<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. 7
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)
Agents For Service: Thomas D. Tays, Esq.
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
1-505-820-3055
-or-
Sheldon R. Stein, Esq.
D'Ancona & Pflaum
30 North LaSalle Street
Suite 2900
Chicago, Illinois 60602
(1-312-580-2014)
It is proposed that this filing will become effective:
___ Immediately upon filing pursuant to paragraph (b)
___ On ______________, pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ On December 1, 1998, pursuant to paragraph (a) of Rule 485
___ 75 days after filing pursuant to paragraph (a)(2)
_X_ On December 31, 1998, pursuant to paragraph (a)(2) of Rule 485
<PAGE>
RULE 473 DELAYING AMENDMENT: The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective in
accordance with section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the Commission
acting pursuant to said section 8(a), may determine.
Title of Securities being Registered: Common Stock of:
DAVIS INTERNATIONAL GROWTH FUND
<PAGE>
FORM N-1A
DAVIS INTERNATIONAL GROWTH FUND
AN AUTHORIZED PORTFOLIO OF
DAVIS INTERNATIONAL SERIES, INC.
CLASS A, CLASS B AND CLASS C SHARES
POST-EFFECTIVE AMENDMENT NO. 7 TO REGISTRATION
STATEMENT NO. 33-86578 UNDER THE SECURITIES ACT OF 1933
AND AMENDMENT NO. 8 UNDER THE INVESTMENT COMPANY ACT
OF 1940 TO REGISTRATION STATEMENT NO. 811-8870.
CROSS REFERENCE SHEET
N-1A
ITEM NO. PART A CAPTION OR PLACEMENT: PROSPECTUS FOR CLASS ABC SHARES
-------- ------------------------------------------------------------
1 Front and Back Cover pages
2, 4 Risk Spectrum;
Overview of the Fund:
Investment Objective and Strategy
Principal Risks
Fund Performance
3 Overview of the Fund: Fees and Expenses
5 Annual Report, Not Applicable to New Fund
6. Who is Responsible for Your Davis Account
7. Once You Invest in the Fund
How to Open an Account
How to Buy, Sell and Exchange Shares
8 How to Choose a Share Class
9 Overview of the Fund: Financial Highlights
<PAGE>
N-1A
ITEM NO. PART A CAPTION OR PLACEMENT: PROSPECTUS FOR CLASS Y SHARES
-------- ----------------------------------------------------------
1 Front and Back Cover pages
2, 4 Risk Spectrum;
Overview of the Fund:
Investment Objective and Strategy
Principal Risks
Fund Performance
3 Overview of the Fund: Fees and Expenses
5 Annual Report, Not Applicable to new Fund
6 Who is Responsible for Your Davis Account
7 Once You Invest in the Fund
How to Open an Account
How to Buy, Sell and Exchange Shares
8 Not Applicable
9 Overview of the Fund: Financial Highlights
<PAGE>
N-1A PART B CAPTION OR PLACEMENT:
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION
-------- -----------------------------------
10 Cover Page
11 Organization of the Company
12 Portfolio Securities
Other Investment Practices
Investment Restrictions
13 Directors and Officers
Directors Compensation Table
14 Certain Shareholders of the Fund
15 Investment Advisory Services
Distribution of Company Shares
Other Important Service Providers
16 Portfolio Transactions
17 Organization of the Company
18 Purchase of Shares
Special Services
Exchange of Shares
Redemption of Shares
19 Federal Income Taxes
20 Distribution of Company Shares
21 Performance Data
22 Annual Report, To Be Incorporated by Reference
<PAGE>
[COVER PAGE]
DAVIS INTERNATIONAL GROWTH FUND
Prospectus and Application Form
Class A
Class B
Class C
December 31, 1998
The Securities and Exchange Commission has not approved or disapproved of the
shares of Davis International Growth Fund-or any other mutual fund-as an
investment. The Securities and Exchange Commission has not determined whether
this prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
(Davis logo)
Over 25 years of Reliable Investing
1
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[INSIDE FRONT COVER]
RISK SPECTRUM
Davis Selected Advisers manages twelve mutual funds in the Davis family. Each
fund has a distinct investment objective and strategy. The following graph
shows how these funds compare to each other in terms of risk. Davis
International Growth Fund has a risk level we characterize as "high."
[INSERT RISK SPECTRUM GRAPHIC]
[IN BLACK AREA BELOW GRAPHIC]
For more information about any of the other Davis Funds, including charges and
expenses, ask for a prospectus. Read it carefully before investing or sending
money.
2
<PAGE>
TABLE OF CONTENTS
SNAPSHOT OF DAVIS INTERNATIONAL GROWTH FUND
OVERVIEW OF THE FUND
INVESTMENT OBJECTIVE AND STRATEGY
PRINCIPAL RISKS
FUND PERFORMANCE
FEES AND EXPENSES
WHO IS RESPONSIBLE FOR YOUR DAVIS ACCOUNT
HOW WE MANAGE THE FUND
ONCE YOU INVEST IN THE FUND
HOW TO CHOOSE A SHARE CLASS
HOW TO OPEN AN ACCOUNT
HOW TO BUY, SELL AND EXCHANGE SHARES
THE DAVIS FUNDS: OVER 25 YEARS OF RELIABLE INVESTING
OTHER FUND DOCUMENTS
3
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SNAPSHOT OF DAVIS INTERNATIONAL GROWTH FUND
This section provides you with basic information about Davis International
Growth Fund that can help you decide if the Fund suits your needs.
(graphic)
TYPE OF FUND
International Equity fund
INVESTMENT OBJECTIVE
Growth of Capital
RISK SPECTRUM LEVEL
High
YOU SHOULD CONSIDER INVESTING IN THIS FUND IF
o you are seeking long-term growth of capital.
o you are seeking international diversification.
o you are investing for the long-term (five years or more).
YOU SHOULD NOT INVEST IN THIS FUND IF
o you are worried about the possibility of sharp price swings and dramatic
market declines.
o you are uncomfortable investing in foreign markets.
o you are interested in earning current income.
o you are investing for the short-term (less than five years).
MINIMUM INITIAL INVESTMENT
$1,000 for a non-retirement plan account.
$250 for retirement plans.
If, after reading this section, you think that the Fund may suit your
investment goals, you should read the rest of this prospectus for more detailed
information.
4
<PAGE>
OVERVIEW OF DAVIS INTERNATIONAL GROWTH FUND
INVESTMENT OBJECTIVE AND STRATEGY
Davis International Growth Fund's investment objective is growth of capital.
The Fund will pursue this objective by investing primarily in the common stocks
of foreign companies and U.S. companies doing substantial business in foreign
markets.
Our portfolio managers use the Davis investment philosophy to select common
stocks of quality overlooked growth companies at value prices and to hold them
for the long-term. Our approach centers on the recognition that managing risk
is the key to delivering superior long-term investment results. We always
consider how much could potentially be lost on an investment before considering
how much might be gained.
[SIDEBAR: ]
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.
You can find more detailed information about the types of securities that the
Fund buys in the section called HOW WE MANAGE THE FUND.
PRINCIPAL RISKS
If you buy shares of Davis International Growth Fund, you may lose some or all
of the money that you invest. This section describes what we think are the most
significant factors that can cause the Fund's performance to suffer.
o COMPANY RISK. The price of an equity security varies with the success and
failure of its issuer. As a result, the success of the companies in which
the Fund invests largely determines the Fund's performance. Investing in
small capitalization companies carries greater risk than investing in the
stock of larger companies.
o COUNTRY RISK. The market value of shares of common stock can change
rapidly and unpredictably as a result of political or economic events
having little or nothing to do with the issuer. There are additional risks
with investing in foreign countries which may cause the Fund to be more
volatile than a domestic stock fund investing solely in the United States
("U.S."). Foreign economies may not be as strong or as diversified,
foreign political systems may not be as stable, and foreign financial
reporting standards may not be as rigorous as in the U.S. In addition,
foreign capital markets may not be as well developed as in the U.S., so
markets may be less liquid, transaction costs may be higher, and
investments may be subject to government regulation.
5
<PAGE>
o CURRENCY RISK. The Fund experiences currency risk because the Fund invests
primarily in securities denominated in foreign currencies. Foreign
currencies "float" in value against the U.S. dollar. Adverse changes in
foreign currency value can cause investment losses when the value of the
Fund's investments are converted to U.S. dollars
The Fund is not intended to be a complete investment program on its own, but
may serve to diversify other types of investments in your portfolio.
An investment in Davis International Growth Fund is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
You can find more detailed information about the risks of the Fund's particular
investments in the section called HOW WE MANAGE THE FUND.
FUND PERFORMANCE
Davis International Growth Fund began selling shares to the public on January
1, 1999. Davis International Growth Fund's investment performance will vary
from year to year. The value of the Fund's shares may go up or down.
FEES AND EXPENSES
FRONT-END SALES CHARGE. A fee you may pay when you buy shares of a mutual fund.
As an investor in the Fund, you pay this sales charge when you buy Class A
shares, as a percentage of the offering price.
DEFERRED SALES CHARGE. A fee you may pay when you sell shares of a mutual fund.
As an investor in the Fund, you may pay a deferred sales charge as a percentage
of the net asset value of the shares you sell or the total cost of the shares,
whichever is lower. Fund investors pay a deferred sales charge in the following
cases:
o As a Class A shareholder, only if you buy shares valued at $1 million or
more without a sales charge and sell the shares within one year of
purchase.
o As a Class B shareholder, if you sell shares within six years of
purchase.
o As a Class C shareholder, if you sell shares within one year of
purchase.
To keep deferred sales charges as low as possible, we will first sell shares in
your account that are not subject to deferred sales charges (if any). We do not
impose a deferred sales charge on shares acquired through dividend
reinvestments or capital gain distributions.
6
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EXCHANGE FEES. The fees some mutual funds charge to sell shares in one fund and
to buy shares in another fund. This Fund, like all other Davis Funds, does not
charge an exchange fee.
MANAGEMENT FEES. Costs to manage a mutual fund's portfolio and to administer
its business affairs. This fee is a percentage of the Fund's net asset value.
DISTRIBUTION FEES. Fees the Fund pays to sell and distribute shares and to
provide services to shareholders (also known as a 12b-1 fee). These fees are
paid out of the Fund's net assets on an ongoing basis. See "About the
Distributor" in the section WHO IS RESPONSIBLE FOR YOUR DAVIS ACCOUNT.
OTHER EXPENSES. The most significant fees in this category are those to
attorneys, accountants, directors, and the custodian and transfer agent (State
Street Bank and Trust Company).
TOTAL ANNUAL OPERATING EXPENSES. The percentage of the Fund's average net
assets that are used each year to pay expenses (also known as the expense
ratio).
7
<PAGE>
FEES YOU MAY PAY AS A DAVIS INTERNATIONAL GROWTH FUND SHAREHOLDER
(PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge you pay when you buy shares 4.75% None None
- ------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge you pay when you sell shares 0.75% 4.00% 1.00%
- ------------------------------------------------------------------------------------------------------------
Maximum sales charge you pay on reinvested dividends None None None
- ------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
- ------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES
ESTIMATED FOR FISCAL YEAR ENDED SEPTEMBER 30, 1999
(DEDUCTED FROM DAVIS INTERNATIONAL GROWTH FUND'S ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 1.00% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------
Other Expenses* 0.50% 0.50% 0.50%
- ---------------------------------------------------------------====-------------====--------------====------
Total Annual Operating Expenses 1.75% 2.50% 2.50%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* "Other Expenses" are based upon estimated operating expenses for the first
fiscal year. The Fund's actual average net assets may be either higher or lower
than those used in calculating the estimate, resulting in actual expense ratios
which may be either greater or less than those presented.
8
<PAGE>
IF I INVEST IN THIS FUND, WHAT WILL IT COST ME?
Here is an example of what your costs might be if you invest in Davis
International Growth Fund. It is designed to help you compare investing costs
with other mutual funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. It also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. The example is based upon estimated
operating expenses for the first fiscal year. The Fund's actual average net
assets may be either higher or lower than those used in calculating the
estimate, resulting in actual expense ratios which may be either greater or
less than those presented.
COST OF INVESTING $10,000 IN DAVIS INTERNATIONAL GROWTH FUND
The top chart assumes that you sell your shares at various times--based on
these assumptions--would be:
- ----------------------------------------------------------------------------
IF YOU SELL YOUR SHARES IN... CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------
1 Year $64 $65 $35
- ----------------------------------------------------------------------------
3 Years $100 $108 $78
- ----------------------------------------------------------------------------
5 Years $138 $153 $133
- ----------------------------------------------------------------------------
10 Years $244 $257 $284
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
IF YOU STILL HOLD YOUR CLASS A CLASS B CLASS C
SHARES AFTER...
- ----------------------------------------------------------------------------
1 Year $64 $25 $25
- ----------------------------------------------------------------------------
3 Years $100 $78 $78
- ----------------------------------------------------------------------------
5 Years $138 $133 $133
- ----------------------------------------------------------------------------
10 Years $244 $257 $284
- ----------------------------------------------------------------------------
9
<PAGE>
WHO IS RESPONSIBLE FOR YOUR DAVIS ACCOUNT
A number of entities provide services to Davis International Growth Fund. This
section shows how the Fund is organized, the entities that perform these
services, and how these entities are compensated. Additional information on the
organization of the Fund is provided in the Fund's Statement of Additional
Information. For information on how to receive this document, see the back
cover of this prospectus.
INVESTMENT ADVISER
DAVIS SELECTED ADVISERS, LP
Referred to throughout this prospectus as "Davis Selected Advisers"
124 East Marcy Street
Santa Fe, NM 87501
o Provides investment advice for Davis International Growth Fund's
o portfolio. Manages Davis International Growth Fund's business affairs.
o Provides day-to-day administrative services.
o Serves as investment adviser for all of the Davis Funds, other mutual
funds, and other institutional clients.
o Annual Adviser Fee estimated for fiscal year September 30, 1999 (based on
average net assets): 1.00%
INVESTMENT SUB-ADVISER
DAVIS SELECTED ADVISERS-NY, INC.
Referred to throughout this prospectus as "Davis Selected Advisers-NY"
609 Fifth Avenue
New York, NY 10017
o Performs investment management and research services for Davis
International Growth Fund and other institutional clients.
o Wholly owned subsidiary of Davis Selected Advisers.
o Annual Fee: Davis Selected Advisers pays the fee, not the Fund.
10
<PAGE>
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK AND TRUST COMPANY
Also referred to as "State Street Bank and Trust"
P.O. Box 8406
Boston, MA 02266-8406
o Prices the Fund daily.
o Holds share certificates and other assets of the Fund.
o Maintains records of shareholders.
o Issues and cancels share certificates.
o Supervises the payment of dividends.
