DAVIS INTERNATIONAL SERIES INC, 485BPOS, 1998-01-30

DAVIS INTERNATIONAL SERIES INC
485BPOS, 1998-01-30

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933

REGISTRATION NO. 33-86578
POST-EFFECTIVE AMENDMENT NO. 6

AND

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940

REGISTRATION NO. 811-8870
AMENDMENT NO. 8

DAVIS INTERNATIONAL SERIES, INC.

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

Agent For Service: Thomas D. Tays, 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 February 2, 1998, pursuant to paragraph (b)(ix)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on _______________, pursuant to paragraph (a) of Rule 485

1
<PAGE>

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, 1997.

2
<PAGE>

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

CROSS REFERENCE SHEET
N-1A
ITEM NO. PROSPECTUS CAPTION OR PLACEMENT

1 Front Cover
2 Summary
3 Financial Highlights
4 Summary; Investment Objective and Policies
5 Adviser, Sub-Adviser and Distributor;
Distribution Plans
5a Management's Discussion of Fund Performance
(contained in the 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)

PART B CAPTION OR PLACEMENT

10 Cover Page
11 Table of Contents
12 (Not Applicable)
13 Fundamental Investment Restrictions;
Non-Fundamental Investment Restrictions; High
Yield, High Risk Bonds; Risk Considerations;
Hedging of Foreign Currency Risks; Options on
Foreign Currencies, Lending Portfolio
Securities, Repurchase Agreements; Writing
Covered Call Options and Purchasing Options;
Portfolio Transactions and Brokerage
14 Directors and Officers
15 Certain Shareholders of the Fund
16 Investment Advisory Services; Custodian;
Auditors; Determining the Price of Shares;
Distribution of Fund Shares
17 Portfolio Transactions and Brokerage
18 *
19 Determining the Price of Shares; Reduction of
Class A Sales Charge
20 Dividends, Distributions and Taxes
21 *

3
<PAGE>

22 Performance Data
23 Financial Statements for the year ended
September 30, 1997 are incorporated by reference
from the 1997 Annual Report to shareholders.
----------------

* INCLUDED IN PROSPECTUS

4
<PAGE>

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.

CROSS REFERENCE SHEET
N-1A
ITEM NO. PROSPECTUS CAPTION OR PLACEMENT

1 Front Cover
2 Summary
3 Financial Highlights
4 Summary; Investment Objective and Policies
5 Adviser, Sub-Adviser and Distributor
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)

PART B CAPTION OR PLACEMENT

5
<PAGE>

21 *
22 Performance Data
23 Financial Statements for the year ended
September 30, 1997 are incorporated by reference
from the 1997 Annual Report to shareholders.

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

* INCLUDED IN PROSPECTUS

<PAGE>

PROSPECTUS FEBRUARY 2, 1998
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
(800) 279-0279

MINIMUM INVESTMENT PLANS AVAILABLE
Initial Purchase $1,000 Individual Retirement Accounts (IRAs)
For Retirement Plans $250 Prototype Retirement Plans
Subsequent Investment $25 Exchange Privilege
Automatic Investment Plan
Automatic Withdrawals

Davis International Total Return Fund (the "Fund") seeks total return
through capital growth or income or both. The Fund invests principally in
foreign securities.

The Fund offers 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 2, 1998, has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. A copy of this Statement and other information about the
Fund which has been filed with the Commission may be obtained without charge by
writing to or calling the Fund at the above address or telephone number.

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

<PAGE>

SUMMARY

FUND EXPENSES. The following table is intended to assist you in
understanding the various costs and expenses that an investor in the Class A, B
and C shares of the Fund will bear directly or indirectly. 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%1 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

Annual Fund operating expenses (as a percentage of average net assets)
Management fees.................................. 1.00% 1.00% 1.00%
12b-1 fees2...................................... 0.15% .98% 1.00%
Other expenses................................... 0.52% 0.53% 0.62%
----- ----- -----
Total Fund operating expenses.................... 1.67% 2.51% 2.62%
</TABLE>

1 On certain Class A shares purchased at net asset value without a sales
load and redeemed during the first year after purchase, there is a 0.75%
deferred sales charge.

2 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.

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 $98 $134 $236
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) $27 $81 $139 $295
Class C (assuming no redemption at end of period) $27 $81 $139 $295
</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>

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 at net asset value 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 each 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 Fund
may offer additional classes of shares in the future and may at any time
discontinue the offering of any class of shares. See "Purchase of
Shares--Alternative Purchase Arrangements".

INVESTMENT OBJECTIVE. The Fund's investment objective is to obtain
total return through capital growth or income or both. It seeks its objective
principally through investment in a portfolio of foreign securities. There is
no assurance that the investment objective of the Fund will be achieved. See
"Investment Objective and Policies".

OPPORTUNITIES AND RISKS. The Fund is designed for long-term investors
seeking the opportunity to diversify their investments in different countries
and markets, including emerging and developing countries. These investments
involve special risks including market, currency, economic, political and
regulatory risks. See "Special Risk Factors". The Fund may invest in foreign
currency contracts in order to attempt to hedge its currency risks. The Fund
may trade in forward foreign currency exchange contracts (forward contracts),
options on currency contracts, currency futures contracts and options thereon
and securities indexed to foreign securities. See "Hedging Against Foreign
Currency Fluctuations".

3
<PAGE>

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 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 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>

FINANCIAL HIGHLIGHTS

The following table provides you with information about the financial
history of the Fund's Class A, Class B, and Class C shares. The table expresses
the information in terms of a single Class A, Class B, and Class C share since
inception and is supplementary information to the Fund's financial statements
which are included in the September 30, 1997 Annual Report to Shareholders. The
Report may be obtained by writing or calling the Fund. The Fund's financial
statements and financial highlights for the eight months ended September 30,
1995 and the fiscal years ended September 30, 1996 and 1997, have been audited
by Tait, Weller & Baker serving as independent certified public accountants,
whose opinion thereon is contained in the Annual Report.

<TABLE>
<CAPTION>
----------CLASS A---------- ----------CLASS B------------
EIGHT EIGHT
YEAR YEAR MONTHS YEAR YEAR MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 30, 30, 30, 30, 30,
1997 1996 1995 1997 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 From Investment Operations
Net Investment Income............. - .03 .05 (.10) (.03) (.01)
Net Gains on Securities
(both realized and unrealized)... .25 .85 1.80 .24 .82 1.80
------- ----- ------ ------- ----- -----
Total From Investment Operations. .25 .88 1.85 .14 .79 1.79
------- ----- ------ ------- ----- -----

Less Distributions
Dividends (from net investment income) - (.03) - - - -
Distributions From Realized Capital (.99) (.58) - (.99) (.58) -
-------- ------ ------- ------- ------ -----
Gains
Total Distributions............. (.99) (.61) - (.99) (.58) -
-------- ------ ------- ------- ------ -----

Net Asset Value, End of Period........ $ 11.38 $12.12 $11.85 $11.15 $12.00 $11.79
======== ====== ====== ====== ====== ======

Total Return 1......................... 2.71% 7.87% 18.50% 1.77% 7.10% 17.90%

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $39,740 $41,545 $13,427 $8,230 $8,283 $2,002
Ratio of Expenses to Average Net Assets 1.67%2,3 1.70%2,3 1.72%2,3* 2.51%2,3 2.46%2,3* 2.47%2,3
Ratio of Net Income to Average Net Assets 0.03% .23% .95%* (0.80)% (.54)% (.09)%*

Portfolio Turnover Rate............ 97% 78% 85% 97% 78% 85%
Average commission rate per share . $ .0066 $ .0050 - $ .0066 $ .0050 -
</TABLE>

1 Sales charges are not reflected in calculation.
2 Had the Adviser not absorbed certain expenses, the ratio of expenses for
the year ended September 30, 1997, the year ended September 30, 1996 and
the eight months ended September 30, 1995 would have been 1.93%, 2.24% and
2.88%, respectively for Class A Shares, and 2.98%, 3.01%, and 3.62%,
respectively for Class B Shares.
3 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement for September 30, 1996 and September 30,
1997, were 1.69% and 1.66% respectively, for Class A Shares, and 2.46% and
2.50%, respectively for Class B Shares. Prior to 1996 such reductions were
reflected in the expense ratios.

* Annualized.

<PAGE>

CLASS C

AUGUST 19, 1997
(COMMENCEMENT
OF OPERATIONS)
THROUGH
SEPTEMBER 30,
1997
<S> <C>
Net Asset Value,
Beginning of Period............................................. $11.50
------------
Income From Investment Operations
Net Investment Income (Loss).................................... (0.02)
Net Gains (Losses) on Securities
(both realized and unrealized)................................ (0.11)
------------
Total From Investment Operations (0.13)
------------
Less Distributions
Dividends (from net investment income)......................... -
Distributions From Realized Capital Gains...................... -
------------
Total Distributions............................................ -
============
Net Asset Value, End of Period.......................................... $11.37
============

Total Return 1........................................................... (1.13) %
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)......................... $61.00
Ratio of Expenses to Average Net Assets....................... 2.62 %*
Ratio of Net Income to Average Net Assets...................... (2.27) %*
Portfolio Turnover Rate............................................. .97 %
Average commission rate per share................................... $ .0066
- --------------------------------------------------------------------------------------
</TABLE>

1 Sales charges are not reflected in calculation.

2 Had the Adviser not absorbed certain expenses, the ratio of expenses for the
period ended September 30, 1997, would have been 3.14%.

