Inc. ("Fund"), a Maryland corporation.

WHEREAS, this Transferor is the sole member of the Transferee
and controls and manages the business of the Transferee; and

WHEREAS, the Transferor was organized to assume and continue the
distribution services business with respect to the investment companies for
which the Transferor serves as investment advisor; and

WHEREAS, the Transferor has entered into a Distributing
Agreement (the "Agreement") dated April 15, 1993 with Fund, pursuant to which
the Transferor serves as distributor of shares of capital stock of Fund;

NOW THEREFORE, the parties hereto agree as follows:

The Transferor hereby transfers unto the Transferee all of
its rights, obligations and liabilities under the Agreement.

The Transferee, in consideration of the transfer to it of
all Transferor's rights, obligations and liabilities under the
Agreement, hereby accepts and assumes such rights, obligations
and liabilities.

All references to Transferor in the Agreement shall, as of
June 1, 1997, be deemed to refer to the Transferee.

Fund hereby acknowledges and approves this transfer and
agrees that, as of June 1, 1997, the transferee shall be the other
party to the Agreement in lieu of the Transferor.

IN WITNESS THEREOF, the undersigned have caused this Transfer and
Assumption to be executed on their behalf as of the date written
above.

DAVIS SELECTED ADVISERS, L.P. DAVIS INTERNATIONAL SERIES, INC.
BY: VENTURE ADVISERS, INC. GENERAL PARTNER

BY:______________________________ BY:________________________

DAVIS DISTRIBUTORS, LLC

BY:______________________________

<PAGE> 1

EXHIBIT 11

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 1, 1996 to the
Shareholders and Board of Directors of Davis Tax Free High Income Fund, Inc.

/s/ Tait, Weller & Baker
---------------------------------------
Tait, Weller & Baker

Philadelphia, Pennsylvania
August 18, 1997

<PAGE> 1
EXHIBIT 15(a)

DAVIS 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 average 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: (1) reimburse the
-------------
Distributor for fees paid to its salespersons and to other firms which offer
- ----------------------------------------------------------------------------
and sell the Company's shares and/or provide servicing and maintenance of
- -------------------------------------------------------------------------
shareholder accounts and (ii) reimburse the Distributor its other distribution
- --------------------
expenses, after application of the Distributor's portion of sales charges
incurred in the 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.

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 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.

<PAGE> 2

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 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 a 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

(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 for 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 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 a majority vote of the Independent
Directors and by a majority vote of the Class A shareholders of the series.

<PAGE> 1
Exhibit 15(c)

DAVIS INTERNATIONAL SERIES, INC.
MASTER RULE 12B-1 DISTRIBUTION PLAN
FOR CLASS C SHARES

THE PLAN:
- ---------

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").

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.

REQUIRED APPROVALS AND TERMS. Subject to paragraph 8, 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.

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.

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.

RELATED AGREEMENTS. Any agreement related to the Plan shall be in
writing, and shall provide:

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

That such agreement shall terminate automatically in the event of its
assignment.

<PAGE> 2
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.

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 and the Independent Directors 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.

<PAGE> 1

EXHIBIT 17(b)

DAVIS INTERNATIONAL SERIES, INC.

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Shelby M.C. Davis, Samuel P. Ynzunza, Sheldon R. Stein and Arthur
Don, and each of them, her attorneys-in-fact, each with the power of
substitution, for her in any and all capacities, to sign any post-effective
amendments to the registration statement under the Securities Act of 1933
(Registration No. 33-86578) and/or the Investment Company Act of 1940
(Registration No. 811-8870), whether on Form N-1A or any successor forms
thereof, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and all
appropriate state or federal regulatory authorities. The undersigned hereby
ratifies and confirms that each of the aforenamed attorneys-in-fact, or her
substitute or substitutes, may do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney as of the 18th day of August, 1997.

/s/ Eileen R. Street
- ------------------------------
Eileen R. Street, Treasurer

<PAGE> 1
Exhibit 18(a)

Davis International Series, Inc.
Plan Pursuant to Rule 18f-3, as amended
---------------------------------------

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

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

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

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

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

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

1
<PAGE> 2

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

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

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

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

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

2
<PAGE> 3

Exhibit A

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

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

<FN>
<F*> On purchases of $1 million or more, the investor pays no front-end sales
charge but a contingent deferred sales charge of 0.75% may be imposed if
shares purchased after May 1, 1997 are redeemed within the first year after
purchase. The Distributor may pay the financial service firm a commission
during the first year after such purchase at an annual rate as follows:

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

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

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.

3
<PAGE> 4

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

(iii) Purchases for Employee Benefit Plans: Trusteed or other
fiduciary accounts and Individual Retirement Accounts ("IRA") of a single
employer are treated as purchases of a single person. Purchases of and
ownership by an individual and such individual's spouse under an IRA are
combined with their other purchases and ownership.