BOARD OF DIRECTORS
The Fund's Board of Directors has general supervisory responsibilities of the
Fund and supervises the investment adviser's duties.
DISTRIBUTOR
DAVIS DISTRIBUTORS, LLC
Referred to throughout this prospectus as "Davis Distributors"
124 East Marcy Street
Santa Fe, NM 87501
o Oversees purchases of shares and promotional activities for Davis
International Growth Fund.
o Wholly owned subsidiary of Davis Selected Advisers.
o Serves as distributor for all of the Davis Funds and other mutual funds
managed by Davis Selected Advisers.
11
<PAGE>
[SET OFF]
ABOUT THE DISTRIBUTOR
Many mutual funds, including Davis International Growth Fund, have adopted
plans under Rule 12b-1 of the Investment Company Act of 1940--the key law that
regulates mutual funds--which allows the fund to charge a fee to cover
promotional costs. Under this rule, the Fund is allowed to reimburse Davis
Distributors for its expenses for all three classes of shares. This fee
includes costs for sales and marketing activities.
Distribution fees for Class A shares are limited to an annual rate of 0.25% of
the average daily net asset value of the Fund's Class A shares. Distribution
fees for Class B and Class C shares-primarily to compensate dealers for selling
the shares-are limited to an annual rate of 1% of the average daily net asset
value of Class B and C shares.
Davis Distributors also uses part of the fee for all three share classes to
compensate brokers for providing account services to shareholders, including
maintaining shareholder accounts, answering shareholder inquiries and providing
other personal services to shareholders.
Distribution fees may also be used to reimburse Davis Distributors for specific
expenses incurred to market the Fund if these expenses exceed the portion of
the sales load that Davis Distributors retains.
Long-term shareholders of mutual funds that pay distribution fees may pay more
than the maximum front-end sales charge allowed by the National Association of
Securities Dealers.
YEAR 2000 AND EURO CONVERSION
Like all financial service providers, the Adviser, Sub-Adviser,
Distributor, and third parties providing investment advisory, administrative,
transfer agent, custodial and other services ("Service Providers") utilize
systems that may be affected by change from the year 1999 to the year 2000.
Specifically, older computer software systems in use today cannot distinguish
the year 2000 from the year 1900 because of the way dates are encoded and
calculated. Also, on January 1, 1999, eleven of the fifteen members states of
the European Union are scheduled to convert to a common currency called the
"Euro". Difficulties with Year 2000 and Euro Conversion issues could have a
negative impact on handling securities trades, payments of interest and
dividends, pricing and account services. In response to these potential
problems, the Service Providers have advised the Funds that they are actively
working on necessary computer system changes in preparation for the Year 2000
and Euro Conversions. The Funds have been informed that the Service Providers'
computer systems and those of third parties with whom they work, will be
adapted in time for these two events. Nonetheless, there remains the
possibility
12
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that companies in which the Funds invest may experience difficulties with Year
2000 and Euro Conversions which may negatively effect their market value.
13
<PAGE>
WHO THE PORTFOLIO MANAGERS ARE
SHELBY M.C. DAVIS
Responsibilities:
o Chief Investment Officer of Davis Selected Advisers.
o President of all the Davis Funds.
Other Experience:
o Served as Davis New York Venture Fund's Portfolio Manager from its
inception in 1969 until February 1997.
o Served as Portfolio Manager of a growth and income fund managed by Davis
Selected Advisers from May 1993 until February 1997.
JEFFREY W. SINGER
Responsibilities:
o Portfolio Manager of the Fund since inception, January 1, 1999.
o Also manages other international equity accounts advised by Davis
Selected Advisers.
Other Experience:
o Senior Research Analyst and Principal for a New York investment adviser
from 1992 through 1998.
o Was responsible for investment research for a number of industries on a
global basis.
[BOXED]
OUR CODE OF ETHICS
We allow the officers and employees of Davis International Growth Fund, Davis
Selected Advisers and its affiliates to buy and sell securities for their own
personal accounts. However, in order to do so they must agree to a number of
restrictions, listed in our company Code of Ethics.
14
<PAGE>
HOW WE MANAGE THE FUND
This section provides an overview of the types of securities the Fund invests
in and details the strategies the Fund uses to minimize the risk of investing
in these securities.
WHAT WE INVEST IN AND WHY
Davis International Growth Fund's investment objective is growth of capital.
The Fund pursues this objective by investing primarily in common stocks of
foreign companies and U.S. companies doing substantial business in foreign
markets. Investing internationally offers additional opportunities to purchase
quality overlooked growth stocks. In keeping with the Davis investment
philosophy, our portfolio managers select international equity securities that
offer the potential for capital growth over the long-term.
The Fund has the flexibility to invest on a worldwide basis in companies of any
size, regardless of country of organization or place of principal business
activity. The Fund normally invests at least 65% of its total assets in foreign
securities issued by companies from at least three different countries, outside
of the U.S. At times the Fund may temporarily invest all of its assets in fewer
than three countries.
While the Fund may at times invest in companies doing significant business in
lesser developed emerging markets or in the U.S., its focus is upon companies
doing substantial business in developed markets outside of the U.S.
INTERNATIONAL EQUITY SECURITIES
WHAT THEY ARE. International equity securities are equity securities issued
either by foreign companies or by U.S. companies doing substantial business in
foreign markets. International equity securities are:
(1) Issued by companies organized under the laws of a foreign country;
(2) Principally traded in securities markets outside of the U.S.;
(3) Issued by companies earning at least 50% of their revenues or
profits outside of the U.S.; or
(4) Issued by companies having at least 50% of their assets outside
of the U.S.
International equity securities represent ownership of a company. International
equity securities come in many forms, but the form that the Fund typically owns
is common stock.
HOW WE PICK THEM. The Davis investment philosophy stresses a back-to-basics
approach: we use extensive research to buy growing companies at value prices
and hold on to them for the long-term. Over the years, Davis Selected Advisers
has developed a list of ten characteristics that we believe foster sustainable
long-term growth, minimize risk, and enhance the potential for superior
long-term returns. While very few companies have
15
<PAGE>
all ten, we search for companies that demonstrate several of the
characteristics that are listed in the following chart.
[SET OFF OR BOXED]
WHAT WE LOOK FOR IN A COMPANY
1. FIRST-CLASS MANAGEMENT. We believe that great companies are created by
great managers. In visiting companies, we look for managers with a record
of doing what they say they are going to do.
2. MANAGEMENT OWNERSHIP. Just as we invest heavily in our own funds, we look
for companies where individual managers own a significant stake.
3. STRONG RETURNS ON CAPITAL. We want companies that invest their capital
wisely and reap superior returns on those investments.
4. LEAN EXPENSE STRUCTURE. Companies that can keep costs low are able to
compete better, especially in difficult times. A low cost structure
sharply reduces the risk of owning a company's shares.
5. DOMINANT OR GROWING MARKET SHARE IN A GROWING MARKET. A company that is
increasing its share of a growing market has the best of both worlds.
6. PROVEN RECORD AS AN ACQUIRER. When an industry or market downturn occurs,
it is a good idea to own companies that can take advantage of attractive
prices to expand operations through inexpensive acquisitions.
7. STRONG BALANCE SHEET. Strong finances give a company staying power to
weather difficult economic cycles. 8. COMPETITIVE PRODUCTS OR SERVICES. We
invest in companies with products that are not vulnerable to obsolescence.
9. SUCCESSFUL INTERNATIONAL OPERATIONS. A proven ability to expand
internationally reduces the risk of being tied too closely to the U.S.
economic cycle.
10. INNOVATION. The savvy use of technology in any business, from a food
company to an investment bank, can help reduce costs and increase sales.
WHY WE BUY THEM. Davis International Growth Fund buys international equity
securities to take an ownership position in foreign companies with growth
potential, and then holds that position long enough to realize the benefits of
growth.
RISKS. Factors that influence the value of a share of common stock are
primarily the financial condition and performance of the issuer; general
market, political and economic conditions of the countries we invest in, and
currency fluctuations.
16
<PAGE>
o COMPANY RISK. The price of an equity security varies with the success and
failure of its issuer. As a result, the success of the companies in which
the Fund invests largely determines the Fund's performance. Investing in
small capitalization companies carries greater risk than investing in the
stock of larger companies.
o COUNTRY RISK. The market value of shares of common stock can change
rapidly and unpredictably as a result of political or economic events
having little or nothing to do with the issuer. There are additional risks
with investing in foreign countries which may cause the Fund to be more
volatile than a domestic stock fund investing solely in the U.S. Foreign
economies may not be as strong or as diversified, foreign political
systems may not be as stable, and foreign financial reporting standards
may not be as rigorous as in the U.S. In addition, foreign capital markets
may not be as well developed as in the U.S., so markets may be less
liquid, transaction costs may be higher, and investments may be subject to
government regulation. These risks are greater in a less developed
country.
o CURRENCY RISK. The Fund experiences currency risk because the Fund invests
primarily in securities denominated in foreign currencies. Foreign
currencies "float" in value against the U.S. dollar. Adverse changes in
foreign currency value can cause investment losses when the value of the
Fund's investments are converted to U.S. dollars
The Fund may attempt to reduce exposure to market and currency fluctuations by
trading in currency futures contracts, options on futures contracts, or forward
foreign currency exchange contracts for hedging purposes. Because the Fund
normally invests primarily in foreign companies, our operating expenses are
likely to be higher than funds invested exclusively in U.S. companies.
SHORT-TERM INVESTMENTS
WHAT THEY ARE. Short-term investments are fixed-income securities (such as U.S.
government securities, repurchase agreements and commercial paper) that will
only be outstanding for one year or less after Davis International Growth Fund
buys them.
[SIDEBAR]
A repurchase agreement is a type of short-term investment that uses securities
as collateral. Like a short-term loan, the borrower sells securities to the
lender. The borrower agrees to buy back the securities at a certain time--at a
higher price that incorporates an "interest payment."
17
<PAGE>
HOW WE PICK THEM. Most of the Fund's short-term investments are high-grade
money market instruments and repurchase agreements. The Fund may also hold cash
in interest-bearing bank deposits.
WHY WE BUY THEM. The Fund uses short-term investments to earn interest and
maintain flexibility while we evaluate long-term opportunities. We also may use
short-term investments for "defensive" purposes; in the event our portfolio
managers anticipate a substantial drop in the stock market, we may reduce our
risk by investing in short-term securities until market conditions improve.
RISKS. Short-term investments do not present a lot of risk: issuers are
generally stable, and the time period between the security's purchase and the
payoff date is relatively short, offering little chance for conditions to
deteriorate. However, these investments will not appreciate in value as common
stocks do when the market advances.
18
<PAGE>
HOW WE MANAGE RISK
Risks are inherent in all investments. Investing in a mutual fund, even the
most conservative, involves risk, including the risk that you may receive
little or no return on your investment or even that you may lose part or all of
your investment. Davis International Growth Fund has seven strategies to
minimize the risk assumed when we invest.
[SET OFF OR BOXED]
SEVEN STRATEGIES WE MAY USE TO MINIMIZE RISK
1. WE PURCHASE HIGH-QUALITY GROWTH COMPANIES. Our focus on high-quality
growth companies reduces the likelihood that your investment will be tied
up in a failing company.
2. WE USE A CONSERVATIVE VALUATION STRATEGY. Once we find companies that meet
our business criteria, we determine how much to pay for their shares. We
follow a price discipline that tells us how much we can reasonably pay for
a stock. While no system can prevent all losses, this conservative
approach helps us avoid the calamitous losses that occur in bear markets.
3. WE HAVE A LONG-TERM VISION. We get to know the managers of the companies
we invest in and understand their goals. We view temporary setbacks as
buying opportunities: when other managers sell stocks in response to bad
news, we evaluate the issuer's long-term prospects.
4. WE EMPHASIZE DIVERSIFICATION. We diversify the Fund across both individual
companies and industry sectors. This reduces price volatility and
minimizes the losses the Fund experiences when a company or industry
sector declines in market value.
5. WE DO NOT USE MARKET TIMING. We do not base our decisions to buy and sell
securities on whether we believe the stock market will rise or fall (known
as market timing). However, we can raise the level of cash in the Fund
when stock prices get too high and it becomes difficult to purchase
quality undervalued growth companies.
6. LIMITED HEDGING. The Fund may attempt to reduce exposure to market and
currency fluctuations by trading in currency futures contracts, options on
futures contracts, or forward foreign currency exchange contracts for
hedging purposes.
7. WE MAY MAKE TEMPORARY DEFENSIVE INVESTMENTS. From time to time, Davis
International Growth Fund may take temporary defensive positions in
response to adverse market, economic or political conditions.
19
<PAGE>
ONCE YOU INVEST IN THE FUND
This section describes what happens to your money once it is invested: how your
investment is valued, how you earn money on your investment, and how the
government may tax these earnings.
HOW YOUR SHARES ARE VALUED
As an investor in Davis International Growth Fund, you are entitled to buy and
sell shares on any business day. The share price of your investment changes
depending on the total value of the Fund's investments.
Each business day, we determine the value of Fund shares by adding up the total
value of investments plus other assets (such as cash), subtracting liabilities,
and dividing the result by the total number of shares outstanding. This share
figure is known as the net asset value (NAV).
Net asset values for all the Davis Funds is determined each day the Funds are
open for business. A business day is defined as any day the New York Stock
Exchange is open for trading. We calculate net asset value either at the close
of the Exchange or at 4 p.m. Eastern Time, whichever comes first.
The net asset values of all Davis Fund shares are published daily in the
business section of most major newspapers. If you have access to the Internet,
you can also check net asset value on our web site (WWW.DAVISFUNDS.COM).
HOW SECURITIES IN THE PORTFOLIO ARE VALUED
We use current market valuations to value the securities in Davis International
Growth Fund:
o Securities that trade on an organized exchange are valued at the last
published sales price on the exchange. If no sales are recorded, the
securities are valued at the average of the closing bid and asked prices
on the exchange.
o Over-the-counter securities are valued at the average of closing bid and
asked prices.
o Debt securities maturing in 60 days or less are usually valued at an
amortized (gradually reduced) cost.
o Longer-term debt securities may be valued by an independent pricing
service.
o Securities with unavailable market quotations and other assets are valued
at "fair value"--which is determined or directed by the Board of
Directors.