* Annualized.

<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

GENERAL. The Fund's investment objective is total return through
capital growth or income or both. The Fund invests principally in foreign
securities, which are securities of issuers (i) organized outside of the United
States or (ii) wherever organized, whose principal assets or business
activities are located, or whose securities are principally traded, outside the
United States. The determination of the location of principal assets or
business activities will be based on the location of assets, personnel and
sources of sales and earnings. If at least 50% of the value of the issuer's
assets, revenues or profits are located in, or derived from, goods produced or
sold, investments made or services performed, outside the United States, the
issue will be deemed to be a foreign security. Normally, at least 65% of the
Fund's total assets will be invested in foreign securities and the Fund will
have investments representing at least three countries outside of the United
States.

Usually the Fund will be invested principally in foreign equity
securities. However, there is no limitation on the type of securities in which
the Fund may invest nor on the amount of assets that may be invested for growth
or income or both. At times when the Sub-Adviser believes the Fund's objective
would be better achieved by holding a larger proportion of debt securities,
holdings of such securities will be increased and may represent a larger
portion of the portfolio. When the Sub-Adviser believes that economic or market
conditions require a temporary defensive strategy, part or all of the Fund's
assets may be invested in short-term obligations rated high grade or deemed by
the Sub-Adviser to be of comparable quality. Such obligations include
commercial paper and short-term notes of non-governmental firms and obligations
of the U.S. Government or of a foreign government, or any agency or
instrumentality thereof, and repurchase agreements with respect thereto. Such
strategy could be limited to only a portion of the portfolio. For instance, the
Fund may invest in short-term obligations of the government of a foreign
country as a limited defensive strategy in order to remain in securities
denominated in that currency.

While the Fund will be primarily invested in equity securities, it may
also invest in 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, but it may invest up to 5% of net
assets in securities below investment grade (so called "junk bonds").

In determining investments between countries and the appropriate
distribution of investments among various countries and geographic regions, the
Sub-Adviser ordinarily considers such factors as prospects for relative
economic growth among foreign countries; expected levels of inflation; relative
price levels of the various capital markets; government policies influencing
business conditions; the outlook for currency relationships and the range of
individual investment opportunities available to the international investor. In
selecting securities for growth, the Sub-Adviser considers factors such as
undervalued assets or earnings potential, product development and demand,
favorable operating ratios, resources for expansion, management abilities,
reasonableness of market price, and favorable overall business prospects. When
purchasing debt securities, the Sub-Adviser generally looks for securities with
an advantageous yield consistent with reasonable but not unusual risk.
Selection of securities for both growth and income will usually involve a mix
of these considerations.

The Fund may invest up to 10% of its total assets through other listed
and unlisted investment companies. Such investments may involve the payment of
premiums above the value of the portfolio securities held by such other
investment companies. The return of 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."

<PAGE>

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 diversifies its investments across countries, industries
and individual companies. The Fund invests less than 25% of its total assets in
securities related to any single foreign country. The Fund will not concentrate
25% or more of its total assets in any one industry (excluding U.S. Government
securities). 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.

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. 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.

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

The restricted securities which the Fund may purchase include
securities which have not been registered under the 1933 Act but are eligible
for purchase and sale pursuant to Rule 144A ("Rule 144A Securities"). This Rule
permits certain qualified institutional buyers, such as the Fund, to trade in
privately placed securities even though such securities are not registered
under the 1933 Act. The Sub-Adviser, under criteria established by the Fund's
Board of Directors, will consider whether Rule 144A Securities being purchased
or held by the Fund are illiquid and thus subject to the Fund's policy that it
will not make an investment causing more than 15% of its net assets to be
invested 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 required in
light of the policy limiting investments in such securities. Investing in Rule
144A Securities could have the effect of increasing the amount of the Fund's
investments in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.

LENDING PORTFOLIO SECURITIES, WRITING COVERED CALL OPTIONS, PURCHASING
OPTIONS OR WARRANTS. 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 20% 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. The Fund may invest up to 5% of its net assets in
warrants.

<PAGE>

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.

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.

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,

<PAGE>

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.

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. 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 greater for developing or emerging markets. 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. 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.

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.

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.

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 and distributor for Davis New York
Venture Fund, Inc., Davis High Income Fund, Inc., Davis Tax-Free High Income
Fund, Inc., Davis Series, Inc., (collectively with the Fund, the "Davis Funds")
and Selected American Shares, Inc., Selected Special Shares, Inc. and Selected
Capital Preservation Trust (collectively the "Selected Funds"). In addition,
Davis Selected Advisers, NY-Inc. ("DSA-NY"), a wholly-owned subsidiary

<PAGE>

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 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

<PAGE>

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. As of September 30, 1997, the Distributor paid $277,438 in commissions
for which the Distributor has not yet been reimbursed.

Payments under the Class C Distribution Plan are also limited to an
annual rate of 1% of the average daily net asset value of the Class C shares,
and are subject to the same 6.25% and 1% limitations applicable to the Class B
Distribution Plan. The entire amount of payments may be used to reimburse the
Distributor for the payments of commissions 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 or personnel of dealers and other firms who provide sales or
other services in respect to the Fund and/or its shareholders, or to defray the
expenses of meetings, advertising, or equipment. Any such amounts may be paid
by the Distributor from the fees it receives under the Class A, Class B and
Class C Distribution 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 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.

<PAGE>

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.

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

<PAGE>

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.

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

Customary
Sales Charge Charge as Concession to Your
as Percentage Approximate Percentage Dealer as Percentage
of Offering Price of Amount Invested of Offering Price

<PAGE>

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

Purchase Amount Commission

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

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

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

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

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

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

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

(v) Rights of Accumulation: If you notify your dealer or the
Distributor, you may include the Class A, B, and C shares of the Davis Funds
you already own (except shares of Davis Government Money Market Fund) 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

<PAGE>

(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. The Distributor receives and usually reallows
commissions to firms responsible for the sale of such shares. See "Distribution
Plans." With certain exceptions described below, the Fund imposes a deferred
sales charge of 4% on shares redeemed during the first year after purchase, 3%
on shares redeemed during the second or third year after purchase, 2% on shares
redeemed during the fourth or fifth year after purchase, and 1% on shares
redeemed during the sixth year after purchase. No deferred sales charge is
imposed on amounts redeemed after six years from purchase. However, on Class B
shares of the Fund which are acquired upon exchange from Class B shares of
other Davis Funds which were purchased prior to December 1, 1994, the Fund will
impose a deferred sales charge of 4% on shares redeemed during the first
calendar year after purchase; 3% on shares redeemed during the second calendar
year after purchase; 2% on shares redeemed during the third calendar year after
purchase; and 1% on shares redeemed during the fourth calendar year after
purchase; and no deferred sales charge is imposed on amounts redeemed after
four calendar years from purchase. Class B shares will be subject to a maximum
Rule 12b-1 fee at the annual rate of 1% of the class' average daily net asset
value. 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

<PAGE>

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
("CDSC") imposed upon the redemption of Class A, Class B or Class C shares is a
percentage of the lesser of (i) the net asset value of the shares redeemed or
(ii) the original cost of such shares. No CDSC is imposed when you redeem
amounts derived from (a) increases in the value of shares 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 CDSC will be redeemed first.
Thereafter, shares held the longest will be the first to be redeemed.

The CDSC on Class A, B and C Shares that are subject to a CDSC will be
waived if the redemption relates to the following: (a) in the event of the
total disability (as evidenced by a determination by the federal Social
Security Administration) of the shareholder (including registered joint owner)
occurring after the purchase of the shares being redeemed; (b) in the event of
the death of the shareholder (including a registered joint owner); (c) for
redemptions made pursuant to an automatic 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-Advisors 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. The Distributor and
certain qualified dealers also have prototype Individual Retirement Account
("IRA") plans (deductible IRAs, non-deductible IRAs, including "Roth IRAs", and
educational IRAs) and SIMPLE IRA plans for both individuals and employers.
These plans utilize the shares of the 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 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. The account minimums of $1,000 for non-retirement
accounts and $250.00 for retirement accounts will be waived if, pursuant to the
automatic investment plan, the account balance will meet the minimum investment
requirements within twelve months of the initial investment. For institutions
that are members of the Automated Clearing House system (ACH), such purchases
can be processed electronically on any day of the month between the 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.