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

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

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

4
<PAGE> 5

officers and any spouse, child, parent, grandparent, brother or sister
("immediate family members") of all of the foregoing, and any employee benefit
or payroll deduction plan established by or for such persons; (3) Class A
shares purchased by any registered representatives, principals and employees
(and any immediate family member) of securities dealers having a sales
agreement with the Distributor; (4) initial purchases of Class A shares
totaling at least $250,000 but less than $5,000,000, made at any one time by
banks, trust companies and other financial institutions on behalf of one or
more clients for which such institution acts in a fiduciary capacity; (5) Class
A shares purchased by any single account covering a minimum of 250 participants
(this 250 participant minimum may be waived for certain fee based mutual fund
marketplace programs) and representing a defined benefit plan, defined
contribution plan, cash or deferred plan qualified under 401(a) or 401(k) of
the Internal Revenue Code or a plan established under section 403(b), 457 or
501(c)(9) of such Code or "rabbi trusts"; (6) Class A shares purchased by
persons participating in a "wrap account" or similar fee-based program
sponsored and maintained by a registered broker-dealer approved by the Fund's
Distributor or by investment advisors or financial planners who place trades
for their own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; and clients of such
investment advisors or financial planners who place trades for their own
accounts if the accounts are linked to the master account of such investment
advisor or financial planner on the books and records of the broker or agent;
and (7) Class A shares amounting to less than $5,000,000 purchased by any
state, county, city, department, authority or similar agency. Investors may
be charged a fee if they effect purchases in fund shares through a broker or
agent. The Fund may also issue Class A shares at net asset value incident to
a merger with or acquisition of assets of an investment company.

5
<PAGE> 6

Exhibit B

CLASS B SHARES. Class B shares are offered at net asset value,
without a front-end sales charge. With certain exceptions described below,
the Fund imposes a deferred sales charge of 4% on shares redeemed during the
first year after purchase, 3% on shares redeemed during the second or third
year after purchase, 2% on shares redeemed during the fourth or fifth year
after purchase and 1% on shares redeemed during the sixth year after
purchase. However, on Class B shares of the Fund which are acquired upon
exchange from Class B shares of other Davis Funds which were purchased prior
to December 1, 1994, the Fund will impose a deferred sales charge of 4% on
shares redeemed during the first calendar year after purchase; 3% on shares
redeemed during the second calendar year after purchase; 2% on shares
redeemed during the third calendar year after purchase; and 1% on shares
redeemed during the fourth calendar year after purchase, and no deferred
sales charge is imposed on amounts redeemed after four calendar years from
purchase. Class B shares will be subject to a maximum Rule 12b-1 fee at the
annual rate of 1% of the class' average daily net asset value. The Fund will
not accept any purchase of Class B shares in the amount of $250,000 or more
per investor.

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

6
<PAGE> 7

Exhibit C

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

The Distributor will pay a commission to the firm responsible for the
sale of Class C shares. No other fees will be paid by the Distributor during
the one-year period following purchase. The Distributor will be reimbursed
for the commission paid from 12b-1 fees paid by the Fund during the one-year
period. If Class C shares are redeemed within the one-year period after
purchase, the 1% redemption charge will be paid to the Distributor. After
Class C shares have been outstanding for more than one year, the Distributor
will make quarterly payments to the firm responsible for the sale of the
shares in amounts equal to 0.75% of the annual average daily net asset value
of such shares for sales fees and 0.25% of the annual average daily net asset
value of such shares for service and maintenance fees.

7
<PAGE> 8

Exhibit D

Class Y shares. Currently, Class Y shares are offered to (i) trust
companies, bank trusts, endowments, pension plans or foundations acting on
behalf of their own account or one or more clients for which such institution
acts in a fiduciary capacity and investing at least $5,000,000 at any one
time; (ii) any state, county, city, department, authority or similar agency
prohibited by law from paying a sales charge which invests at least
$5,000,000; and (iii) any investor with an account established under a "wrap
account" or other similar fee-based program sponsored and maintained by a
registered broker-dealer approved by the Fund's Adviser ("Wrap Program
Investors").

8
<PAGE> 9

Exhibit E

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

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

9
<PAGE> 10

Exhibit F

Exchange Privileges

Shares of a particular class of the Fund may be exchanged only for
shares of the same class of another Davis Fund except that Class A
shareholders who are eligible to purchase Class Y shares may exchange their
shares for Class Y shares of the Fund. All of the Davis Funds offer Class A,
Class B and Class C shares. The shares to be received upon exchange must be
legally available for sale in your state. The net asset value of the initial
shares being acquired must be at least $1,000 unless such exchange is under
the Automatic Exchange Program described below.

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

Before you decide to make an exchange, you must obtain the current
prospectus of the desired fund. Call your broker or the Distributor for
information and a prospectus for any of the other Davis Funds registered in
your state. Read the prospectus carefully. If you decide to exchange your
shares, send State Street a written unconditional request for the exchange
and follow the instructions regarding delivery of share certificates
contained in the section on "Redemption of Shares". A signature guarantee is
not required for such an exchange. However, if shares are also redeemed for
cash in connection with the exchange transaction, a signature guarantee may
be required. See "Redemption of Shares". Your dealer may charge an
additional fee for handling an exercise of the exchange privilege.

10
<PAGE> 11

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

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

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