20
<PAGE>
o Because the Fund's securities are traded in markets that close at
different times, events affecting portfolio values that occur between the
time that their prices are determined and the time the Fund's shares are
priced will generally not be reflected in the Fund's share price.
o The value of securities denominated in foreign currencies and traded in
foreign markets will have their value converted into the U.S. dollar
equivalents at the prevailing market rate as computed by State Street Bank
& Trust Company. Fluctuation in the value of foreign currencies in
relation to the U.S. dollar may affect the net asset value of the Fund's
shares even if there has not been any change in the foreign currency price
of the Fund's investments.
HOW WE PAY EARNINGS
There are two ways you can receive payments from Davis International Growth
Fund:
o DIVIDENDS. Distributions to shareholders of net investment income and
short-term capital gains on investments.
o CAPITAL GAINS. Profits received by the Fund from the sale of securities
held for the long-term, which are then distributed to shareholders.
Davis International Growth Fund usually pays dividends once a year. Dividends
are declared in November or December and capital gains, if any, are distributed
in November or December. Unless you choose otherwise, the Fund automatically
reinvests your dividends and capital gains in additional Fund shares.
You can request to have your dividends and capital gains paid to you by check,
deposited directly into your bank account, paid to a third party, or sent to an
address other than your address of record.
We also offer a Dividend Diversification Program, which allows you to have your
dividends and capital gains reinvested in shares of another Davis Fund.
[SIDEBAR]
QUOTATIONS
The bid price is the highest price a prospective buyer is prepared to pay for a
security. The asked price is the lowest price acceptable to a prospective
seller. The average of these two prices is known as a quote or quotation.
OVER THE COUNTER SECURITIES
Over the counter securities are not listed or traded on an organized exchange.
They are bought and sold by dealers connected by telephones and computer
networks.
21
<PAGE>
NET INVESTMENT INCOME
Net investment income is income received by the Fund from company dividends and
interest on securities investments, minus management fees and all other
expenses.
22
<PAGE>
You will receive a statement each year detailing the amount of all dividends
and capital gains paid to you during the previous year. To ensure that these
distributions are reported properly to the U.S. Treasury, you must certify on
your Application Form (or on Form W-9) that your Taxpayer Identification Number
is correct and you are not subject to backup withholding (which means that you
are paying back taxes for failing to report all interest and dividends).
If you fail to report a correct Taxpayer I.D. Number, under-reported dividend
or interest income, or are already subject to backup withholding, Davis
International Growth Fund is required by law to withhold a portion of any
distributions you may receive--and send it to the U.S. Treasury.
(set off)
HOW TO PUT YOUR DIVIDENDS AND CAPITAL GAINS TO WORK
You can have all dividends and capital gains automatically invested in the same
share class of this or other Davis Funds. To be eligible for this DIVIDEND
DIVERSIFICATION PROGRAM, all accounts involved must be registered under the
same name and have a minimum initial value of $250. All future investments must
total $25 or more. Shares are purchased at the chosen fund's net asset value on
the dividend payment date. You can make changes to your selection or withdraw
from the program with 60 days notice. To participate in this program, fill out
the cross-reinvest information in the appropriate section of the Application
Form.
HOW YOUR DIVIDENDS AND CAPITAL GAINS ARE TAXED
o If Davis International Growth Fund pays dividends, they are taxable to
shareholders as ordinary income. Dividends include both net investment
income and short-term capital gains.
o If Davis International Growth Fund pays net capital gains, they generally
will be taxed as a long-term capital gain distributions.
These payments may be taxed at different rates, depending on the length of time
the Fund holds its assets. More information is provided in the instructions
that come with your tax return.
Investment earnings (dividends and capital gains) are taxable in the year in
which they were declared, not paid--whether they are received in cash or
reinvested in shares.
Also, keep in mind that when you sell or exchange shares of the Fund, it may
result in a taxable gain or loss.
23
<PAGE>
We recommend that you consult with a tax adviser about any dividends and
capital gains you may receive from Davis International Growth Fund.
FOREIGN TAXES ON FUND INCOME. Income received by the Davis International Growth
Fund may be subject to foreign income taxes. Foreign taxes increase the Fund's
expenses and decrease the income available to the Fund to pay as dividends. If
it is practical, the Fund intends to "pass through" the amount of such taxes to
the Fund's shareholders. Shareholders may be able to claim a deduction or
credit against their Federal Income Taxes for their pro rata share of foreign
taxes paid by the Fund.
HOW TO CHOOSE A SHARE CLASS
Before you can buy any shares in Davis International Growth Fund, you need to
decide which class of shares best suits your needs. The Fund offers three
classes of shares: A, B and C. Each class is subject to different expenses and
sales charges.
You may choose to buy one class of shares rather than another, depending on the
amount of the purchase and the expected length of time of investment.
SPECIAL NOTE: Institutions buying $5 million or more may be eligible to buy
Class Y shares of Davis International Growth Fund, offered through a separate
prospectus. With Class Y shares, you pay no sales charges or distribution fees.
To find out more about Class Y shares, contact your sales representative or our
distributor, Davis Distributors, at 1-800-279-0279.
CLASS A SHARES
Class A shares may be best for you if you are a long-term investor who is
willing to pay the entire sales charge at the time of purchase. In return, you
pay a lower distribution fee than the two other share classes.
o You buy Class A shares at their net asset value per share plus a sales
charge, which is 4.75% for any investment below $100,000 (see chart on the
following page).
o There is no limit on how much you can invest in this share class.
o The Fund pays a distribution fee--up to 0.25% of the average daily net
asset value--each year you hold the shares. This fee is lower than the fee
you pay for the other two classes of shares. Lower expenses translate into
higher annual return on your investment. More information on distribution
fees is provided under WHO IS RESPONSIBLE FOR YOUR DAVIS ACCOUNT.
24
<PAGE>
CLASS A SALES CHARGES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AMOUNT OF PURCHASE SALES CHARGE SALES CHARGE AMOUNT OF SALES CHARGE
(PERCENTAGE OF (PERCENTAGE OF RETAINED BY
OFFERING PRICE) AMOUNT INVESTED) THE DEALER
(PERCENTAGE OF
OFFERING PRICE)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Under $100,000 4.75% 5.0% 4.0%
- --------------------------------------------------------------------------------------------------
$100,000 to under $250,000 3.5% 3.6% 3.0%
- --------------------------------------------------------------------------------------------------
$250,000 to under $500,000 2.5% 2.6% 2.0%
- --------------------------------------------------------------------------------------------------
$500,000 to under $750,000 2.0% 2.0% 1.75%
- --------------------------------------------------------------------------------------------------
$750,000 to under $1 million 1.0% 1.0% 0.75%
- --------------------------------------------------------------------------------------------------
$1 million or more* None None 0%
- --------------------------------------------------------------------------------------------------
</TABLE>
* You pay no front-end sales charge on purchases of $1 million or more, but if
you sell those shares within the first year you may pay a deferred sales charge
of 0.75%. Davis Distributors may pay the dealer a commission during the first
year after purchase at the following rates:
- -----------------------------------------------------------------
PURCHASE AMOUNT COMMISSION
- -----------------------------------------------------------------
First $3 million 0.75%
- -----------------------------------------------------------------
Next $2 million 0.50%
- -----------------------------------------------------------------
Over $5 million 0.25%
- -----------------------------------------------------------------
If a commission is paid for purchases of $1 million or more, the dealer will be
paid with distribution fees received from the Fund. If distribution fee limits
have already been reached for the year, Davis Distributors itself will pay the
commissions.
As the chart above shows, the sales charge gets smaller as your purchase amount
increases. There are several ways you may combine purchases to qualify for a
lower sales charge.
26
<PAGE>
YOU CAN COMBINE PURCHASES OF CLASS A SHARES
o WITH OTHER FAMILY MEMBERS. If you buy shares for yourself, your spouse
and any children under the age of 21, all the shares you buy will be
counted as a single purchase.
o WITH CERTAIN GROUPS. If you buy shares through a group organized for a
purpose other than to buy mutual fund shares, the purchases will be
treated as a single purchase.
o THROUGH EMPLOYEE BENEFIT PLANS. If you buy shares through trusteed or
fiduciary accounts and Individual Retirement Accounts (IRAs) of a single
employer, the purchases will be treated as a single purchase.
o UNDER A STATEMENT OF INTENTION. If you enter a Statement of Intention and
agree to buy Class A shares of $100,000 or more over a 13-month period,
all of the shares you buy during that period will be counted as a single
purchase. Before entering a Statement of Intention, please read the terms
and conditions in the Statement of Additional Information. Under a
Statement of Intention, you agree to permit our service provider, State
Street Bank and Trust, to hold fund shares in escrow to guarantee payment
of any sales charges that may be due if you ultimately invest less than
you agreed to invest over the covered 13-month period.
o UNDER RIGHTS OF ACCUMULATION. If you notify your dealer or our
distributor, Davis Distributors, you can include the Class A, B and C
shares you already own (except shares of Davis Government Money Market
Fund) when calculating the price for your current purchase.
o WITH CLASS A SHARES OF OTHER DAVIS FUNDS. If you buy Class A shares of
this or any other Davis Fund except Davis Government Money Market Fund,
all of the shares you buy will be counted as a single purchase. This
includes shares purchased under a Statement of Intention or Rights of
Accumulation.
CLASS A FRONT-END SALES CHARGE WAIVERS
We will not charge a sales charge on purchases of Class A shares for:
o Shareholders making purchases with dividends or capital gains that are
automatically reinvested.
o Purchases by directors, officers and employees of Davis International
Growth Fund, its investment adviser or its affiliates, and their immediate
families.
o Purchases by employees and people affiliated with broker-dealer firms
offering Fund shares.
o Financial institutions acting as fiduciaries making single purchases of
$250,000 or more.
o Employee benefit plans making purchases through a single account covering
at least 250 participants.
27
<PAGE>
o Wrap accounts offered by securities firms, fee-based investment advisers
or financial planners.
o State and local governments.
[sidebar]
Wrap accounts are investment programs offered by broker-dealers who place a
client's funds with one or more investment advisers and charge a fee for their
services.
CLASS B SHARES
Class B shares may be best for you if you are willing to pay a higher
distribution fee than Class A shares for eight years in order to avoid paying a
front-end sales charge.
o You buy the shares at net asset value (no sales charge).
o You can invest up to $250,000 in Class B shares.
o If you sell Class B shares within six years of purchase, you must pay a
deferred sales charge. This charge decreases over time as you own the
shares (see chart below).
o After you hold Class B shares for eight years, they are automatically
converted into Class A shares without paying a front-end sales charge.
Class A shares pay a lower distribution fee.
o The Fund pays a distribution fee of 1% of the average daily net asset
value each year you hold the shares. Higher expenses translate into lower
annual return on your investment. More information on distribution fees is
provided under WHO IS RESPONSIBLE FOR YOUR DAVIS ACCOUNT.
CLASS B DEFERRED SALES CHARGES
- ----------------------------------------------------------------------------
SALES MADE AFTER PURCHASE AMOUNT OF DEFERRED SALES CHARGE
- ----------------------------------------------------------------------------
Year 1 4%
- ----------------------------------------------------------------------------
Years 2-3 3%
- ----------------------------------------------------------------------------
Years 4-5 2%
- ----------------------------------------------------------------------------
Year 6 1%
- ----------------------------------------------------------------------------
Years 7-8 None
- ----------------------------------------------------------------------------
28
<PAGE>
CLASS C SHARES
Class C shares may be best for you if you are willing to pay a higher
distribution fee than Class A shares pay in order to avoid paying a sales
charge.
o You buy the shares at net asset value (no sales charge).
o You cannot invest more than $1 million in Class C shares.
o If you sell the shares within one year of purchase, you must pay a
deferred sales charge of 1%.
o The Fund pays a distribution fee of 1% of the average daily net asset
value each year you hold the shares. Higher expenses translate into lower
annual return on your investment. More information on distribution fees is
provided under WHO IS RESPONSIBLE FOR YOUR DAVIS ACCOUNT.
DEFERRED SALES CHARGE WAIVERS
We will waive deferred sales charges on sales of Class A, B and C shares if:
o You sell shares that were acquired through reinvestment of dividends or
capital gains.
o You sell shares that were not subject to a commission at the time of
purchase (the amount of purchase totaled $1 million or more and the shares
were held for more than a year).
o You (or a registered joint owner) die or have been determined to be
totally disabled sometime after the purchase of shares.
o You sell shares under the Automatic Withdrawals Plan amounting to, in a
12-month period, up to 12% of the value of the account when you began
participating in the Plan.
o You sell shares under a qualified retirement plan or IRA that constitute a
tax-free return of contributions to avoid a penalty.
o Your fund sells the remaining shares in your account under an Involuntary
Redemption.
o You qualify for an exception relating to defined contribution plans. These
exceptions are described in the Statement of Additional Information.
o You are a director, officer or employee of Davis Selected Advisers or one
of its affiliates (or a family member of a director, officer or employee).
If the net asset value of the shares that you sell has increased since you
purchased them, any deferred sales charge will be based on the original cost of
the shares.
[boxed]
29
<PAGE>
If you have any additional questions about choosing a share class, please call
us toll-free at 1-800-279-0279, Monday through Friday, 7 a.m. to 4 p.m.
Mountain Time. If you still are not sure about which class is best for you,
contact your financial adviser.
30
<PAGE>
HOW TO OPEN AN ACCOUNT
You can open an account if you invest at least:
o $1,000 for a non-retirement plan account.
o $250 for a retirement plan account.
(chart)
THREE WAYS YOU CAN OPEN AN ACCOUNT
1. BY MAIL. Fill out the Application Form included in this prospectus and mail
it to our service provider, State Street Bank and Trust. Both you and your
dealer must sign the form. Include a check made payable to the DAVIS FUNDS or,
in the case of a retirement account, the custodian or trustee. All purchases by
check should be in U.S. dollars, and Davis International Growth Fund will not
accept third-party checks.
2. BY DEALER. You may have your dealer order and pay for the shares. In this
case, you must pay your dealer directly. Your dealer will then order the shares
from our distributor, Davis Distributors. Please note that your dealer may
charge a service fee or commission for buying these shares.
3. BY WIRE. You may wire federal funds directly to our service provider, State
Street Bank and Trust. Before you wire an initial investment, you must call our
distributor, Davis Distributors, at 1-800-279-0279 to let them know the fund
and share class you will be buying. After the initial wire purchase is made,
you will need to fill out a Plan Adoption Agreement or Application Form and
return it to State Street. To ensure that the purchase is credited properly,
follow these wire instructions:
State Street Bank and Trust Company
Boston, MA 02210
Attn: Mutual Fund Services
DAVIS INTERNATIONAL GROWTH FUND
Shareholder Name
Shareholder Account Number
Federal Routing Number 011000028
DDA Number 9904-606-2
31
<PAGE>
Generally, the Fund does not issue share certificates for purchases. You can
receive certificates if you are a Class A shareholder who is not participating
in the Automatic Withdrawal Plan. If you are eligible and wish to receive
certificates, you must make the request at the time of purchase.