<PAGE>

DIVIDEND DIVERSIFICATION PROGRAM. You may also establish a dividend
diversification program which allows you to have all dividends and any other
distributions automatically invested in shares of 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
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.

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

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

<PAGE>

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.

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

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

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.

<PAGE>

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 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

<PAGE>

account to which any of the exchanged shares were subject. If you
utilize this program any applicable CDSCs will be imposed on such shares
redeemed. Purchase of additional shares concurrent with withdrawals may be
disadvantageous to you because of tax and sales load consequences. If the
amount you withdraw exceeds the dividends on your shares, your account will
suffer depletion. Your Automatic Withdrawals Plan may be terminated by you at
any time without charge or penalty. The Fund reserves the right to terminate
or modify the Automatic Withdrawals Plan at any time.

INVOLUNTARY REDEMPTIONS. To relieve the Fund of the cost of
maintaining uneconomical accounts, the Fund may effect the redemption of shares
at net asset value in any account if the account, due to shareholder
redemptions, has a value of less than $250. At least 60 days prior to such
involuntary redemption, the Fund will mail a notice to the shareholder so that
an additional purchase may be effected to avoid such redemption.

SUBSEQUENT REPURCHASES. After some or all of your shares are redeemed
or repurchased, you may decide to put back all or part of your proceeds into
the same class of the Fund's shares. Any such shares will be issued without
sales charge at the net asset value next determined after you have returned the
amount of your proceeds. In addition, any applicable CDSC assessed on such
shares will be returned to the account. Shares will be deemed to have been
purchased on the original purchase date for purposes of calculating the CDSC
and 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. In order for your purchase order or
redemption request to be effective on the day you place your order with your
broker-dealer or other financial institution, such broker-dealer or financial
institution must (i) receive your order before 4:00 p.m. Eastern time and (ii)
promptly transmit the order to State Street. The broker-dealer or financial
institution is responsible for promptly transmitting purchase orders or
redemption requests to State Street so that you may receive the same day's net
asset value. Note that in the case of redemptions and repurchases of shares
owned by corporations, trusts or estates, or of shares represented by
outstanding certificates, State Street may require additional documents to
effect the redemption and the applicable price will be determined as of the
close of the next computation following the receipt of the required
documentation or outstanding certificates. See "Redemption of Shares."

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.

<PAGE>

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

There are two sources for the payments made to you by the Fund. The
first is net investment income and the second source is realized capital gains.
You will receive quarterly confirmation statements for dividends declared and
shares purchased through reinvestment of dividends. You will also receive
confirmations after each purchase (other than through dividend reinvestment)
and after each redemption. 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. For tax purposes, information concerning distributions will be
mailed annually to shareholders.

Shareholders have the option to receive all dividends and
distributions in cash, to have all dividends and distributions reinvested, or
to have income dividends paid in cash and long-term capital gain distributions
reinvested. Reinvestment of all dividends and distributions is automatic for
accounts utilizing the Automatic Withdrawal Plan. The reinvestment of dividends
and distributions is made at net asset value (without any initial or contingent
deferred sales charge) on the payment date.

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

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.

<PAGE>

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.

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.

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 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 Company Act of 1940 or
otherwise called for special purposes. Special meetings may be called upon the
written request of shareholders holding at least 10% of the voting power of the
Company.

<PAGE>

MAJOR SHAREHOLDERS. Shelby Colom 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 1997 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>

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.

25
<PAGE>

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.

- ------------------------------------------------------------------------------
Signature of Shareholder

- ------------------------------------------------------------------------------
Name of Commercial Bank

- ------------------------------------------------------------------------------
(Street)

- ------------------------------------------------------------------------------
(City) (State) (Zip)

- ------------------------------------------------------------------------------
Signature of Co-Shareholder

- ------------------------------------------------------------------------------
(Title of Account at Bank)

- ------------------------------------------------------------------------------
(Account Number at Bank)

- ------------------------------------------------------------------------------
(ABA/Transit Routing Number)

<PAGE>

TABLE OF CONTENTS
PAGE

Summary....................................................... 2

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

Investment Objective and Policies............................. 7

Risk Factors.................................................. 9

Adviser, Sub-Advisers and Distributor......................... 10

Distribution Plans............................................ 11

Purchase of Shares............................................ 13

Telephone Privilege........................................... 18

Exchange of Shares............................................ 18

Redemption of Shares.......................................... 19

Determining the Price of Shares............................... 21

Dividends and Distributions................................... 22

Federal Taxes................................................. 22

Foreign Taxes on Fund Income.................................. 23

Fund Shares................................................... 23

Performance Data.............................................. 24

Shareholder Inquiries......................................... 24

<PAGE>

PROSPECTUS FEBRUARY 2, 1998
CLASS Y SHARES

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 2, 1998, 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.

<PAGE>

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 no Class Y shares
were outstanding as of September 30, 1997, the information is based on the
expenses of the Class A shares for the Fund's fiscal year ended September 30,
1997. 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.

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........................................................... 0.45%
-----
Total Fund operating expenses................................... 1.45%
</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.......................................... $15 $46 $79 $174

</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,

<PAGE>

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 fee based program,
sponsored and maintained by a registered broker-dealer approved by the Adviser
("Wrap Program Investors").

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 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.

<PAGE>

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 respective periods presented since inception of that
Class and is supplementary information to the Fund's financial statements
which are included in the September 30, 1997 Annual Report to Shareholders.
The Report may be obtained by writing or calling the Fund. The Fund's
financial statements and financial highlights for the eight months ended
September 30, 1995 and the fiscal years ended September 30, 1996 and 1997,
have been audited by Tait, Weller and Baker, independent certified public
accountants, whose opinion thereon is contained in the Annual Report. No
information is presented for the Class Y shares because no Class Y shares were
outstanding as of September 30, 1997. Data are derived from data of the Class
A shares of the Fund and reflect the impact of Rule 12b-1 distribution
expenses paid by the Class A shares. The Class Y shares are not subject to
Rule 12b-1 distribution expenses and per share data for periods beginning on
and after Class Y shares are outstanding will not reflect the deduction of
such expenses.

CLASS A
<TABLE>
<CAPTION>

YEAR YEAR EIGHT MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 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 .05
Net Gains on Securities (both realized and unrealized) .25 .85 1.80
------- ------ -------
Total From Investment Operations.................. .25 .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........................... $11.38 $12.12 $11.85
====== ====== =======

Total Return 1............................................ 2.71% 7.87% 18.50%
- -------------

Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)............... $39,740 $41,545 $13,427
Ratio of Expenses to Average Net Assets............. 1.67%2,3 1.70%2,3 1.72%2,3*
Ratio of Net Income to Average Net Assets............ 0.03% .23% .95%*

Portfolio Turnover Rate............................... 97% 78% 85%
Average commission rate per share..................... $.0066 $.0050 -
</TABLE>

1 Sales charges are not reflected in calculation.

2 Had the Adviser not absorbed certain expenses, the ratio of expenses for
the year ended September 30, 1997, the year ended September 30, 1996 and
the eight months ended September 30, 1995 would have been 1.93%, 2.24%
and 2.88% respectively.
3 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement were 1.69% and 1.66% for September 30,
1996 and September 30, 1997, respectively. Prior to 1996, such reductions
were reflected in the expenses ratios.

* Annualized.

4
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

GENERAL. The Fund's investment objective is total return through
capital growth or income or both. The Fund invests principally in foreign
securities, which are securities of issuers (i) organized outside of the
United States or (ii) wherever organized, whose principal assets or business
activities are located, or whose securities are principally traded, outside
the United States. The determination of the location of principal assets or
business activities will be based on the location of assets, personnel and
sources of sales and earnings. If at least 50% of the value of the issuer's
assets, revenues or profits are located in, or derived from, goods produced or
sold, investments made or services performed, outside the United States, the
issue will be deemed to be a foreign security. Normally, at least 65% of the
Fund's total assets will be invested in foreign securities and the Fund will
have investments representing at least three countries outside of the United
States.

Usually the Fund will be invested principally in foreign equity
securities. However, there is no limitation on the type of securities in which
the Fund may invest nor on the amount of assets that may be invested for
growth or income or both. At times when the Sub-Adviser believes the Fund's
objective would be better achieved by holding a larger proportion of debt
securities, holdings of such securities will be increased and may represent a
larger portion of the portfolio. When the Sub-Adviser believes that economic
or market conditions require a temporary defensive strategy, part or all of
the Fund's assets may be invested in short-term obligations rated high grade
or deemed by the Sub-Adviser to be of comparable quality. Such obligations
include commercial paper and short-term notes of non-governmental firms and
obligations of the U.S. Government or of a foreign government, or any agency
or instrumentality thereof, and repurchase agreements with respect thereto.
Such strategy could be limited to only a portion of the portfolio. For
instance, the Fund may invest in short-term obligations of the government of a
foreign country as a limited defensive strategy in order to remain in
securities denominated in that currency.

While the Fund will be primarily invested in equity securities, it
may also invest in 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, but it may invest up to 5% of net
assets in securities below investment grade (so called "junk bonds").