RETIREMENT PLAN ACCOUNTS
You can invest in Davis International Growth Fund using any of these types of
retirement plan accounts:
o Deductible IRAs
o Non-deductible IRAs
o Roth IRAs
o Educational IRAs
o Simple IRAs
o Profit-Sharing Plans
o Money-Purchase Plans
o Simplified Employee Pension Plans
o 403(b) Plans
State Street Bank and Trust acts as custodian (service provider) for the
retirement plans and charges the participant $10 to open each account and a
maintenance fee of $10 each year (per Social Security number). These fees are
automatically deducted from each account, unless you elect to pay the fee
directly. To open a retirement plan account, you must fill out a special
application form. You can request this form by calling 1-800-279-0279.
32
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES
Once you have opened an account with Davis, you can add to--or subtract
from--your initial purchase. This section provides an overview of the types of
transactions you can perform as a shareholder of Davis International Growth
Fund. This includes how to initiate these transactions, and the charges that
you may incur (if any) when buying, selling and exchanging shares.
EXCHANGE
When you sell shares in one Davis Fund to buy shares in another Davis Fund in
response to changes in your goals or in market conditions.
(chart)
THREE WAYS TO BUY, SELL AND EXCHANGE SHARES
1. BY TELEPHONE. Call 1-800-279-0279. You can speak directly with a Davis
representative during our business hours or use our automated telephone system
any time, day or night.
2. BY MAIL. Send the request to our service provider, State Street Bank and
Trust.
Regular Mail
State Street Bank and Trust Company
c/o Davis Funds
P.O. Box 8406
Boston, MA 02266-8406
Overnight Mail
State Street Bank and Trust Company
c/o Davis Funds
66 Brooks Drive
Braintree, MA 02184
3. BY DEALER. Contact a dealer, who will then make the transaction through our
distributor, Davis Distributors. Please note that your dealer may charge a
service fee or commission for each transaction.
WHEN YOUR TRANSACTIONS ARE PROCESSED
33
<PAGE>
The per-share price for purchases or sales made through our distributor, Davis
Distributors, will be processed on the same day if the order is received before
4 p.m. Eastern Time. If State Street Bank and Trust requires additional
documents to complete the purchase or sale, the transaction price will be
determined at the close of business after all required documents are received.
For your transaction to be counted on the day you place your order with your
broker-dealer or other financial institution, they must:
o Receive your order before 4 p.m. Eastern Time.
o Promptly transmit the order to State Street Bank and Trust.
BUYING MORE SHARES
You can buy more shares at any time, either by telephone, by mail or through a
dealer. The minimum purchase amount is $25.
When you purchase shares by mail, send a check made payable to the DAVIS FUNDS
for the amount of purchase to our service provider, State Street Bank and
Trust. If you have the purchase form from your most recent statement, include
it with the check. If you do not have a purchase form, include a letter with
your check stating the name of the fund and the class of shares you wish to
buy. If you know your account number, include it on the check.
When you buy shares through a dealer, you may be charged a service fee or
commission for performing the transaction.
[SET OFF - SPECIAL PROGRAM]
MAKING AUTOMATIC INVESTMENTS
An easy way to increase your investments in this or other Davis Funds is to
sign up for the AUTOMATIC INVESTMENT PLAN. Under this plan, you arrange for a
set amount of money to be taken from your bank account and invested in Fund
shares. The minimum amount you can invest each month is $25. The account
minimums of $1,000 for non-retirement accounts and $250 for retirement accounts
will be waived if you meet the minimum requirement within a year.
Purchases can be processed electronically on any day of the month between the
4th and 28th days if the institution that services your bank account is a
member of the Automated Clearing House system. After each automatic investment,
you will receive a transaction confirmation, and the debit should show up on
your next bank statement.
34
<PAGE>
To sign up for the Automatic Investment Plan, fill out the appropriate section
of the Application Form. You can stop automatic investments at any time by
calling the Davis Funds at 1-800-279-0279.
You can also use our Dividend Diversification Program to buy more shares in
this or another Davis Fund. See ONCE YOU INVEST IN THE FUND.
[SIDEBAR]
The Automated Clearing House system is used by most banks for electronic
transfers of money into and out of your bank account - and is regulated by the
Federal Reserve.
SELLING SHARES
You may sell back all or part of your shares to Davis International Growth Fund
(known as a redemption) at any time, at net asset value minus any sales charges
that may be due. You can sell the shares by telephone, by mail, or through a
dealer.
When you sell shares by mail, indicate the number of shares or dollar amount
you wish to redeem and send the request to our service provider, State Street
Bank and Trust. If more than one person owns the shares you wish to sell, all
owners must sign a request.
When you sell shares through a dealer, you may be charged a service fee or
commission for performing the transaction.
Redemption proceeds are usually paid to you in cash within seven days after
State Street Bank and Trust receives your proper sale request. You will not be
allowed to sell shares that have been paid for by check until the shares have
been in your account for fifteen days.
35
<PAGE>
WHAT YOU NEED TO KNOW BEFORE YOU SELL YOUR SHARES
o You will always receive cash for sales that total less than $250,000 or
1% of the Fund's net asset value during any 90-day period. Any sales above
the cash limit may be paid in securities and would mean you would have to
pay brokerage fees.
o Ordinarily, you only need a medallion signature guarantee on a share
certificate, stock power, or redemption request for sales of more than
$50,000. However, if you have made any changes to the Application Form
since your account was opened, or if your address of record has changed in
the last 30 days, you will need a medallion signature for all sales.
o If a certificate was issued for the shares you wish to sell, the
certificate must by signed by the owner(s) and sent to State Street Bank
and Trust along with the redemption request.
o A sale may produce a gain or loss. Gains may be subject to tax.
MEDALLION SIGNATURE GUARANTEE
A written confirmation from an eligible guarantor institution, such as a
securities broker-dealer or a commercial bank, that the signature(s) on the
account is(are) valid. Unfortunately, no other form of signature verification
can be accepted.
STOCK POWER
A letter signed by the owner of the shares that gives State Street Bank and
Trust permission to transfer ownership of the shares to another person or
group.
SPECIAL SALE SITUATIONS
o The Securities and Exchange Commission can suspend payment of sales under
certain emergency circumstances if the New York Stock Exchange is closed
for reasons other than customary closings and holidays.
o Davis International Growth Fund may make sales payments in securities if
Davis International Growth Fund's Board of Directors decides that making
cash payments would harm the Fund.
36
<PAGE>
[SET OFF - SPECIAL PROGRAM]
MAKING AUTOMATIC WITHDRAWALS
If you hold more than $10,000 in your account, you can sell a set dollar amount
each month or quarter. When you participate in this program, known as the
AUTOMATIC WITHDRAWALS PLAN, shares are sold so that you will receive the
payment around the 25th day of the month. Note that because withdrawals are
sales, they may produce a gain or loss. If you purchase additional shares at
the same time that you make a withdrawal, you may have to pay taxes and a sales
load. Gains may be subject to tax. To sign up for the Automatic Withdrawals
Plan, fill out the appropriate section of the Application Form.
You may stop automatic withdrawals at any time without charge or penalty by
calling the Davis Funds at 1-800-279-0279.
SPECIAL NOTE: WHEN YOU MAKE A SALE OR WITHDRAWAL, A DEFERRED SALES CHARGE MAY
BE IMPOSED IF:
o YOU BUY $1 MILLION OR MORE OF CLASS A SHARES AND SELL THEM WITHIN A YEAR
OF PURCHASE.
o YOU SELL CLASS B SHARES WITHIN SIX YEARS OF PURCHASE.
o YOU SELL CLASS C SHARES WITHIN ONE YEAR OF PURCHASE.
[SET OFF - SPECIAL SHAREHOLDER PROGRAM]
WIRING SALE PROCEEDS TO YOUR BANK ACCOUNT
If you are an investor with a non-retirement account, you can have your sale
proceeds electronically transferred to a commercial bank account. This is known
as an ELECTRONIC WIRE PRIVILEGE. To sign up for this option, simply fill out
the appropriate section of the Application Form. There is a $5 charge by State
Street Bank and Trust for wire service, and receiving banks may also charge for
this service. Payment by Automated Clearing House will usually arrive at your
bank two banking days after your call. Payment by wire is usually credited to
your bank account on the next business day after you call. While State Street
Bank and Trust will also accept electronic wire sales by telephone, fax or
dealer, you still need to fill out and submit the information under the
Electronic Wire Privilege section of the Application Form.
37
<PAGE>
IF YOU DECIDE TO BUY BACK SHARES YOU SOLD
If you decide to buy back some or all of the shares you sold in this Fund
within 30 days of sale and notify us in writing, you can take advantage of the
SUBSEQUENT REPURCHASE PRIVILEGE. With this privilege, which you can use only
once, you will not be charged a sales charge, and any deferred sales charge you
paid on the original sale will be returned to your account. You must send a
letter to our service provider, State Street Bank and Trust, along with a check
for the repurchased shares.
IF YOUR ACCOUNT FALLS BELOW $250
If your account balance falls below $250, we may sell your remaining shares in
Davis International Growth Fund at net asset value. We will first notify you by
mail, giving you at least 60 days notice that an INVOLUNTARY REDEMPTION may
take place. If you can increase your account balance to above $250 during the
notice period, the involuntary redemption will be canceled.
EXCHANGING SHARES
You can transfer shares of Davis International Growth Fund to shares in the
same class of any other Davis Fund without having to pay a sales charge. This
is known as an exchange. You can exchange shares by telephone, by mail or
through a dealer. The initial exchange must be for at least $1,000 (unless you
are participating in the Automatic Exchange Program). Exchanges are normally
performed on the same day of the request if received by 4 p.m. Eastern Time.
However, if your exchange involves a large sale, the transfer may take one to
seven days.
When you exchange shares by mail, you must send our service provider, State
Street Bank and Trust, a written request for the exchange. If you hold share
certificates, the certificates must by signed by the owner(s) and sent to State
Street Bank and Trust along with the exchange request. No medallion signature
guarantee is required unless shares are also being sold for cash and would
otherwise require a medallion signature guarantee.
When you exchange shares through a dealer, you may be charged a service fee or
commission for performing the transaction.
Before you decide to make an exchange, you must obtain the current prospectus
of the desired fund. For federal income tax purposes, exchanges between funds
are treated as a sale and a purchase. Therefore, there will usually be a
recognizable capital gain or loss due to an exchange.
38
<PAGE>
There are limits to the number of exchanges you can make each year. Currently,
four exchanges are allowed during a 12-month period. Davis Distributors must
approve any exchanges above the limit in writing.
YOU CAN MAKE EXCHANGES AMONG ANY OF THE DAVIS FUNDS WITHOUT HAVING TO PAY ANY
SALES CHARGE.
EQUITY FUNDS
Davis New York Venture Fund
Davis Growth Opportunity Fund
Davis Financial Fund
Davis International Total Return Fund
Davis International Growth Fund
GROWTH & INCOME FUNDS
Davis Growth & Income Fund
Davis Real Estate Fund
Davis Convertible Securities Fund
BOND FUNDS
Davis Intermediate Investment Grade Bond Fund
Davis Tax-Free High-Income Fund
Davis Government Bond Fund
GOVERNMENT MONEY MARKET FUND
Davis Government Money Market Fund
[SET OFF - SPECIAL SHAREHOLDER PROGRAM]
MAKING AUTOMATIC EXCHANGES
You can elect to make automatic monthly exchanges if all accounts involved are
registered under the same name and have a minimum initial value of $250. You
must exchange at least $25 to participate in this program, known as the
AUTOMATIC EXCHANGE PROGRAM. To sign up for this program, fill out the
appropriate section of the Application Form.
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<PAGE>
TRANSACTIONS BY TELEPHONE
A benefit of investing through Davis Funds is that you can use our telephone
system to buy, sell or exchange shares. If you do not wish to have this option
activated for your account, mark in the box in the appropriate section of the
Application Form.
When you call 1-800-279-0279, you can perform a transaction with Davis Funds in
two ways:
o Speak directly with a representative during business hours (7 a.m. to 4
p.m. Mountain Time).
o If you have a TouchTone(TM) telephone, you can use the automated telephone
system, known as DAVIS DIRECT Access, 24 hours a day, seven days a week.
[SET OFF]
YOU CAN USE DAVIS DIRECTACCESS TO:
o GET THE PRICE, TOTAL RETURN, AND FUND DESCRIPTION FOR ANY DAVIS FUND.
o CHECK YOUR ACCOUNT BALANCE AND OTHER ACCOUNT INFORMATION.
o BUY, SELL AND EXCHANGE SHARES.
o GET THE MAILING ADDRESS AND WIRE INSTRUCTIONS FOR ANY DAVIS FUND.
o REQUEST LITERATURE ABOUT ANY DAVIS FUND.
If you wish to sell shares by phone and receive a check in the mail:
o The maximum amount that can be issued is $25,000.
o The check can only be issued to the registered account owner.
o The check must be sent to the address on file with Davis.
o Your current address must be on file for 30 days.
When you buy, sell or exchange shares over the telephone, you agree that Davis
International Growth Fund is not liable for following telephone instructions
believed to be genuine (that is, directed by the account holder). We use
certain procedures to confirm that your instructions are genuine, including a
request for personal identification (your account or Social Security number)
and a tape recording of the conversation. If these procedures are not used, the
Fund may be liable for unauthorized instructions.
Be aware that during unusual market conditions, Davis Funds may not be able to
accept all requests by phone.
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[INSIDE BACK COVER]
THE DAVIS FUNDS:
OVER 25 YEARS OF RELIABLE INVESTING
Davis Selected Advisers, investment adviser of the Davis Funds, has a history
of investing for the long-term. Since our founding in 1969, we have been
dedicated to delivering superior investment performance and service to our
clients.
WE ARE LONG-TERM INVESTORS. We analyze high-quality growth companies that have
been overlooked, buy their stock at value prices, and hold the shares for the
long-term. This strategy was first developed by legendary Wall Street investor
Shelby Cullom Davis, a leading financial adviser to governors and presidents.
Our investment approach has been refined for more than 25 years by his son,
Shelby M.C. Davis, who is now Chief Investment Officer of Davis Selected
Advisers. The Davis strategy is still followed today by the third generation of
family members: Christopher C. Davis and Andrew A. Davis serve as either
Portfolio Manager or Co-Portfolio Manager for many Davis Funds.
WE ARE FELLOW SHAREHOLDERS. The Davis family, directors and employees not only
manage the company's mutual funds but also invest in them. Together, we have
invested over $1 billion of our own money side-by-side with our shareholders.
Please take the time to read this prospectus carefully and, if you decide to
invest with us, keep it as a reference guide. If you need more information
about the Davis Funds, please call us or visit our Web site.
41
<PAGE>
[DESIGN ISSUE: WILL THE SECTION BELOW BE PERFED?]
ADDRESS AND PHONE GUIDE
OUR TELEPHONE NUMBER OUR SERVICE PROVIDER'S REGULAR MAILING ADDRESS
1-800-279-0279 State Street Bank and Trust Company
c/o Davis Funds
P.O. Box 8406
Boston, MA 02266-8406
OUR MAILING ADDRESS
Davis Funds
124 East Marcy Street
Santa Fe, New Mexico 87501
OUR INTERNET ADDRESS OUR SERVICE PROVIDER'S OVERNIGHT MAILING ADDRESS
http://www.davisfunds.com State Street Bank and Trust Company
c/o Davis Funds
66 Brooks Drive
Braintree, MA 02184
42
<PAGE>
[BACK COVER]
OTHER FUND DOCUMENTS
For more information about Davis International Growth Fund, request a free copy
of the Statement of Additional Information or, when they become available, the
Annual and Semi-Annual Reports. The STATEMENT OF ADDITIONAL INFORMATION
provides more detailed information about the Fund and its management and
operations. The ANNUAL Report will discuss the market conditions and investment
strategies that significantly affected fund performance during the year. The
SEMI-ANNUAL REPORT updates information provided in the Annual Report for the
next six months.
Davis International Growth Fund's Statement of Additional Information (and
Annual Report when it becomes available) have been filed with the Securities
and Exchange Commission, are incorporated by reference, and are legally a part
of this prospectus.
WHERE YOU CAN GET THESE DOCUMENTS:
o BY TELEPHONE. Call Davis Funds toll-free at 1-800-279-0279, Monday-Friday,
7 a.m. to 4 p.m. Mountain Time.
o VIA THE INTERNET. Visit the SEC web site (WWW.SEC.GOV).
o FROM THE SEC. The SEC's Public Reference Room in Washington, D.C. For more
information call 1-800-SEC-0330. Additional copies of this information can
be obtained, for a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, D.C., 20549-6009.
o BY MAIL. Specify the document you are requesting when writing to us.
DAVIS INTERNATIONAL GROWTH FUND
124 EAST MARCY STREET
SANTA FE, NEW MEXICO 87501
1-800-279-0279
Investment Company Act File No. 811-8870
43
<PAGE>
[cover page]
DAVIS INTERNATIONAL GROWTH FUND
Prospectus
Class Y
December 31, 1998
The Securities and Exchange Commission has not approved or disapproved of the
shares of Davis International Growth Fund-or any other mutual fund-as an
investment. The Securities and Exchange Commission has not determined whether
this prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
(Davis logo)
Over 25 years of Reliable Investing
<PAGE>
[INSIDE FRONT COVER]
RISK SPECTRUM
Davis Selected Advisers manages twelve mutual funds in the Davis family. Each
fund has a distinct investment objective and strategy. The following graph
shows how these funds compare to each other in terms of risk. Davis
International Growth Fund has a risk level we characterize as "high."
[INSERT RISK SPECTRUM GRAPHIC]
[IN BLACK AREA BELOW GRAPHIC]
For more information about any of the other Davis Funds, including charges and
expenses, ask for a prospectus. Read it carefully before investing or sending
money.
2
<PAGE>
TABLE OF CONTENTS
SNAPSHOT OF DAVIS INTERNATIONAL GROWTH FUND
OVERVIEW OF THE FUND
INVESTMENT OBJECTIVE AND STRATEGY
PRINCIPAL RISKS
FUND PERFORMANCE
FEES AND EXPENSES
WHO IS RESPONSIBLE FOR YOUR DAVIS ACCOUNT
HOW WE MANAGE THE FUND
ONCE YOU INVEST IN THE FUND
HOW TO BUY, SELL AND EXCHANGE SHARES
THE DAVIS FUNDS: OVER 25 YEARS OF RELIABLE INVESTING
OTHER FUND DOCUMENTS
3
<PAGE>
SNAPSHOT OF DAVIS INTERNATIONAL GROWTH FUND
This section provides you with basic information about Davis International
Growth Fund that can help you decide if the Fund suits your needs.
(graphic)
TYPE OF FUND
International Equity fund
INVESTMENT OBJECTIVE
Growth of Capital
RISK SPECTRUM LEVEL
High
YOU SHOULD CONSIDER INVESTING IN THIS FUND IF
o you are seeking long-term growth of capital.
o you are seeking international diversification.
o you are investing for the long-term (five years or more).
YOU SHOULD NOT INVEST IN THIS FUND IF
o you are worried about the possibility of sharp price swings and dramatic
market declines.
o you are uncomfortable investing in foreign markets.
o you are interested in earning current income.
o you are investing for the short-term (less than five years).
MINIMUM INITIAL INVESTMENT
o institutions and government entities: $5 million
o wrap fee program investors: minimums set by your sponsor
If, after reading this section, you think that the Fund may suit your
investment goals, you should read the rest of this prospectus for more detailed
information.
4
<PAGE>
OVERVIEW OF DAVIS INTERNATIONAL GROWTH FUND
INVESTMENT OBJECTIVE AND STRATEGY
Davis International Growth Fund's investment objective is growth of capital.
The Fund will pursue this objective by investing primarily in the common stocks
of foreign companies and U.S. companies doing substantial business in foreign
markets.
Our portfolio manager's use the Davis investment philosophy to select common
stocks of quality overlooked growth companies at value prices and to hold them
for the long-term. Our approach centers on the recognition that managing risk
is the key to delivering superior long-term investment results. We always
consider how much could potentially be lost on an investment before considering
how much might be gained.
[SIDEBAR: ]
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.
You can find more detailed information about the types of securities that the
Fund buys in the section called HOW WE MANAGE THE FUND.
PRINCIPAL RISKS
If you buy shares of Davis International Growth Fund, you may lose some or all
of the money that you invest. This section describes what we think are the most
significant factors that can cause the Fund's performance to suffer.
o COMPANY RISK. The price of an equity security varies with the success and
failure of its issuer. As a result, the success of the companies in which
the Fund invests largely determines the Fund's performance. Investing in
small capitalization companies carries greater risk than investing in the
stock of larger companies.
o COUNTRY RISK. The market value of shares of common stock can change
rapidly and unpredictably as a result of political or economic events
having little or nothing to do with the issuer. There are additional risks
with investing in foreign countries which may cause the Fund to be more
volatile than a domestic stock fund investing solely in the United States
("U.S."). Foreign economies may not be as strong or as diversified,
foreign political systems may not be as stable, and foreign financial
reporting standards may not be as rigorous as in the U.S. In addition,
foreign capital markets may not be as well developed as in the U.S., so
markets may be less liquid,
5
<PAGE>
transaction costs may be higher, and investments may be subject to
government regulation.
o CURRENCY RISK. The Fund experiences currency risk because the Fund
invests primarily in securities denominated in foreign currencies. Foreign
currencies "float' in value against the U.S. dollar. Adverse changes in
foreign currency value can cause investment losses when the value of the
Fund's investments are converted to U.S. dollars.
The Fund is not intended to be a complete investment program on its own, but
may serve to diversify other types of investments in your portfolio.
An investment in Davis International Growth Fund is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
You can find more detailed information about the risks of the Fund's particular
investments in the section called HOW WE MANAGE THE FUND.
FUND PERFORMANCE
Davis International Growth Fund began selling shares to the public on January
1, 1999. Davis International Growth Fund's investment performance will vary
from year to year. The value of the Fund's shares may go up or down.
FEES AND EXPENSES
[DESIGN NOTE: the following explanations to be next to fee chart]
FRONT-END SALES CHARGE. A fee some mutual funds charge to buy shares of a
mutual fund.
DEFERRED SALES CHARGE. A fee some mutual funds charge to sell shares of a
mutual fund.
EXCHANGE FEE. A fee some mutual funds charge to sell shares in one fund and to
buy another fund.
6
<PAGE>
FEES YOU MAY PAY AS A DAVIS INTERNATIONAL GROWTH FUND SHAREHOLDER
(PAID DIRECTLY FROM YOUR INVESTMENT)
- -------------------------------------------------------------------------------
CLASS Y
- -------------------------------------------------------------------------------
Maximum sales charge you pay when you buy shares None
- -------------------------------------------------------------------------------
Maximum deferred sales charge you pay when you sell shares None
- -------------------------------------------------------------------------------
Maximum sales charge you pay on reinvested dividends None
- -------------------------------------------------------------------------------
Exchange Fee None
- -------------------------------------------------------------------------------
[DESIGN NOTE: the following explanations to be next to table of operating
expenses]
MANAGEMENT FEES. Costs to manage a mutual fund's portfolio and to administer
its business affairs. This fee is a percentage of the Fund's net asset value.
DISTRIBUTION FEES. Fees some mutual funds pay to a distributor to sell and
distribute shares and to provide services to shareholders (also known as a
12b-1 fee).
OTHER EXPENSES. The most significant fees in this category are those to
attorneys, accountants, directors, and the custodian and transfer agent (State
Street Bank and Trust Company).
TOTAL ANNUAL OPERATING EXPENSES. The percentage of the Fund's average net
assets that are used each year to pay expenses (also known as the expense
ratio).
ANNUAL FUND OPERATING EXPENSES
ESTIMATED FOR FISCAL YEAR ENDED SEPTEMBER 30, 1999
(DEDUCTED FROM DAVIS INTERNATIONAL GROWTH FUND'S ASSETS)
- -------------------------------------------------------------------------------
CLASS Y
- -------------------------------------------------------------------------------
Management Fees 1.00%
- -------------------------------------------------------------------------------
Distribution (12b-1) Fees None
- -------------------------------------------------------------------------------
Other Expenses* 0.40%
- -------------------------------------------------------------------------------
Total Annual Operating Expenses 1.40%
- -------------------------------------------------------------------------------
* "Other Expenses" are based upon estimated operating expenses for the first
fiscal year. The Fund's actual average net assets may be either higher or lower
than those used in calculating the estimate, resulting in actual expense ratios
which may be either greater or less than those presented.
7
<PAGE>
IF I INVEST IN THIS FUND, WHAT WILL IT COST ME?
Here is an example of what your costs might be if you invest in Davis
International Growth Fund. It is designed to help you compare investing costs
with other mutual funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. It also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. The example is based upon estimated
operating expenses for the first fiscal year. The Fund's actual average net
assets may be either higher or lower than those used in calculating the
estimate, resulting in actual expense ratios which may be either greater or
less than those presented.
COST OF INVESTING $10,000 IN DAVIS INTERNATIONAL GROWTH FUND
- -------------------------------------------------------------------------
IF YOU SELL YOUR CLASS Y SHARES IN... YOU WOULD PAY...
- -------------------------------------------------------------------------
1 Year $14
- -------------------------------------------------------------------------
3 Years $44
- -------------------------------------------------------------------------
5 Years $77
- -------------------------------------------------------------------------
10 Years $168
- -------------------------------------------------------------------------
8
<PAGE>
WHO IS RESPONSIBLE FOR YOUR DAVIS ACCOUNT
A number of entities provide services to Davis International Growth Fund. This
section shows how the Fund is organized, the entities that perform these
services, and how these entities are compensated. Additional information on the
organization of the Fund is provided in the Fund's Statement of Additional
Information. For information on how to receive this document, see the back
cover of this prospectus.
INVESTMENT ADVISER
DAVIS SELECTED ADVISERS, LP
Referred to throughout this prospectus as "Davis Selected Advisers"
124 East Marcy Street
Santa Fe, NM 87501
o Provides investment advice for Davis International Growth Fund's
portfolio.
o Manages Davis International Growth Fund's business affairs.
o Provides day-to-day administrative services.
o Serves as investment adviser for all of the Davis Funds, other mutual
funds, and other institutional clients.
o Annual Adviser Fee estimated for fiscal year September 30, 1999 (based on
average net assets): 1.00%
INVESTMENT SUB-ADVISER
DAVIS SELECTED ADVISERS-NY, INC.
Referred to throughout this prospectus as "Davis Selected Advisers-NY"
609 Fifth Avenue
New York, NY 10017
o Performs investment management and research services for Davis
o International Growth Fund and other institutional clients.
o Wholly owned subsidiary of Davis Selected Advisers.
o Annual Fee: Davis Selected Advisers pays the fee, not the Fund.
9
<PAGE>
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK AND TRUST COMPANY
Also referred to as "State Street Bank and Trust"
P.O. Box 8406
Boston, MA 02266-8406
o Prices the Fund daily.
o Holds share certificates and other assets of the Fund.
o Maintains records of shareholders.
o Issues and cancels share certificates.
o Supervises the payment of dividends.
BOARD OF DIRECTORS
The Fund's Board of Directors has general supervisory responsibilities of the
Fund and supervises the investment adviser's duties.
DISTRIBUTOR
DAVIS DISTRIBUTORS, LLC
Referred to throughout this prospectus as "Davis Distributors"
124 East Marcy Street
Santa Fe, NM 87501
o Oversees purchases of shares and promotional activities for Davis
International Growth Fund.
o Wholly owned subsidiary of Davis Selected Advisers.
o Serves as distributor for all of the Davis Funds and other mutual funds
managed by Davis Selected Advisers.
10
<PAGE>
YEAR 2000 AND EURO CONVERSION
Like all financial service providers, the Adviser, Sub-Adviser,
Distributor, and third parties providing investment advisory, administrative,
transfer agent, custodial and other services ("Service Providers") utilize
systems that may be affected by change from the year 1999 to the year 2000.
Specifically, older computer software systems in use today cannot distinguish
the year 2000 from the year 1900 because of the way dates are encoded and
calculated. Also, on January 1, 1999, eleven of the fifteen members states of
the European Union are scheduled to convert to a common currency called the
"Euro". Difficulties with Year 2000 and Euro Conversion issues could have a
negative impact on handling securities trades, payments of interest and
dividends, pricing and account services. In response to these potential
problems, the Service Providers have advised the Funds that they are actively
working on necessary computer system changes in preparation for the Year 2000
and Euro Conversions. The Funds have been informed that the Service Providers'
computer systems and those of third parties with whom they work, will be
adapted in time for these two events. Nonetheless, there remains the
possibility that companies in which the Funds invest may experience
difficulties with Year 2000 and Euro Conversions which may negatively effect
their market value.