In determining investments between countries and the appropriate
distribution of investments among various countries and geographic regions,
the Sub-Adviser ordinarily considers such factors as prospects for relative
economic growth among foreign countries; expected levels of inflation;
relative price levels of the various capital markets; government policies
influencing business conditions; the outlook for currency relationships and
the range of individual investment opportunities available to the
international investor. In selecting securities for growth, the Sub-Adviser
considers factors such as undervalued assets or earnings potential, product
development and demand, favorable operating ratios, resources for expansion,
management abilities, reasonableness of market price, and favorable overall
business prospects. When purchasing debt securities, the Sub-Adviser generally
looks for securities with an advantageous yield consistent with reasonable but
not unusual risk. Selection of securities for both growth and income will
usually involve a mix of these considerations.

<PAGE>

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."

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 diversifies its investments across countries,
industries and individual companies. The Fund invests less than 25% of its
total assets in securities related to any single foreign country. The Fund
will not concentrate 25% or more of its total assets in any one industry
(excluding U.S. Government securities). 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.

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. 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.

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 Fund's Board of Directors, will consider whether Rule 144A Securities
being purchased or held by the Fund are illiquid and thus subject to the
Fund's policy that it will not make an investment causing more than 15% of its
net assets to be invested 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 required in light of the policy limiting investments in such
securities. Investing in Rule 144A Securities could have the effect of
increasing the amount of the Fund's investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.

<PAGE>

LENDING PORTFOLIO SECURITIES, WRITING COVERED CALL OPTIONS,
PURCHASING OPTIONS OR WARRANTS. 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 20% 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. The Fund may invest up
to 5% of its net assets in warrants.

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.

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".

<PAGE>

RISK FACTORS

Many of the risks described above relating to foreign securities
generally will be greater for developing or emerging markets. 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. 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.

<PAGE>

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.

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. Davis Distributors, LLC (the "Distributor"), a
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 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 service provided by Atlantic Advisers Limited.
The Distributor also acts as the principal underwriter for the Davis and
Selected Funds.

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.

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

<PAGE>

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.

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:

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

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

<PAGE>

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.

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.

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.

<PAGE>

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.

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

Your shares may also be redeemed through participating 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 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. In order for your purchase
order or redemption request to be effective on the day you place your order
with your broker-dealer or other financial institution, such broker-dealer or
financial institution must (i) receive your order before 4:00 p.m. Eastern
time and (ii) promptly transmit the order to State Street. The broker-dealer
or financial institution is responsible for promptly transmitting purchase
orders or redemption requests to State Street so that you may receive the same
day's net asset value. Note that in the case of redemptions and repurchases of
shares owned by corporations, trusts or estates, or of shares represented by
outstanding certificates, State Street may require additional documents to
effect the

<PAGE>

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."

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

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. Reinvestment of all dividends and distributions
is automatic for accounts utilizing the Automatic Withdrawal Plan. The
reinvestment of dividends and distributions is made at net asset value
(without any initial or contingent deferred sales charge) on the payment date.
Information concerning distributions will be mailed annually to shareholders.
For the protection of the shareholder,

For the protection of 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

13
<PAGE>

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.

Distributions of net investment income and net realized short-term
capital gains will be taxable to shareholders as ordinary income.
Distributions of net long-term capital gains will be taxable to shareholders
as long-term capital gain regardless of how long the shares have been held.
Distributions will be treated the same for tax purposes whether received in
cash or in additional shares. Dividends declared in the last calendar month to
shareholders of record in such month and paid by the end of the following
January are treated as received by the shareholder in the year in which they
are declared. A gain or loss for tax purposes may be realized on the
redemption of shares. If the shareholder realizes a loss on the sale or
exchange of any shares held for six months or less and if the shareholder
received a capital gain distribution during that period, then the loss is
treated as a long-term capital loss to the extent of such distribution.

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.

FOREIGN TAXES ON FUND INCOME

<PAGE>

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.

MAJOR SHAREHOLDERS. Shelby Colom 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.

The Company does not hold regular annual shareholder meetings.
Shareholder meetings are held when they are required under the Investment
Company Act of 1940 or otherwise called for special purposes. Special meetings
may be called upon the written request of shareholders holding at least 10% of
the voting power of the Company.

<PAGE>

PERFORMANCE DATA

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.

"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 1997 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>

TABLE OF CONTENTS
PAGE

Summary................................................. 2

Financial Highlights.................................... 4

Investment Objective and Policies....................... 4

Risk Factors............................................ 5

Adviser, Sub-Adviser and Distributor.................... 8

Purchase of Shares...................................... 8

Telephone Privilege..................................... 9

Exchange of Shares...................................... 9

Redemption of Shares.................................... 10

Determining the Price of Shares......................... 11

Dividends and Distributions............................. 12

Federal Taxes........................................... 12

Foreign Taxes On Fund Income............................ 13

Fund Shares............................................. 13

Performance Data........................................ 14

Shareholder Inquiries................................... 14

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

FEBRUARY 2, 1998

DAVIS INTERNATIONAL SERIES, INC.

DAVIS INTERNATIONAL TOTAL RETURN FUND

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

TABLE OF CONTENTS

Fundamental Investment Restrictions..................... 2
Non-Fundamental Investment Restrictions................. 2
Risk Considerations..................................... 4
High Yield, High Risk Bonds............................. 7
Hedging of Foreign Currency Risks....................... 9
Options on Foreign Currencies........................... 10
Lending Portfolio Securities............................ 12
Writing Covered Call Options and Purchasing Options..... 13
Repurchase Agreements................................... 13
Portfolio Transactions and Brokerage.................... 14
Directors and Officers.................................. 15
Directors Compensation Schedule......................... 16
Certain Shareholders of the Fund........................ 16
Investment Advisory Services............................ 17
Custodian............................................... 18
Auditors................................................ 19
Determining the Price of Shares......................... 19
Dividends, Distributions and Taxes...................... 19
Performance Data........................................ 22
Reduction of Class A Sales Charges...................... 23
Exemption to Class B Sales and Conversion Features...... 25
Distribution of Fund Shares............................. 26
Appendix A - Ratings of Securities...................... 27

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 2, 1998, OR THE CLASS Y PROSPECTUS DATED FEBRUARY 2, 1998. THE
PROSPECTUSES MAY BE OBTAINED FROM THE FUND.

THE FUND'S AUDITED FINANCIAL STATEMENTS INCLUDED IN THE ANNUAL REPORT
TO SHAREHOLDERS DATED SEPTEMBER 30, 1997 ARE EXPRESSLY INCORPORATED HEREIN BY
REFERENCE.

<PAGE>

FUNDAMENTAL INVESTMENT RESTRICTIONS

The investment restrictions set forth below are fundamental and may
not be changed without the approval of the holders of the lesser of (i) 67% of
the eligible votes, if the holders of more than 50% of the eligible votes are
represented or (ii) more than 50% of the eligible votes.

(1) COMMODITIES. The Fund may not purchase or sell
commodities or commodity contracts, except contracts
in respect to financial futures or currencies.

(2) REAL ESTATE. The Fund may not purchase real estate or real
estate mortgages as such, but may purchase the securities
backed by real estate or interests therein (including
mortgage interests) and securities of companies, including
real estate investment trusts, holding real estate or
interests (including mortgage interests) therein.

(3) DIVERSIFICATION OF FUND INVESTMENTS.

(a) Fund Assets. With respect to 75% of the value of its
total assets, the Fund may not buy the securities of any
company if more than 5% of the value of the Fund's total
assets would then be invested in that company. Securities
issued by the U.S. Government or its agencies or
instrumentalities and repurchase agreements involving such
securities ("U.S. Government Securities"), are not subject
to this limitation.

(b) Securities of Issuers. With respect to 75% of the value
of its total assets, the Fund may not purchase the
securities of any company if after such purchase the Fund
would then own more than 10% of such company's voting
securities. U.S. Government Securities are not subject to
this limitation.

(4) INDUSTRIES. The Fund may not purchase the securities of
companies in any one industry if 25% or more of the value of
the Fund's total assets would then be invested in companies
having their principal business activity in the same
industry. U.S. Government Securities are not subject to this
limitation. Securities issued by foreign governments and
their agencies and instrumentalities will be subject to this
limitation only so long as and to the extent that the
Securities and Exchange Commission requires their inclusion
in such industry investment limitations.

(5) SENIOR SECURITIES; BORROWING. The Fund may not issue senior
securities except as permitted under the Investment Company
Act of 1940. The Fund may not pledge or hypothecate any of
its assets, except in connection with permitted borrowing in
amounts not exceeding 33 1/3% of the value of the Fund's
total assets at the time of borrowing. Transfers of assets
in connection with currency transactions are not subject to
these limitations if appropriately covered.

(6) UNDERWRITING. The Fund does not engage in the
underwriting of securities. (This does not preclude it
from selling restricted securities in its portfolio.)