11
<PAGE>
WHO THE PORTFOLIO MANAGERS ARE
SHELBY M.C. DAVIS
Responsibilities:
o Chief Investment Officer of Davis Selected Advisers.
o President of all the Davis Funds.
Other Experience:
o Served as Davis New York Venture Fund's Portfolio Manager from its
inception in 1969 until February 1997.
o Served as Portfolio Manager of a growth and income fund managed by
Davis Selected Advisers from May 1993 until February 1997.
JEFFREY W. SINGER
Responsibilities:
o Portfolio Manager of the Fund since inception, January 1, 1999.
o Also manages other international equity accounts advised by Davis
Selected Advisers.
Other Experience:
o Senior Research Analyst and Principal for a New York investment adviser
from 1992 through 1998.
o Was responsible for investment research for a number of industries on a
global basis.
[BOXED]
OUR CODE OF ETHICS
We allow the officers and employees of Davis International Growth Fund, Davis
Selected Advisers and its affiliates to buy and sell securities for their own
personal accounts. However, in order to do so they must agree to a number of
restrictions, listed in our company Code of Ethics.
12
<PAGE>
HOW WE MANAGE THE FUND
This section provides an overview of the types of securities the Fund invests
in and details the strategies the Fund uses to minimize the risk of investing
in these securities.
WHAT WE INVEST IN AND WHY
Davis International Growth Fund's investment objective is growth of capital.
The Fund pursues this objective by investing primarily in common stocks of
foreign companies and U.S. companies doing substantial business in foreign
markets. Investing internationally offers additional opportunities to purchase
quality overlooked growth stocks. In keeping with the Davis investment
philosophy, our portfolio managers select international equity securities that
offer the potential for capital growth over the long-term.
The Fund has the flexibility to invest on a worldwide basis in companies of any
size, regardless of country of organization or place of principal business
activity. The Fund normally invests at least 65% of its total assets in foreign
securities issued by companies from at least three different countries, outside
of the U.S. At times the Fund may temporarily invest all of its assets in fewer
than three countries.
While the Fund may at times invest in companies doing significant business in
lesser-developed emerging markets or in the U.S., its focus is upon companies
doing substantial business in developed markets outside of the U.S.
INTERNATIONAL EQUITY SECURITIES
WHAT THEY ARE. International equity securities are equity securities issued
either by foreign companies or by U.S. companies doing substantial business in
foreign markets. International equity securities are:
(1) Issued by companies organized under the laws of a foreign
country;
(2) Principally traded in securities markets outside of the U.S.;
(3) Issued by companies earning at least 50% of their revenues or
profits outside of the U.S.; or
(4) Issued by companies having at least 50% of their assets outside
of the U.S.
International equity securities represent ownership of a company. International
equity securities come in many forms, but the form that the Fund typically owns
is common stock.
HOW WE PICK THEM. The Davis investment philosophy stresses a back-to-basics
approach: we use extensive research to buy growing companies at value prices
and hold on to them for the long-term. Over the years, Davis Selected Advisers
has developed a list of ten characteristics that we believe foster sustainable
long-term growth, minimize risk, and enhance the potential for superior
long-term returns. While very few companies have
13
<PAGE>
all ten, we search for companies that demonstrate several of the
characteristics that are listed in the following chart.
[SET OFF OR BOXED]
WHAT WE LOOK FOR IN A COMPANY
1. FIRST-CLASS MANAGEMENT. We believe that great companies are created by
great managers. In visiting companies, we look for managers with a record
of doing what they say they are going to do.
2. MANAGEMENT OWNERSHIP. Just as we invest heavily in our own funds, we look
for companies where individual managers own a significant stake.
3. STRONG RETURNS ON CAPITAL. We want companies that invest their capital
wisely and reap superior returns on those investments.
4. LEAN EXPENSE STRUCTURE. Companies that can keep costs low are able to
compete better, especially in difficult times. A low cost structure
sharply reduces the risk of owning a company's shares.
5. DOMINANT OR GROWING MARKET SHARES IN A GROWING MARKET. A company that is
increasing its share of a growing market has the best of both worlds.
6. PROVEN RECORD AS AN ACQUIRER. When an industry or market downturn occurs,
it is a good idea to own companies that can take advantage of attractive
prices to expand operations through inexpensive acquisitions.
7. STRONG BALANCE SHEET. Strong finances give a company staying power to
weather difficult economic cycles.
8. COMPETITIVE PRODUCTS OR SERVICES. We invest in companies with products
that are not vulnerable to obsolescence.
9. SUCCESSFUL INTERNATIONAL OPERATIONS. A proven ability to expand
internationally reduces the risk of being tied too closely to the U.S.
economic cycle.
10. INNOVATION. The savvy use of technology in any business, from a food
company to an investment bank, can help reduce costs and increase sales.
WHY WE BUY THEM. Davis International Growth Fund buys international equity
securities to take an ownership position in foreign companies with growth
potential, and then holds that position long enough to realize the benefits of
growth.
RISKS. Factors that influence the value of a share of common stock are
primarily the financial condition and performance of the issuer; general
market, political and economic conditions of the countries we invest in, and
currency fluctuations.
14
<PAGE>
o COMPANY RISK. The price of an equity security varies with the success and
failure of its issuer. As a result, the success of the companies in which
the Fund invests largely determines the Fund's performance. Investing in
small capitalization companies carries greater risk than investing in the
stock of larger companies.
o COUNTRY RISK. The market value of shares of common stock can change
rapidly and unpredictably as a result of political or economic events
having little or nothing to do with the issuer. There are additional risks
with investing in foreign countries which may cause the Fund to be more
volatile than a domestic stock fund investing solely in the U.S.. Foreign
economies may not be as strong or as diversified, foreign political
systems may not be as stable, and foreign financial reporting standards
may not be as rigorous as in the U.S. In addition, foreign capital markets
may not be as well developed as in the U.S., so markets may be less
liquid, transaction costs may be higher, and investments may be subject to
government regulation.
These risks are greater in a less developed country.
o CURRENCY RISK. The Fund experiences currency risk because the Fund invests
primarily in securities denominated in foreign currencies. Foreign
currencies "float' in value against the U.S. dollar. Adverse changes in
foreign currency value can cause investment losses when the value of the
Fund's investments are converted to U.S. dollars
The Fund may attempt to reduce exposure to market and currency fluctuations by
trading in currency futures contracts, options on futures contracts, or forward
foreign currency exchange contracts for hedging purposes. Because the Fund
normally invests primarily in foreign companies, our operating expenses are
likely to be higher than funds invested exclusively in U.S. companies.
SHORT-TERM INVESTMENTS
WHAT THEY ARE. Short-term investments are fixed-income securities (such as U.S.
government securities, repurchase agreements and commercial paper) that will
only be outstanding for one year or less after Davis International Growth Fund
buys them.
[SIDEBAR]
A repurchase agreement is a type of short-term investment that uses securities
as collateral. Like a short-term loan, the borrower sells securities to the
lender. The borrower agrees to buy back the securities at a certain time--at a
higher price that incorporates an "interest payment."
15
<PAGE>
HOW WE PICK THEM. Most of the Fund's short-term investments are high-grade
money market instruments and repurchase agreements. The Fund may also hold cash
in interest-bearing bank deposits.
WHY WE BUY THEM. The Fund uses short-term investments to earn interest and
maintain flexibility while we evaluate long-term opportunities. We also may use
short-term investments for "defensive" purposes; in the event our portfolio
managers anticipate a substantial drop in the stock market, we may reduce our
risk by investing in short-term securities until market conditions improve.
RISKS. Short-term investments do not present a lot of risk: issuers are
generally stable, and the time period between the security's purchase and the
payoff date is relatively short, offering little chance for conditions to
deteriorate. However, these investments will not appreciate in value as common
stocks do when the market advances.
16
<PAGE>
HOW WE MANAGE RISK
Risks are inherent in all investments. Investing in a mutual fund, even the
most conservative, involves risk, including the risk that you may receive
little or no return on your investment or even that you may lose part or all of
your investment. Davis International Growth Fund has seven strategies to
minimize the risk assumed when we invest.
[SET OFF OR BOXED]
SEVEN STRATEGIES WE MAY USE TO MINIMIZE RISK
1. WE PURCHASE HIGH-QUALITY GROWTH COMPANIES. Our focus on high-quality
growth companies reduces the likelihood that your investment will be tied
up in a failing company.
2. WE USE A CONSERVATIVE VALUATION STRATEGY. Once we find companies that meet
our business criteria, we determine how much to pay for their shares. We
follow a price discipline that tells us how much we can reasonably pay for
a stock. While no system can prevent all losses, this conservative
approach helps us avoid the calamitous losses that occur in bear markets.
3. WE HAVE A LONG-TERM VISION. We get to know the managers of the companies
we invest in and understand their goals. We view temporary setbacks as
buying opportunities: when other managers sell stocks in response to bad
news, we evaluate the issuer's long-term prospects.
4. WE EMPHASIZE DIVERSIFICATION. We diversify the Fund across both individual
companies and industry sectors. This reduces price volatility and
minimizes the losses the Fund experiences when a company or industry
sector declines in market value.
5. WE DO NOT USE MARKET TIMING. We do not base our decisions to buy and sell
securities on whether we believe the stock market will rise or fall (known
as market timing). However, we can raise the level of cash in the Fund
when stock prices get too high and it becomes difficult to purchase
quality-undervalued growth companies.
6. LIMITED HEDGING. The Fund may attempt to reduce exposure to market and
currency fluctuations by trading in currency futures contracts, options on
futures contracts, or forward foreign currency exchange contracts for
hedging purposes.
7. WE MAY MAKE TEMPORARY DEFENSIVE INVESTMENTS. From time to time, Davis
International Growth Fund may take temporary defensive positions in
response to adverse market, economic or political conditions.
17
<PAGE>
ONCE YOU INVEST IN THE FUND
This section describes what happens to your money once it is invested: how your
investment is valued, how you earn money on your investment, and how the
government may tax these earnings.
HOW YOUR SHARES ARE VALUED
As an investor in Davis International Growth Fund, you are entitled to buy and
sell shares on any business day. The share price of your investment changes
depending on the total value of the Fund's investments.
Each business day, we determine the value of Fund shares by adding up the total
value of investments plus other assets (such as cash), subtracting liabilities,
and dividing the result by the total number of shares outstanding. This share
figure is known as the net asset value (NAV).
Net asset values for all the Davis Funds is determined each day the Funds are
open for business. A business day is defined as any day the New York Stock
Exchange is open for trading. We calculate net asset value either at the close
of the Exchange or at 4 p.m. Eastern Time, whichever comes first.
The net asset values of all Davis Fund shares are published daily in the
business section of most major newspapers. If you have access to the Internet,
you can also check net asset value on our web site (WWW.DAVISFUNDS.COM).
HOW SECURITIES IN THE PORTFOLIO ARE VALUED
We use current market valuations to value the securities in Davis International
Growth Fund:
o Securities that trade on an organized exchange are valued at the last
published sales price on the exchange. If no sales are recorded, the
securities are valued at the average of the closing bid and asked prices
on the exchange.
o Over-the-counter securities are valued at the average of closing bid and
asked prices.
o Debt securities maturing in 60 days or less are usually valued at an
amortized (gradually reduced) cost.
o Longer-term debt securities may be valued by an independent pricing
service.
o Securities with unavailable market quotations and other assets are valued
at "fair value"--which is determined or directed by the Board of
Directors.
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o Because the Funds securities are traded in markets that close at different
times, events affecting portfolio values that occur between the time that
their prices are determined and the time the Fund's shares are priced will
generally not be reflected in the Fund's share price.
o The value of securities denominated in foreign currencies and traded in
foreign markets will have their value converted into the U.S. dollar
equivalents at the prevailing market rate as computed by State Street Bank
& Trust Company. Fluctuation in the value of foreign currencies in
relation to the U.S. dollar may affect the net asset value of the Fund's
shares even if there has not been any change in the foreign currency price
of the Fund's investments.
HOW WE PAY EARNINGS
There are two ways you can receive payments from Davis International Growth
Fund:
o DIVIDENDS. Distributions to shareholders of net investment income and
short-term capital gains on investments.
o CAPITAL GAINS. Profits received by the Fund from the sale of securities
held for the long-term, which are then distributed to shareholders.
Davis International Growth Fund usually pays dividends once a year. Dividends
are declared in November or December and capital gains, if any, are distributed
in November or December. Unless you choose otherwise, the Fund automatically
reinvests your dividends and capital gains in additional Fund shares.
You can request to have your dividends and capital gains paid to you by check,
deposited directly into your bank account, paid to a third party, or sent to an
address other than your address of record.
QUOTATIONS
The bid price is the highest price a prospective buyer is prepared to pay for a
security. The asked price is the lowest price acceptable to a prospective
seller. The average of these two prices is known as a quote or quotation.
OVER THE COUNTER SECURITIES
Over the counter securities are not listed or traded on an organized exchange.
They are bought and sold by dealers connected by telephones and computer
networks.
NET INVESTMENT INCOME
Net investment income is income received by the Fund from company dividends and
interest on securities investments, minus management fees and all other
expenses.
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You will receive a statement each year detailing the amount of all dividends
and capital gains paid to you during the previous year. To ensure that these
distributions are reported properly to the U.S. Treasury, you must certify on
your Application Form (or on Form W-9) that your Taxpayer Identification Number
is correct and you are not subject to backup withholding (which means that you
are paying back taxes for failing to report all interest and dividends).
If you fail to report a correct Taxpayer I.D. Number, under-reported dividend
or interest income, or are already subject to backup withholding, Davis
International Growth Fund is required by law to withhold a portion of any
distributions you may receive--and send it to the U.S. Treasury.
HOW YOUR DIVIDENDS AND CAPITAL GAINS ARE TAXED
o If Davis International Growth Fund pays dividends, they are taxable to
shareholders as ordinary income. Dividends include both net investment
income and short-term capital gains.
o If Davis International Growth Fund pays net capital gains, they generally
will be taxed as a long-term capital-gains distribution.
These payments may be taxed at different rates, depending on the length of time
the Fund holds its assets. More information is provided in the instructions
that come with your tax return.
Investment earnings (dividends and capital gains) are taxable in the year in
which they were declared, not paid--whether they are received in cash or
reinvested in shares.
Also, keep in mind that when you sell or exchange shares of the Fund, it may
result in a taxable gain or loss.
We recommend that you consult with a tax adviser about any dividends and
capital gains you may receive from Davis International Growth Fund.
FOREIGN TAXES ON FUND INCOME. Income received by the Davis International Growth
Fund may be subject to foreign income taxes. Foreign taxes increase the Fund's
expenses and decrease the income available to the Fund to pay as dividends. If
it is practical, the Fund intends to "pass through" the amount of such taxes to
the Fund's shareholders. Shareholders may be able to claim a deduction or
credit against their Federal Income Taxes for their pro rata share of foreign
taxes paid by the Fund.
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HOW TO BUY, SELL AND EXCHANGE SHARES
Once you have opened an account with Davis, you can add to--or withdraw
from--your initial purchase. This section provides an overview of the types of
transactions you can perform as a shareholder of Davis International Growth
Fund. This includes how to initiate these transactions, and the charges that
you may incur (if any) when buying, selling and exchanging shares.
YOU CAN OPEN AN ACCOUNT IF:
o You invest at least $5 million for an institution (trust company, bank
trust, endowment, pension plan, foundation) acting on behalf of its own
account or one or more clients.
o You invest at least $5 million for a government entity (a state, county,
city, department, authority or similar government agency).
o You invest with an account established under a "wrap account" or other
fee-based program that is sponsored and maintained by a registered
broker-dealer approved by our distributor, Davis Distributors.
(chart)
BUYING SHARES
There are several ways you can buy Fund shares:
1. BY WIRE. You may buy shares at any time by wiring federal funds directly to
our service provider, State Street Ban and Trust. Before wiring an initial
investment, the institutional shareholder or wrap program sponsor must call our
distributor, Davis Distributors, at 1-800-279-0279 to let them know the fund
and share class you will be buying. To ensure that the purchase is credited
properly, follow these wire instructions:
State Street Bank and Trust Company,
Boston, MA 02210
Attn.: Mutual Fund Services
DAVIS INTERNATIONAL GROWTH FUND, INC.
Shareholder Name,
Shareholder Account Number,
Federal Routing Number 011000028,
DDA Number 9904-606-2
2. BY MAIL. Send the request to our service provider, State Street Bank and
Trust. If you have a purchase form provided by State Street, include it with
the check. If you do not have a form, include a letter with your check stating
the name of the fund and that the investment should be made in Class Y shares.
If you know your account number, include it on the check.
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Regular Mail
State Street Bank and Trust Company
c/o Davis Funds
P.O. Box 8406
Boston, MA 02266-8406
Overnight Mail
State Street Bank and Trust Company
c/o Davis Funds
66 Brooks Drive
Braintree, MA 02184
3. BY DEALER. You may have your dealer order and pay for the shares. In this
case, you must pay your dealer directly. Your dealer will then order the shares
from our distributor, Davis Distributors. Please note that your dealer may
charge a service or commission for buying these shares.
Generally, the Fund does not issue share certificates for purchases. Each time
to add to or withdraw from your account, you will receive a statement showing
the details of the transaction--along with any other transactions you made
during the current year.
WHEN YOUR TRANSACTIONS ARE PROCESSED
The per-share price for purchases or sales made through our distributor, Davis
Distributors, will be processed on the same day if the order is received before
4 p.m. Eastern Time. If State Street Bank and Trust requires additional
documents to complete the purchase or sale, the transaction price will be
determined at the close of business after all required documents are received.
For your transaction to be counted on the day you place your order with your
broker-dealer or other financial institution, they must:
o Receive your order before 4 p.m. Eastern Time.
o Promptly transmit the order to State Street Bank and Trust.
BUYING MORE SHARES
You can buy more shares at any time, either by telephone, by mail or through a
dealer. The minimum purchase amount is $25.
When you purchase shares by mail, send a check payable to the DAVIS FUNDS for
the amount of purchase to our service provider, State Street Bank and Trust. If
you have the
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<PAGE>
purchase form from your most recent statement, include it with the check. If
you do not have a purchase form, include a letter with your check stating the
name of the fund and the class of shares you wish to buy. If you know your
account number, include it on the check.
When you buy shares through a dealer, you may be charged a service fee or
commission for performing the transaction.
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SPECIAL NOTE FOR WRAP PROGRAM INVESTORS
Be aware that both Class A and Class Y shares are available by the Fund at net
asset value to your sponsor. However, Class A shares are subject to additional
expenses, and sponsors of wrap programs who buy Class A shares are generally
entitled to commissions. If your sponsor has selected Class A shares, you
should discuss these charges and weigh the benefits of any services to be
provided by the sponsor against the higher expenses paid by Class A
shareholders. For more information on these fees and expenses, you can request
the prospectus covering Class A shares by calling Davis Distributors at
1-800-279-0279.
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<PAGE>
SELLING SHARES
You may sell back all or part of your shares to Davis International Growth Fund
(known as a redemption) at any time, at net asset value. You can sell the
shares by telephone, by mail or through a dealer.
For more information on selling shares by telephone, see "Transactions By
Telephone" at the end of this section.
When you sell shares by mail, indicate the number of shares or dollar amount
you wish to redeem and send the request to our service provider, State Street
Bank and Trust. If more than one person owns the shares you wish to sell, all
owners must sign a request.
When you sell shares through a dealer, you may be charged a service fee or
commission for performing the transaction.
Redemption proceeds are usually paid to you in cash within seven days after
State Street Bank and Trust receives your proper sale request. You will not be
allowed to sell shares that have been paid for by check until the shares have
been in your account for 15 days.
WHAT YOU NEED TO KNOW BEFORE YOU SELL YOUR SHARES
o You will always receive cash for sales that total less than $250,000 or
1% of the Fund's net asset value during any 90-day period. Any sales above
the cash limit may be paid in securities and would mean you would have to
pay brokerage fees.
o Ordinarily, you only need a medallion signature guarantee on a share
certificate, stock power, or redemption request for sales of more than
$50,000. However, if you have made any changes to the Application Form
since your account was opened, or if your address of record has changed in
the last 30 days, you will need a medallion signature for all sales.
o If a certificate was issued for the shares you wish to sell, the
certificate must by signed by the owner(s) and sent to State Street Bank
and Trust along with the redemption request.
o A sale may produce a gain or loss. Gains may be subject to tax.
MEDALLION SIGNATURE GUARANTEE
A written confirmation from an eligible guarantor institution, such as a
securities broker-dealer or a commercial bank, that the signature(s) on the
account is(are) valid. Unfortunately, no other form of signature verification
can be accepted.
STOCK POWER
A letter signed by the owner of the shares that gives State Street Bank and
Trust permission to transfer ownership of the shares to another person or
group.
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SPECIAL SALE SITUATIONS
o The Securities and Exchange Commission can suspend payment of sales under
certain emergency circumstances if the New York Stock Exchange is closed
for reasons other than customary closings and holidays.
o Davis International Growth Fund may make sales payments in securities if
Davis International Growth Fund's Board of Directors decides that making
cash payments would harm the Fund.
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EXCHANGING SHARES
You can transfer Class Y shares of Davis International Growth Fund to Class Y
shares in any other Davis Fund. This is known as an exchange. You can exchange
shares by telephone (to accounts with identical registrations), by dealer or by
mail. The initial exchange must be for at least $5 million for institutions or
government entities or minimums set by wrap program sponsors. Class A
shareholders who are eligible to buy Class Y shares may also exchange their
shares for Class Y shares of the Fund. Exchanges are normally performed on the
same day of the request if received by 4 p.m. Eastern Time. However, if your
exchange involves a large sale, the transfer may take one to seven days.
For more information on exchanging shares by telephone, see "Transactions By
Telephone" at the end of this section.
When you exchange shares by mail, you must send our service provider, State
Street Bank and Trust, a written request for the exchange. No medallion
signature guarantee is required unless shares are also being sold for cash and
would otherwise require a medallion signature guarantee.
When you exchange shares through a dealer, you may be charged a service fee or
commission for performing the transaction.
Before you decide to make an exchange, you must obtain the current prospectus
of the desired fund. For federal income tax purposes, exchanges between funds
are treated as a sale and a purchase. Therefore, there will usually be a
recognizable capital gain or loss due to an exchange.
There are limits to the number of exchanges you can make each year. Currently,
four exchanges are allowed during a 12-month period. Davis Distributors must
approve any exchanges above the limit in writing.
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YOU CAN MAKE EXCHANGES AMONG ANY OF THE FOLLOWING DAVIS FUNDS:
EQUITY FUNDS
Davis New York Venture Fund
Davis Growth Opportunity Fund
Davis Financial Fund
Davis International Total Return Fund
Davis International Growth Fund
GROWTH & INCOME FUNDS
Davis Growth & Income Fund
Davis Real Estate Fund
Davis Convertible Securities Fund
BOND FUNDS
Davis Intermediate Investment Grade Bond Fund
Davis Tax-Free High Yield Fund
Davis Government Bond Fund
GOVERNMENT MONEY MARKET FUND
Davis Government Money Market Fund
TRANSACTIONS BY TELEPHONE
A benefit of investing through Davis Funds is that you can use our telephone
system to sell or exchange shares. If you do not wish to have this option
activated for your account, you must note this on your Application Form.
When you call 1-800-279-0279, you can make a sale or exchange in two ways:
o You can speak directly with a representative during business hours (7 a.m.
to 4 p.m. Mountain Time).
o If you have a TouchTone(TM) telephone, you can use the automated telephone
system, known as DAVIS DIRECT ACCESS, 24 hours a day, seven days a week.
[SET OFF]
YOU CAN USE DAVIS DIRECTACCESS TO:
o GET THE PRICE, TOTAL RETURN AND FUND DESCRIPTION FOR ANY DAVIS FUND.
o CHECK YOUR ACCOUNT BALANCE AND OTHER ACCOUNT INFORMATION.
o SELL AND EXCHANGE SHARES.
o GET THE MAILING ADDRESS AND WIRE INSTRUCTIONS FOR ANY DAVIS FUND.
o REQUEST LITERATURE ABOUT ANY DAVIS FUND.
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<PAGE>
If you wish to sell shares by phone and receive a check in the mail:
o The maximum amount that can be issued is $25,000.
o The check can only be issued to the registered account owner.
o The check must be sent to the address on file with Davis.
o Your current address must be on file for 30 days.
When you sell or exchange shares over the telephone, you agree that Davis
International Growth Fund is not liable for following telephone instructions
believed to be genuine (that is, directed by the account holder). We use
certain procedures to confirm that your instructions are genuine, including a
request for personal identification (your account or Social Security number)
and a tape recording of the conversation. If these procedures are not used, the
Fund may be liable for unauthorized instructions.
Be aware that during unusual market conditions, Davis Funds may not be able to
accept all requests by phone.
29
<PAGE>
[INSIDE BACK COVER]
THE DAVIS FUNDS:
OVER 25 YEARS OF RELIABLE INVESTING
OUR STORY. Davis Selected Advisers, investment adviser of the Davis Funds, has
a history of investing for the long-term. Since our founding in 1969, we have
been dedicated to delivering superior investment performance and service to our
clients.
WE ARE LONG-TERM INVESTORS. We analyze high-quality growth companies that have
been overlooked, buy their stock at value prices, and hold the shares for the
long-term. This strategy was first developed by legendary Wall Street investor
Shelby Cullom Davis, a leading financial adviser to governors and presidents.
Our investment approach has been refined over the last 25 years by his son,
Shelby M.C. Davis, who is now Chief Investment Officer of Davis Selected
Advisers. The Davis strategy is still followed today by the third generation of
family members: Christopher C. Davis and Andrew A. Davis serve as Portfolio
Manager or Co-Portfolio Manager for many Davis Funds.
WE ARE FELLOW SHAREHOLDERS. The Davis family, directors and employees not only
manage the company's mutual funds but also invest in them. Together, we have
invested over $1 billion of our own money side-by-side with our shareholders.
Please take the time to read this prospectus carefully and, if you decide to
invest with us, keep it as a reference guide. If you need more information
about the Davis Funds, please call us or visit our Web site.
30
<PAGE>
[DESIGN ISSUE: WILL THE SECTION BELOW BE PERFED?]
ADDRESS AND PHONE GUIDE
OUR TELEPHONE NUMBER OUR INTERNET ADDRESS
1-800-279-0279 http://www.davisfunds.com
OUR MAILING ADDRESS
Davis Distributors
124 East Marcy Street
Santa Fe, New Mexico 87501
OUR SERVICE PROVIDER'S REGULAR OUR SERVICE PROVIDER'S OVERNIGHT
MAILING ADDRESS MAILING ADDRESS
State Street Bank and Trust Company State Street Bank and Trust Company
c/o Davis Funds c/o. Davis Funds
P.O. Box 8406 66 Brooks Drive
Boston, MA 02266-8406 Braintree, MA 02184
31
<PAGE>
[BACK COVER]
OTHER FUND DOCUMENTS
For more information about Davis International Growth Fund, request a free copy
of the Statement of Additional Information or the Annual and Semi-Annual
Reports. The STATEMENT OF ADDITIONAL INFORMATION provides more detailed
information about the Fund and its management and operations. The ANNUAL REPORT
will discuss the market conditions and investment strategies that significantly
affected fund performance during the year. The SEMI-ANNUAL REPORT updates
information provided in the Annual Report for the next six months.
Davis International Growth Fund's Statement of Additional Information and
Annual Report have been filed with the Securities and Exchange Commission, are
incorporated by reference, and are legally a part of this prospectus.
WHERE YOU CAN GET THESE DOCUMENTS:
o BY TELEPHONE. Call Davis Funds toll-free at 1-800-279-0279, Monday-Friday,
7 a.m. to 4 p.m. Mountain Time.
o VIA THE INTERNET. Visit the SEC web site (WWW.SEC.GOV).
o FROM THE SEC. The SEC's Public Reference Room in Washington, D.C. For more
information call 1-800-SEC-0330. Additional copies of this information can
be obtained, for a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, D.C., 20549-6009.
o BY MAIL. Specify the document you are requesting when writing to us.
DAVIS INTERNATIONAL GROWTH FUND, INC.
124 EAST MARCY STREET
SANTA FE, NEW MEXICO 87501
1-800-279-0279
Investment Company Act File No. 811-8870
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 31, 1998
DAVIS INTERNATIONAL GROWTH FUND
PART OF
DAVIS INTERNATIONAL SERIES, INC
124 EAST MARCY STREET
SANTA FE, NEW MEXICO 87501
1-800-279-0279
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE CLASS A, CLASS B AND CLASS C PROSPECTUSES DATED
DECEMBER 31, 1998 AND THE CLASS Y PROSPECTUSES DATED DECEMBER 31, 1998.
THE PROSPECTUSES MAY BE OBTAINED FROM THE FUND.