(7) LENDING MONEY OR SECURITIES. The Fund may not lend money,
except that it may buy debt securities publicly distributed
or traded or privately placed and may enter into repurchase
agreements. The Fund may lend its portfolio securities
subject to having 100% collateral in cash or U.S. Government
Securities. The Fund will not lend securities if such a loan
would cause more than 20% of the total value of its net
assets to then be subject to such loans.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS

These policies and the Fund's investment objective set forth in the
Prospectus may be changed by the Board of Directors without shareholder
approval.

(1) BORROWING. The Fund may not purchase securities when
money borrowed exceeds 5% of its total assets.

<PAGE>

(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.

(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

<PAGE>

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 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.

The following discussion of various risk considerations supplements
the discussion in the Fund's prospectus.

INVESTING IN FOREIGN MARKETS 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.

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".

<PAGE>

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.

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.

<PAGE>

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. In the event of such an emergency, 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.

Investments may include securities issued by companies which have
undergone or are currently undergoing privatization.

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.

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.

<PAGE>

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.

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.

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

<PAGE>

lower rated bonds and the high yield, high risk market may depress
the prices for such securities. If the negative factors such as the
aforementioned adversely impact the market value of high yield, high risk
securities, the portfolio's net asset value will be adversely affected.

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

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

HEDGING OF FOREIGN CURRENCY RISKS

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.

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.

<PAGE>

The Fund may enter into contracts for the purchase or sale for future
delivery of foreign currencies ("currency futures contracts") and may purchase
and write put and call options to buy or sell currency futures contracts. A
"sale" of a currency futures contract means the acquisition of a contractual
obligation to deliver the foreign currencies called for by the contract at a
specified price on a specified date. A "purchase" of a currency futures
contract means the incurring of a contractual obligation to acquire the
foreign currencies called for by the contract at a specified price on a
specified date. Options on currency futures contracts to be purchased by the
Fund will be traded on U.S. or foreign exchanges or over-the-counter. The Fund
will not enter into any futures contracts or options on currency futures
contracts if immediately thereafter the aggregate of initial margin deposits
on all the outstanding currency futures contracts of the Fund and premiums
paid on outstanding options on currency futures contracts would exceed 5% of
the market value of the total assets of the Fund (excluding in such market
value any in-the-money amount of any option).

The Fund may also purchase securities (debt securities or deposits)
which have their coupon rate or value at maturity determined by reference to
the value of one or more foreign currencies. The Fund will not use leverage.
These strategies will be used for hedging purposes only. The Fund will hold
securities or other options or futures positions whose values are expected to
offset its obligations under the hedge strategies. The Fund will not enter
into a currency hedging position that exposes the Fund to an obligation to
another party unless it owns either (i) an offsetting position in securities,
options or futures positions or (ii) cash, receivables and short-term debt
securities with a value sufficient to cover its potential obligations. The
Fund will comply with requirements established by the SEC and, to the extent
applicable, the Commodities Futures Trading Commission, with respect to
coverage of options, futures and forward contracts by mutual funds, and, if so
required, will set aside cash and high grade liquid debt securities in a
segregated account with its custodian bank in the amount prescribed. The
Fund's custodian will maintain the value of such segregated account equal to
the prescribed amount by adding or removing additional cash or liquid
securities to account for fluctuations in the value of securities held in such
account. Securities held in a segregated account cannot be sold while the
futures or option strategy is outstanding, unless they are replaced with
similar securities.

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

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

OPTIONS ON FOREIGN CURRENCIES

The Fund may purchase and write options on foreign currencies in a
manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized. For example, a decline in the dollar
value of a 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.

<PAGE>

The purchase of such options could offset, at least partially, the
effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Fund deriving from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, the Fund could sustain
losses on transactions in foreign currency options which would require it to
forego a portion or all of the benefits of advantageous changes in such rates.

The Fund may also write options on foreign currencies for the same
purposes. For example, where the Fund anticipates a decline in the dollar
value of foreign currency denominated securities due to adverse fluctuations
in exchange rates it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs, the option
will most likely not be exercised, and the diminution in value of portfolio
securities will be offset by the amount of the premium received.

Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types
of options, however, the writing of a foreign currency option will constitute
only a partial hedge up to the amount of the premium, and only if rates move
in the expected direction. If this does not occur, the option may be exercised
and the Fund would be required to purchase or sell the underlying currency at
a loss which may not be offset by the amount of the premium. Through the
writing of options on foreign currencies, the Fund also may be required to
forego all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates.

The Fund intends to write covered call options on foreign currencies.
A call option written on a foreign currency by the Fund is "covered" if the
Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without
additional cash consideration (or for additional cash consideration held in a
segregated account by its Custodian) upon conversion or exchange of other
foreign currency held in its portfolio. A call option is also covered if the
Fund has a call on the same foreign currency and in the same principal amount
as the call written where the exercise price of the call held (a) is equal to
or less than the exercise price of the call written or (b) is greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash, U.S. Government Securities or other appropriate liquid securities in
a segregated account with its Custodian.

The Fund also intends to write call options on foreign currencies
that are not covered for cross-hedging purposes. A call option on a foreign
currency is for cross-hedging purposes if it is not covered, but is designed
to provide a hedge against a decline in the U.S. dollar value of a security
which the Fund owns or has the right to acquire and which is denominated in
the currency underlying the option due to an adverse change in the exchange
rate. In such circumstances, the Fund collateralizes the option by maintaining
in a segregated account with the Fund's Custodian, cash or U.S. Government
Securities or other appropriate liquid securities in an amount not less than
the value of the underlying foreign currency in U.S. dollars marked to market
daily.

Additional Risks of Options on Futures Contracts, Forward Contracts and
Options on Foreign Currencies

Unlike transactions entered into by the Fund in futures contracts,
options on foreign currencies and forward contracts are not traded on contract
markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of
the protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation 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

<PAGE>

organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default.
Further, a liquid secondary market in options traded on a national securities
exchange may be more readily available than in the over-the-counter market,
potentially permitting the Fund to liquidate open positions at a profit prior
to exercise or expiration, or to limit losses in the event of adverse market
movements.

The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market
movements, margining of options written, the nature of the foreign currency
market, possible intervention by governmental authorities and the effects of
other political and economic events. In addition, exchange-traded options on
foreign currencies involve certain risks not presented by the over-the-counter
market. For example, exercise and settlement of such options must be made
exclusively through the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the OCC may, if it
determines that foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would result in
undue burdens on the OCC or its clearing member, impose special procedures on
exercise and settlement, such as technical changes in the mechanics of
delivery of currency, the fixing of dollar settlement prices or prohibitions
on exercise.

Options on foreign currencies may be traded on foreign exchanges.
These are not regulated by any United States authorities. Such transactions
are subject to the risk of governmental actions affecting trading in or the
prices of foreign currencies or securities. The value of such positions also
could be adversely affected by (i) other complex foreign political and
economic factors, (ii) lesser availability of data on which to make trading
decisions than in the United States, (iii) delays in the Fund's ability to act
upon economic events occurring in foreign markets during non-business hours in
the United States, (iv) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the United States, and
(v) lesser trading volume.

LENDING PORTFOLIO SECURITIES

The Fund may make secured loans of portfolio securities in order to
realize additional income. The fundamental investment restrictions provide
that the Fund will not lend securities if such a loan would cause more than
20% of the total value of its net assets to then be subject to such loans.

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 for the securities loaned. 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

<PAGE>

requirements. The Fund may pay reasonable finder's, administrative and
custodian fees in connection with securities loans.

Some, but not all, of the Fund's policies are necessary to meet
certain requirements of the tax laws relating to the lending of securities.
The Fund's policies will not be changed unless the change is permitted under
these requirements. The Fund intends not to lend portfolio securities if, or
to the extent that, such activity would jeopardize its qualification as a
regulated investment company under the tax laws.

WRITING COVERED CALL OPTIONS AND PURCHASING OPTIONS

The Fund may write covered call options on a portion of its portfolio
securities and purchase call options in closing transactions. The investment
restrictions provide that such an option may not be written if thereafter the
market value of all of the Fund's portfolio securities subject to options
would exceed 25% of the value of its total assets. However, as a matter of
current operating policy, the Fund does not intend to write a covered call
option on its portfolio securities if it would cause more than 5% of the
Fund's net assets to be subject to such options. The Fund would only write
options on securities in its portfolio and would not write options on loaned
securities.

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.

<PAGE>

The Fund will enter into repurchase agreements only when the seller
agrees that the value of the underlying securities, including accrued interest
(if any), will at all times be equal to or exceed the value of the repurchase
agreement.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Atlantic Advisers Limited (the "Sub-Adviser") makes investment
decisions and arranges for the placement of buy and sell orders and the
execution of portfolio transactions for the Fund subject to review by the
Board of Directors. In this regard, the Sub-Adviser will seek to obtain the
most favorable price and execution for the transaction given the size and risk
involved. In placing executions and paying brokerage commissions, the
Sub-Adviser considers the financial responsibility and reputation of the
broker or dealer, the range and quality of the services made available to the
Fund and the professional services rendered, including execution, clearance
procedures, wire service quotations and ability to provide supplemental
performance, statistical and other research information for consideration,
analysis and evaluation by the Sub-Adviser's staff. In accordance with this
policy, brokerage transactions may not be executed solely on the basis of the
lowest commission rate available for a particular transaction. Research
services provided to the Sub-Adviser by or through brokers who effect
portfolio transactions for the Fund may be used in servicing other accounts
managed by the Sub-Adviser and likewise research services provided by brokers
used for transactions of other accounts may be utilized by the Sub-Adviser in
performing services for the Fund. Subject to the requirements of best
execution, the placement of orders by securities firms for shares of the Fund
may be taken into account as a factor in the placement of portfolio brokerage.

The Sub-Adviser is under common control with E.F. Iselin S.A., an
investment advisory firm based in Geneva, Switzerland. Edouard F. Iselin, the
President and Chief Investment Officer of the Sub-Adviser is also the Chairman
and CEO of E.F. Iselin S.A. Research services obtained either on behalf of the
Fund or on behalf of clients of E.F. Iselin, S.A. may be used to benefit
clients of the other related entity. In addition, there may be times when an
investment decision may be made to purchase or sell the same security for the
Fund and one or more clients of E.F. Iselin, S.A. If the Fund and E.F. Iselin
S.A. simultaneously engage in the purchase or sale of the same security, the
transactions will be allocated as to amount and price in a manner considered
equitable to each. In some instances, this procedure could adversely affect
the Fund but the Fund deems that any disadvantage in the procedure would be
outweighed by the increased selection available and the increased opportunity
to engage in volume transactions.

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

During the years ended September 30, 1997 and 1996 and for the eight
months ended September 30, 1995, the Fund paid brokerage commissions of
$315,153, $341,118 , and $144,415, respectively.

<PAGE>

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)*, 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), 4135 North Steers Head Road, Jackson
Hole, WY 83001. President of the Fund and each of the Davis Funds; President
of Selected American Shares, Inc., Selected Special Shares, Inc. and Selected
Capital Preservation Trust; Director, Chairman and Chief Executive Officer,
Venture Advisers, Inc.; Employee of Capital Ideas, Inc. (financial consulting
firm); 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.

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

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; Director and Vice President of 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.

CHRISTOPHER C. DAVIS (7/13/65),* 70 Pine Street, 43rd Floor, New
York, NY 10270-0108. Director and Vice President of the Company and each of
the Davis Funds; Director , Vice Chairman, Venture Advisers, Inc.

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.

<PAGE>

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.

SHELDON R. STEIN (11/29/28), 30 North LaSalle Street, Suite 2900,
Chicago, IL 60602. Assistant Secretary of the Fund and each of the Davis
Funds, Selected American Shares, Inc., Selected Special Shares, Inc. and
Selected Capital Preservation Trust; Partner, D'Ancona & Pflaum, the Fund's
legal counsel.

ARTHUR DON (9/24/53), 30 North LaSalle Street, Suite 2900, Chicago,
IL 60602. Assistant Secretary of the Fund and each of the Davis Funds,
Selected American Shares, Inc., Selected Special Shares, Inc. and Selected
Capital Preservation Trust; Partner, D'Ancona & Pflaum, the Fund's legal
counsel.
- -----------------------------

*The asterisk following the names of Jeremy H. Biggs, and Christopher C. Davis
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, 1997, the compensation paid to
the directors who are not considered to be interested persons of the Company
was as follows:

AGGREGATE FUND TOTAL COMPLEX
NAME COMPENSATION COMPENSATION*
G. Bernard Hamilton $1,500 $24,700
Keith R. Kroeger $4,750 $4,750
The Very Reverend James R. Leo $4,750 $4,750
Richard M. Murray $4,750 $4,750
Theodore B. Smith, Jr. $4,750 $4,750

* Complex Compensation is the aggregate compensation paid, for service as a
Director, by all mutual funds with the same investment adviser.

CERTAIN SHAREHOLDERS OF THE FUND

The following table sets forth, as of December 31, 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 3,067,789 Class
A shares outstanding and the directors and officers of the Fund, as a group,
owned 115,966 Class A shares, or approximately 3.78% of the Fund's outstanding
Class A shares. As of such date there were 650,237 Class B shares, 13,547
Class C shares, and no Class Y outstanding. The directors and officers of the
fund do not presently own or intend to own any Class B, Class C, or Class Y
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

CLASS A SHARES

<S> <C> <C>
Shelby Cullom Davis & Co. 1,260,118 41.08%
609 Fifth Avenue 11th Floor
New York, NY 10270-1021

<PAGE>

CLASS B SHARES

No single shareholder owns 5% or more of the outstanding shares.

CLASS C SHARES

Merill Lynch Pierce Fenner & Smith 3,748 27.67%
Mutual Fund Operations
4800 Deerlake Drive East, 3rd Floor
Jacksonville, Fl 32246-6484

Prudential Securities Inc. FBO 2,004 14.79%
Mr. Harsha RAO TTEE
Crummy Trust
UA DTD 3/31/97
FBO Siddhartha RAO
Pittsburgh, PA 15217

Prudential Securities Inc. FBO 2,004 14.79%
Mr. Harsha RAO TTEE
Crummy Trust
UA DTD 3/31/97
FBO Kavita RAO
Pittsburgh, PA 15217

Donaldson Lufkin Jenrette 1,785 13.18%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052

Prudential Securities Inc., FBO 1,002 7.40%
Jerome P. Barnier &
Joyce Barnier JT TEN
22815 68th Ave S
Kent, WA 98032-1835

Donaldson Lufkin Jenrette 904 6.67%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052

Donaldson Lufkin Jenrette 773 5.71%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052

</TABLE>

CLASS Y SHARES

No single shareholder owns 5% or more of the outstanding shares.

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, 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 years ended
September 30, 1997 and 1996 and the eight months ended September 30, 1995 were
$471,571, $390,629 and $67,449, respectively.

<PAGE>

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 years ended September 30, 1997 and 1996 and for the eight months
ended September 30, 1995 were $7,337, $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, $12,000 and $8,000, respectively, and
the reimbursable cost for providing shareholder services for such periods were
$3,336, $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.

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.

<PAGE>

AUDITORS

The Fund's auditors are KPMG Peat Marwick, 707 17th St. Suite 2300,
Denver, Colorado 80202 The audit includes examination of annual financial
statements furnished to shareholders and filed with the Securities and
Exchange Commission, consultation on financial accounting and reporting
matters, and meeting with the Audit Committee of the Board of Directors. In
addition, the auditors review federal and state income tax returns and related
forms.

DETERMINING THE PRICE OF SHARES

Securities traded on U.S. or foreign exchanges are valued at the last
quoted sales prices on such exchanges prior to the time when assets are
valued. Securities listed or traded on certain foreign exchanges whose
operations are similar to the U.S. over-the-counter market, other securities
that are not traded on a particular day and securities regularly traded in the
over-the-counter market are valued at the closing bid price. A security which
is listed or traded on more than one exchange is valued at the quotations on
the exchange determined to be the primary market for such security by the
Board of Directors.

Debt securities are generally traded in the over-the-counter market
and are valued at a price deemed best to reflect fair value as quoted by
dealers who make markets in these securities or by an independent pricing
service. Debt securities with maturities of 60 days or less are valued at
amortized cost unless the Board of Directors determines that such cost is not
a fair value.

In the instances where the price of a security determined above is
deemed not to be representative, the security is valued in such a manner as
prescribed by the Board of Directors to reflect its fair value. The Board of
Directors will monitor the Fund's methods of valuation on an ongoing basis.

Trading in securities on exchanges and over-the-counter markets in
Europe and the Far East is normally completed at various times prior to 4:00
p.m. New York time, the current closing time of the New York Stock exchange
(the "Exchange"). Trading on foreign exchanges may not take place on every day
the Exchange is open. Conversely, trading in various foreign markets may take
place on days when the Exchange is not open and on other days when the Fund's
net asset value is not calculated. Consequently, the calculation of the net
asset value for the Fund may not occur contemporaneously with the
determination of the most current market prices of the securities included in
such calculation. Events affecting the values of portfolio securities that
occur between the time that their prices are determined and the close of the
Exchange will not be reflected in the Fund's calculation of net asset value
unless the Board of Directors deems that the particular event would materially
affect net asset value, in which case an adjustment will be made.

The Fund does not price its shares or accept orders for purchases or
redemptions on days when the New York Stock Exchange is closed. Such days
currently include New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

DIVIDENDS, DISTRIBUTIONS AND TAXES

THE FOLLOWING DISCUSSION RELATES SOLELY TO U.S. FEDERAL INCOME TAXES
ON DIVIDENDS AND DISTRIBUTIONS BY THE FUND AND ASSUMES THAT THE FUND QUALIFIES
AS A REGULATED INVESTMENT COMPANY. INVESTORS SHOULD CONSULT THEIR OWN COUNSEL
FOR FURTHER DETAILS, INCLUDING THEIR ENTITLEMENT TO CREDITS OR DEDUCTIONS FOR
FOREIGN TAX THAT 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

<PAGE>

corporation for 45 days or less. Furthermore, the dividends-received
deduction will be disallowed to the extent a corporation's investment in
shares of the Fund is financed with indebtedness. Capital gains distributions
by the Fund are not eligible for this deduction.

In view of the Fund's investment policies, it is expected that
dividends from United States corporations will, at most, be only a small part
of the Fund's gross income and that, accordingly, only a small part, if any,
of distributions by the Fund will be eligible for the dividends-received
deduction; however, this is largely dependent on the Fund's investment
activities and accordingly cannot be predicted with certainty. The Fund will
advise its shareholders annually as to the Federal income tax status of
distributions made during the year.

CURRENCY FLUCTUATIONS. Under section 988 of the Internal Revenue
Code, any gain or loss attributable to fluctuations in exchange rates which
occurs between the time the Fund accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and
the time the Fund actually collects such receivables or pays such liabilities,
is treated as ordinary income or ordinary loss. Similarly, gains or losses
upon the disposition of (i) foreign currencies, (ii) debt securities
denominated in a foreign currency, (iii) over-the-counter options with respect
to a foreign currency, or (iv) forward contracts denominated in a foreign
currency (and from certain regulated futures contracts and non-equity options
if the Fund so elects) which are attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the asset and the date
of disposition also are treated as ordinary income or loss. These gains or
losses increase or decrease the amount of the Fund's taxable income available
to be distributed to its shareholders as ordinary income, rather than
increasing or decreasing the amount of the Fund's net capital gain. Because
losses on foreign currency reduce the amount of net ordinary income available
for distribution in a taxable year, they may result in all or a portion of
prior dividends for such year being re-characterized as a non-taxable return
of capital to shareholders, rather than net ordinary income, thereby reducing
each shareholder's basis in Fund shares. To the extent that such dividends
exceed a shareholder's basis in his Fund shares, the excess will be treated as
a gain from the sale of such shares.

OPTIONS, FUTURES CONTRACTS, AND FORWARD FOREIGN CURRENCY CONTRACTS.
Certain listed options, forward foreign currency contracts and regulated
futures contracts are considered "section 1256 contracts" for Federal income
tax purposes. Section 1256 contracts held by the Fund at the end of each
taxable year will be "marked to market" and treated for Federal income tax
purposes as though they had been sold for their fair market value on the last
business day of such year. Gain or loss realized by the Fund on forward
foreign currency contracts will be treated as gain or loss under section 988,
as described above. In general, gain or loss realized by the Fund on other
types of section 1256 contracts will be considered 60% long-term and 40%
short-term capital gain or loss. The Fund can elect to exempt its section 1256
contracts which are part of a "mixed straddle" (as described below) from the
application of section 1256. These results could vary if the Fund makes one or
more elections available under sections 988 and 1256.

The Treasury Department has the authority to issue regulations that
would permit or require the Fund either to integrate a foreign currency
hedging transaction with the investment that is hedged and treat the two as a
single transaction, or otherwise to treat the hedging transaction in a manner
that is consistent with the hedged investment. Recently issued regulations
under this authority generally should not apply to the type of hedging
transactions in which the Fund intends to engage.

Gain or loss realized by the Fund upon the lapse or sale of put and
call equity options held by the Fund will be either long-term or short-term
capital gain or loss depending upon the Fund's holding period of the options.
Gain or loss realized upon the lapse or closing out of equity options that are
written by the Fund 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

<PAGE>

paid another person to assume the Fund's obligation to make delivery
under the option) on the date on which the option is exercised, for the fair
market value of the option.

STRADDLES. Any option, futures contract, or other position entered
into or held by the Fund in conjunction with any one or more other positions
held by the Fund may constitute a "straddle" for federal income tax purposes.
A straddle of which at least one, but not all, the positions are section 1256
contracts may constitute a "mixed straddle." In general, straddles are subject
to certain rules that may affect the character and timing of the Fund's gains
and losses by requiring, among other things, that (i) the loss realized on the
disposition of one position of a straddle not be recognized to the extent that
the Fund has unrealized gains with respect to one or more other positions in
the straddle; (ii) the Fund's holding period in straddle positions be
suspended while the straddle exists (possibly resulting in gain being treated
as short-term capital gain rather than long-term capital gain); (iii) losses
recognized with respect to certain straddle positions which are part of a
mixed straddle and which are not section 1256 contracts be treated as 60%
long-term and 40% short-term capital loss; (iv) losses recognized with respect
to certain straddle positions which would otherwise constitute short-term
capital losses be treated as long-term capital losses; and (v) the deduction
of interest and carrying charges attributable to certain straddle positions be
deferred. Various elections are available to the Fund which may mitigate the
effects of the straddle rules, particularly with respect to mixed straddles.

PASSIVE FOREIGN INVESTMENT COMPANIES. Any foreign investment company
in which the Fund invests may be treated as a "passive foreign investment
company" ("PFIC") under the Code. In general a foreign corporation is a PFIC
if either 75% or more of its gross income is passive income or 50% or more of
the average value of its assets produce, or are held for the production of,
passive income. If the Fund acquires and holds stock in a PFIC beyond the end
of the year of its acquisition, the Fund will be subject to Federal income tax
and an interest charge on a portion of any "excess distribution" received on
that stock or of any gain from the disposition of that stock (collectively
"PFIC Income"), even if the Fund distributes all of the PFIC Income as a
taxable dividend to its shareholders. The balance of the PFIC Income will be
included in the Fund's taxable income and, accordingly, will not be taxable to
it to the extent that such income is distributed to its shareholders. Proposed
regulations provide that the Fund may make a mark-to-market election with
respect to any stock of a PFIC that it holds. If the election is in effect, at
the end of each taxable year of the Fund any gain that results from this
mark-to-market election will be treated as ordinary income to the Fund for
that year and will increase its basis in the PFIC stock. Any loss that results
from this election will not be recognized and no basis adjustment will be
made.

Alternatively, the Fund may elect to treat any PFIC in which it
invests as a "qualified electing fund," in which case, in lieu of the
potential PFIC tax liability and interest obligation, the Fund will be
required to include in income each year its pro rata share of the qualified
electing fund's annual ordinary earnings and net capital gain, even if they
are not distributed to the Fund, and those amounts then would be subject to
the distribution requirements applicable to the Fund. This election would
require the Fund to obtain certain financial information from the PFIC. It may
be very difficult, if not impossible, to obtain this information and,
accordingly, it is unlikely that the Fund would make this election.

FOREIGN INCOME TAXES. Income received by the Fund from sources within
foreign countries may be subject to withholding and other taxes imposed at the
source. The United States has entered into tax treaties with many foreign
countries which may reduce or eliminate these taxes. It is impossible to
determine in advance the effective rate of foreign tax to which the Fund will
be subject, since the amount of the Fund's assets to be invested in foreign
countries will vary.

If the Fund is liable for foreign income taxes and if more than 50%
of the value of the Fund's total assets at the close of its taxable year
consists of the stock or securities of foreign corporations, the Fund may
elect to "pass through" to the Fund's shareholders the amount of foreign
income taxes paid by the Fund. Pursuant to such election, 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.

<PAGE>

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, B, and C shares for the period indicated below is as
follows:

Class A

<S> <C>
Year ended September 30, 1997......................................... (2.17)%
Life of Fund (February 1, 1995 through September 30, 1997)............ 8.76%

Class B

Year ended September 30, 1997.......................................... (1.02)%
Life of Fund (February 1, 1995 through September 30, 1997)............. 8.91%

Class C

Year ended September 30, 1997......................................... N/A%
Life of Fund (August 19, 1997 through September 30, 1997).............. N/A%
</TABLE>

Average annual total return measures both the net investment income
generated by, and the effect of any realized or unrealized appreciation or
depreciation of, the underlying investments in the Fund's portfolio. Average
annual total return is calculated separately for each class in accordance with
the standardized method prescribed by the Securities and Exchange Commission
by determining the average annual compounded rates of return over the periods
indicated, that would equate the initial amount invested to the ending
redeemable value, according to the following formula:

n
P(1+T) = 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

22
<PAGE>

This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates and (ii)
deducts (a) the maximum front-end or applicable contingent deferred sales
charge from the hypothetical initial $1,000 investment 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, B, and C
shares for the period indicated below is as follows:

Class A

<S> <C>
Year ended September 30, 1997......................................... (2.17)%
Life of Fund (February 1, 1995 through September 30, 1997)............ 25.05%

Class B

Year ended September 30, 1997.......................................... (1.02)%
Life of Fund (February 1, 1995 through September 30, 1997)............. 25.51%

Class C

Life of Fund (August 18, 1997 through September 30, 1997).............. (2.12)%
</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 advertising and sales literature the Fund may publish various
statistics describing its investment portfolio such as the Fund's average
Price to Book and Price to Earnings ratios, betas, alpha, R-squared, standard
deviation, etc.

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>

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.

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

<PAGE>

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

In all the above instances where you wish to 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
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper 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.

<PAGE>

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 years ended September 30, 1997 and 1996 and for the eight
months ended September 30, 1995, the Distributor (or its predecessor) received
$57,960, $79,591 and $5,565, respectively, under the Class A Distribution
Plan, all of which was paid to dealers and sales personnel.

During the years ended September 30, 1997 and 1996 and for the eight
months ended September 30, 1995, the Distributor (or its predecessor) earned
$55,002 , $233,671, and $73,453, respectively, under the Class B Distribution
Plan, of which $53,829, $222,633 and $0, respectively was reallowed to
qualified selling dealers.

During the fiscal period from August 19, 1997 (commencement of
operations) through September 30, 1997, the Distributor received $59, under
the Class C Distribution Plan, all of which was reallowed to qualified selling
dealers

<PAGE>

APPENDIX A

QUALITY RATINGS OF DEBT SECURITIES

MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS

Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt edged". Interest payments are protected by a large or an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are unlikely to impair the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat greater than Aaa
securities.

A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime
in the future.

Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e. they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.

Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any longer period of time may
be small.

Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.

Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS

AAA - Debt rated 'AAA' has the highest rating assigned by Standard
and Poor's. Capacity to pay interest and repay principal is extremely strong.

AA - Debt rated 'AA' has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small
degree.

A - Debt rated 'A' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.

BBB - Debt rated 'BBB' is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.

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

<PAGE>

lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BBB- rating.

B - Debt rated 'B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.

CCC - Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The 'CCC'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'B' or 'B-' rating.

CC - The rating 'CC' is typically applied to debt subordinated to
senior debt that is assigned an actual or implied 'CCC' rating.

C - The rating 'C' is typically applied to debt subordinated to
senior debt which is assigned an actual or implied 'CCC-' debt rating. The 'C'
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.

CI - The rating 'CI' is reserved for income bonds on which no
interest is being paid.

D - Debt rated 'D' is in payment default. The 'D' rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The 'D' rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

<PAGE>

FORM N-1A
DAVIS INTERNATIONAL SERIES, INC.

POST-EFFECTIVE AMENDMENT NO. 6 UNDER THE
SECURITIES ACT OF 1933
REGISTRATION STATEMENT NO. 33-86578

AND

AMENDMENT NO. 8 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, 1997.

(ii) Statement of Assets & Liabilities.

(iii) Statement of Operations for the year ended September 30, 1997.

(iv) Statement of Changes in Net Asset Value
for the year ended September 30, 1997
and September 30, 1996.

(v) Notes to Financial Statements.

(vi) Financial Highlights.

(vii) Report of Tait, Weller & Baker.

<PAGE>

(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. Incorporated by reference to exhibit 1(b) to
Registrant's Post-Effective Amendment No. 5, File No. 33-86578.

(2) By-Laws, incorporated by reference to Exhibit 2 to Registrant's Amendment
No. 2, File No. 33-86578.
(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. incorporated
by reference to Exhibit 5(c) to Registrant's Amendment No. 2 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. Incorporated by reference to exhibit No.
6(b) to Registrant's Post-Effective Amendment No. 5, File No. 33-86578.

(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.

<PAGE>

(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. Incorporated by reference to exhibit
15(a) Registrant's Post-Effective Amendment No. 5, File No. 33-86578.

(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.

(15) (c) Distribution Plan for Class C shares. Incorporated by reference to exhibit
15(c) Registrant's Post-Effective Amendment No. 5, File No. 33-86578.

(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. Incorporated by reference to
exhibit 18(b) Registrant's Post-Effective Amendment No. 5, File No.
33-86578.

<PAGE>

(18)(c) Power of Attorney for Eileen R. Street. Incorporated by reference to
exhibit 18(c) Registrant's Post-Effective Amendment No. 5, File No.
33-86578.

(18)(d) *Power of Attorney for G. Bernard Hamilton and Christopher C. Davis.
</TABLE>

*Filed Herein.

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

Not applicable

Item 26. Number of Holders of Securities

Number of Record Holders
Title of Class as of December 31, 1997
-------------- -----------------------

Common Stock
Davis International Total Return Fund Class A 856
Davis International Total Return Fund Class B 694
Davis International Total Return Fund Class C 16
Davis International Total Return Fund Class Y 1

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.

<PAGE>

In addition to the foregoing indemnification, Registrant's
Articles of Incorporation exculpate directors and officers with respect to
monetary damages except to the extent that an individual actually received an
improper benefit in money property or services or to the extent that a final
adjudication finds that the individual acted with active and deliberate
dishonesty.

Item 28. Business and Other Connections of Investment Adviser

Information pertaining to business and other connections of
Registrant's investment adviser is incorporated by reference to the Prospectus
and Statement of Additional Information contained in Parts A and B of this
Registration Statement at the sections entitled "Adviser, Su-Adviser, and
Disclosure" in the Prospectus and "Investment Advisory Services" in the
Statement of Additional Information.

Item 29. Principal Underwriters

(a) Davis Distributors, L.L.C., a wholly owned subsidiary of
the Adviser, located at 124 East Marcy Street, Santa Fe, NM 87501, is the
principal underwriter for the Registrant and also acts as principal
underwriter for Davis New York Venture Fund, Inc., Davis Tax-Free High Income
Fund, Inc., Davis Series, Inc., Davis High Income Fund, Inc., Selected
American Shares, Inc., Selected Special Shares, Inc. and Selected Capital
Preservation Trust.

(b) Management of the Principal Underwriter:

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 and Treasurer and Assistant Secretary
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501

Thomas D. Tays Vice President and Secretary Vice President and Secretary
124 East Marcy Street
Santa Fe, NM 87501

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

Sharra Reed Assistant Treasurer None
124 East Marcy Street
Santa Fe, NM 87501
</TABLE>

<PAGE>

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 certifies that this amendment meets all of the
requirements for effectiveness pursuant to Rule 485(b). Pursuant to the
requirements of the Securities Act of 1933 and/or the Investment Company Act
of 1940, the Registrant has caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago and State of Illinois on the 30th day of January, 1998.

DAVIS INTERNATIONAL SERIES, INC.

*By: /s/ Sheldon R. Stein
---------------------------
Sheldon R. Stein,
Attorney-in-Fact

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on January 30, 1998 by the following
persons in the capacities indicated

Signature Title

Shelby M.C. Davis* President
- ---------------------------
Shelby M.C. Davis (Chief Executive
Officer) and
Director

Eileen R. Street* Principal
- ---------------------------
Eileen R. Street Financial and
Accounting Officer

*By: /s/ Sheldon R. Stein
---------------------------
Sheldon R. Stein,
Attorney-in-Fact

*Sheldon R. Stein signs this document on behalf of the Registrant and
the foregoing officers pursuant to the powers of attorney filed as Exhibit
(18)(a) to Post-Effective Amendment No. 1 to Registrant's Registration
Statement, and Exhibit (18)(c) to Post-Effective Amendment No. 5 to
Registrant's Registration Statement.

<PAGE>

DAVIS INTERNATIONAL SERIES, INC.

Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment has been signed on January 30, 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title

<S> <C>
Jeremy H. Biggs* Director
- ---------------------------
Jeremy H. Biggs

Christopher C. Davis* Director
- ---------------------------
Christopher C. Davis

G. Bernard Hamilton* Director
- ---------------------------
G. Bernard Hamilton

Keith R. Kroeger* Director
- ---------------------------
Keith R. Kroeger

The Very Reverend James R. Leo* Director
- -------------------------------
The Very Reverend James R. Leo

Richard M. Murray* Director
- ---------------------------
Richard M. Murray

Theodore B. Smith, Jr.* Director
- ---------------------------
Theodore B. Smith, Jr.

</TABLE>

*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 and Exhibit
18(d) to this Registration Statement.

/s/ Sheldon R. Stein
Sheldon R. Stein,
Attorney-in-Fact

<PAGE>

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 11, 1997 to the Shareholders and Board of Directors of Davis
International Series, Inc.

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

Philadelphia, Pennsylvania
January 29, 1998

<PAGE>

EXHIBIT 18(D)

DAVIS INTERNATIONAL SERIES, INC.

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
constitutes and appoints Andrew A. Davis, Sheldon R. Stein and Arthur Don, and
each of them, his attorneys-in fact, each with the power of substitution, for
him 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. Each of the undersigned hereby ratifies and
confirms all that each of the aforenamed attorneys-in-fact, or his substitute
or substitutes, may do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney as of the 30th day of January, 1998.

- --------------------
Christopher Davis,
Director

- --------------------
G. Bernard Hamilton,
Director