THE FUND HAS NOT YET PUBLISHED AN ANNUAL REPORT. WHEN THEY ARE AVAILABLE, THE
ANNUAL REPORT AND SEMI-ANNUAL REPORT TO SHAREHOLDERS WILL BE SEPARATE DOCUMENTS
SUPPLIED WITH THIS STATEMENT OF ADDITIONAL INFORMATION. THE ANNUAL REPORT,
ACCOMPANYING NOTES AND REPORT OF INDEPENDENT AUDITORS APPEARING IN THE ANNUAL
REPORT WILL BE INCORPORATED BY REFERENCE INTO THE THEN CURRENT STATEMENT OF
ADDITIONAL INFORMATION.
<PAGE>
TABLE OF CONTENTS
PAGE
Section I: Investment Strategies and Restrictions.....................
Investment Objective and Policies.........................
Portfolio Securities......................................
Other Investment Practices................................
Portfolio Transactions....................................
Investment Restrictions...................................
Section II: Key Persons...............................................
Organization of the Company...............................
Directors and Officers....................................
Directors Compensation Schedule...........................
Certain Shareholders of the Fund..........................
Investment Advisory Services..............................
Distribution of Company Shares............................
Other Important Service Providers.........................
Section III: Purchase, Exchange and Redemption of Shares...............
Purchase of Shares........................................
General
Alternative Purchase Arrangements
Class A Shares
Class B Shares
Class C Shares
Class Y Shares
Special Services
Prototype Retirement Plans
Automatic Investment Privilege
Dividend Diversification Program
Telephone Privilege..........................
Exchange of Shares........................................
General
By Telephone
Automatic Exchange Program
Redemption of Shares......................................
General
Expedited Redemption Privilege
By Telephone
Automatic Withdrawal Plan
Involuntary Redemption
Subsequent Repurchase
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Section IV: General Information.......................................
Determining the Price of Shares...........................
Year 2000 and Euro Conversion Issues......................
Dividends and Distributions...............................
Federal Income Taxes......................................
Performance Data..........................................
Appendix: Term and Conditions for a Statement of Intention.............
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Section I: Investment Strategies and Restrictions
INVESTMENT OBJECTIVES AND POLICIES
Davis International Growth Fund's ("Fund") investment objective is
growth of capital. The Fund pursues this objective by investing primarily in
common stocks of foreign companies and U.S. companies doing substantial
business in foreign markets. There is no assurance that the Fund will achieve
its investment objective. An investment in the Fund may not be appropriate for
all investors, investing in international markets involves special risks, and
short-term investing is discouraged.
The Fund has the flexibility to invest on a worldwide basis in
companies of any size, regardless of country of organization or place of
principal business activity. The Fund normally invests at least 65% of its
total assets in international equity securities issued by companies from at
least three different countries, outside of the U.S. At times the Fund may
temporarily invest all of its assets in fewer than three counties.
The Fund may attempt to reduce market and currency fluctuation risks
by engaging in related hedging transactions. These transactions involve
additional risk considerations.
While the Fund may at times invest in companies doing significant
business in lesser-developed emerging markets or in the U.S., its focus is upon
companies doing substantial business in developed markets outside of the U.S.
PORTFOLIO SECURITIES
EQUITY SECURITIES. Equity securities represent an ownership position
in a company. These securities may include, without limitation, common stocks,
preferred stocks, and securities with equity conversion or purchase rights. The
Fund usually purchases common stock. The prices of equity securities fluctuate
based on changes in the financial condition of their issuers and on market and
economic conditions. The Fund's results will be related to the overall market
for these securities. There is no limit on the percentage of its assets which
the Fund may invest in equity securities.
The Fund may invest in issues with smaller capitalizations. The equity
of smaller companies are subject to additional risks. Smaller companies are
usually less established and less diversified than larger companies, and have
fewer resources available to take advantage of opportunities or overcome
challenges.
Primary Risks. Events which have a negative impact on a business will
probably be reflected in a decline in their equity securities. Furthermore,
when the stock market declines most equity securities, even those issued by
strong companies, are likely to decline in value.
INTERNATIONAL EQUITY SECURITIES. International equity securities
represent ownership of a company. International equity securities come in many
forms, but the form that the Fund typically owns is common stock. International
equity securities are equity securities issued either by foreign companies or
by U.S. companies doing substantial business in foreign markets. International
equity securities are:
(1) Issued by companies organized under the laws of a foreign
country;
(2) Principally traded in securities markets outside of the U.S.;
(3) Issued by companies earning at least 50% of their revenues or
profits outside of the U.S.; or
(4) Issued by companies having at least 50% of their assets outside
of the U.S.
International equity securities include equity securities, real estate
securities, convertible securities, and bonds. Investments in international
equity securities may be made through the purchase of individual securities on
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recognized exchanges and developed over-the-counter markets, through American
Depository Receipts ("ADRs") or Global Depository Receipts ("GDRs") covering
such securities, and through investment companies investing primarily in
international equity securities.
Primary Risks. Investments in international equity securities may
involve a higher degree of risk than investments in domestic issuers.
International equity securities are often denominated in foreign currencies,
which means that their value will be affected by changes in exchange rates, as
well as other factors that affect securities prices. There is generally less
publicly available information about international equity securities and
securities markets, and there may be less government regulation and supervision
of foreign issuers and securities markets. International equity securities and
markets may also be affected by political and economic instabilities, and may
be more volatile and less liquid than domestic securities and markets.
Investment risks may include expropriation or nationalization of assets,
confiscatory taxation, exchange controls and limitations on the use or transfer
of assets, and significant withholding taxes. Foreign economies may differ from
the United States favorably or unfavorably with respect to inflation rates,
balance of payments, capital reinvestment, gross national product expansion,
and other relevant indicators.
Foreign Currencies. International equity 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.
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.
Less Developed Trading Markets. The markets for trading international
equity securities 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
over-the-counter 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.
Foreign Withholding Taxes. 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.
Higher Expenses. 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 international equity 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 AND EMERGING MARKETS Although the Fund focuses upon
companies doing substantial business in developed markets outside of the U.S.,
the Fund may make investments in companies doing substantial business 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
5
<PAGE>
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 often
provided higher rates of return to investors.
Many of the risks described above relating to international equity
securities generally will be greatest for emerging markets, lesser for
developing markets and least for developed countries. For instance, economies
in individual emerging or developing markets may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rates of inflation, currency depreciation, capital reinvestment,
resource, self-sufficiency and balance of payments positions. Many emerging and
developing markets have experienced substantial rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have very negative effects on the economies and securities markets
of certain developing markets. Economies in emerging and developing markets are
generally heavily dependent upon international trade and, accordingly, have
been and may continue to be affected adversely by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade. These economies also have been and may continue to be affected adversely
by economic conditions in the countries with which they trade.
The securities markets of emerging and developing countries, if
existent, are substantially smaller, less developed, less liquid and more
volatile than the securities markets of the United States and other more
developed countries. Disclosure, regulatory and accounting standards in many
respects are less stringent than in the United States and other developed
markets. There also may be a lower level of monitoring and regulation of
developing markets and the activities of investors in such markets, and
enforcement of existing regulations has been extremely limited.
Brokerage commissions, custodial services and other costs relating to
investment in foreign markets are generally more expensive than in the United
States; this is particularly true with respect to emerging markets. Such
markets have different settlement and clearance procedures. In certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. Such settlement problems may cause emerging market securities to
be illiquid. The inability of the Fund to make intended securities purchases
due to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. Emerging
markets may lack clearing facilities equivalent to those in developed
countries. Accordingly, settlements can pose additional risks in such markets
and ultimately can expose the Fund to the risk of losses resulting from the
Fund's inability to recover from a counterparty.
The risk also exists that an emergency situation may arise in one or
more emerging markets. 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.
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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.
OTHER INVESTMENT POLICIES
TEMPORARY DEFENSIVE INVESTMENTS. For defensive purposes or to
accommodate inflows of cash awaiting more permanent investment, the Fund may
temporarily and without limitation hold high-grade short-term money market
instruments, cash and cash equivalents, including repurchase agreements.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements,
but normally will not enter into repurchase agreements maturing in more than
seven days. A repurchase agreement, as referred to herein, involves a sale of
securities to a Fund, with the concurrent agreement of the seller (a bank or
securities dealer which the Adviser or Sub-Adviser determines to be financially
sound at the time of the transaction) to repurchase the securities at the same
price plus an amount equal to accrued interest at an agreed-upon interest rate,
within a specified time, usually less than one week, but, on occasion, at a
later time. The repurchase obligation of the seller is, in effect, secured by
the underlying securities. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, the Fund could experience both delays in
liquidating the underlying securities and losses, including (a) possible
decline in the value of the collateral during the period while the Fund seek to
enforce their rights thereto; (b) possible loss of all or a part of the income
during this period; and (c) expenses of enforcing its rights.
The Fund will enter into repurchase agreements only when the seller
agrees that the value of the underlying securities, including accrued interest
(if any), will at all times be equal to or exceed the value of the repurchase
agreement. The Fund will not enter into a repurchase agreement maturing in more
than seven days if it would cause more than 15% of the value of its net assets
to be invested in such transactions. Repurchase agreements maturing in less
than seven days are not deemed illiquid securities for the purpose of the
Fund's 15% limitation on illiquid securities.
FOREIGN CURRENCY HEDGING. To attempt to reduce exposure to currency
fluctuations, the Fund may trade in forward foreign currency exchange contracts
(forward contracts), currency futures contracts and options thereon and
securities indexed to international equity securities. These techniques may
only be used for hedging purposes and not for speculation. For example, 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 international equity securities held by the Fund,
and to hedge a currency risk involved in an anticipated purchase of
international equity 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.
Currency hedging transactions may be utilized as a tool to reduce
currency fluctuation risks due to a current or anticipated position in
international equity securities. The successful use of currency hedging
transactions usually depends on the Adviser's or the Sub-Adviser's ability to
forecast currency exchange rate movements. Should 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 price of the securities and
currencies hedged or used for cover will not be
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perfect and could produce unanticipated losses. Unanticipated changes in
currency prices may result in poorer overall performance for the Fund than if
they had not entered into such contracts. When taking a position in an
anticipatory hedge (when the Fund purchase a futures contract or other similar
instrument to gain market exposure in anticipation of purchasing the underlying
securities at a later date), the Fund is required to set aside cash or
high-grade liquid securities to fully secure the obligation.
Forward Contracts. 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. A Fund may enter into a forward contract, for example,
when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. dollar price
of the security ("transaction hedge"). Additionally, when the Adviser or
Sub-Adviser believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward sale contract to
sell an amount of that foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency. When
the Adviser or Sub-Adviser believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, the Fund may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar
amount in anticipation of purchasing foreign traded securities ("position
hedge"). In this situation the 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 Adviser
or Sub-Adviser believes that the U.S. dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a decline in the
U.S. dollar value of the currency in which portfolio securities of the Fund are
denominated.
Currency Futures Contracts. 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.
Foreign Currency Options. 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 a Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies to be written or
purchased by the 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.
Liquidity Risks. 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 ability to engage in currency hedging
transactions may be limited by tax considerations.
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Tax Considerations. 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 transactions by
tax considerations.
Limitations on Currency Hedging Transactions. Currency hedging
transactions will be used for hedging purposes only. The Fund may either hedge
its existing investments ("true hedging") or lock in an exchange rate on
anticipated purchases ("anticipatory hedging"). The Fund will comply with
requirements established by the SEC with respect to coverage of options and
futures strategies by mutual Fund, and, if so required, will designate liquid
securities or cash on its books or in a segregated account with its custodian
bank in the amount prescribed.. Securities designated on the Funds books or
held in a segregated account cannot be sold while the futures or option
strategy is outstanding, unless they are replaced with similar securities.
INVESTMENT IN OTHER INVESTMENT COMPANIES. The Fund may invest up to
10% of its total assets through other listed and unlisted investment companies.
The Fund will comply with applicable investment limitations imposed by the
Investment Company Act of 1940. 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.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities which are subject to contractual restrictions on resale. The Fund's
policy is to not purchase or hold illiquid securities (which may include
restricted securities) if more than 15% of the Fund's net assets would then be
illiquid.
The restricted securities which the Fund may purchase include
securities which have not been registered under the 1933 Act but are eligible
for purchase and sale pursuant to Rule 144A ("Rule 144A Securities"). This Rule
permits certain qualified institutional buyers, such as the Fund, to trade in
privately placed securities even though such securities are not registered
under the 1933 Act. The Adviser or Sub-Adviser, under criteria established by
the Fund's Board of Directors, will consider whether Rule 144A securities being
purchased or held by the Fund are illiquid and thus subject to the Fund's
policy limiting investments in illiquid securities. In making this
determination, the Adviser or Sub-Adviser will consider the frequency of trades
and quotes, the number of dealers and potential purchasers, dealer undertakings
to make a market, and the nature of the security and the market place trades
(for example, the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
Securities will also be monitored by the Adviser and Sub-Adviser and, if as a
result of changed conditions, it is determined that a Rule 144A Security is no
longer liquid, the Fund's holding of illiquid securities will be reviewed to
determine what, if any, action is required in light of the policy limiting
investments in such securities. Investing in Rule 144A Securities could have
the effect of increasing the amount of investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
BORROWING. The Fund may borrow money in for temporary or emergency
purposes. The Fund will not borrow money with the intent of leveraging its
investments. Borrowing activities are strictly limited as described in the
section entitled, "Investment Restrictions".
LENDING PORTFOLIO SECURITIES. The Fund may lend securities to
broker-dealers or institutional investors for their use in connection with
short sales, arbitrages and other securities transactions. The Fund will not
lend portfolio securities unless the loan is secured by collateral. The Davis
New York Venture Fund will not lend securities if such a loan would cause more
than 20% of the total value of its assets to then be subject to such loans. The
Davis Growth & Income Fund will not lend securities if such a loan would cause
more than 33 1/3% of the total value of its assets (including collateral
received) to then be subject to such loans.
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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.
PURCHASING AND SELLING EQUITY OPTIONS. The Fund may purchase and sell
equity options for the solely for hedging purposes. Hedging transactions
include, but are not limited to, writing covered calls, purchasing protective
puts, and buying calls in anticipation of purchasing the underlying securities.
Writing Covered Calls. The Fund may write covered call options on a
portion of its portfolio securities and purchase call options in closing
transactions. 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.
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 Call and/or Put 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.
PORTFOLIO TRANSACTIONS.
The Adviser and Sub-Adviser are responsible for the placement of
portfolio transactions, subject to the supervision of the Board of Directors.
Both Fund have adopted a 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, research services and
placement of orders by securities firms for Fund shares may be taken into
account as a factor in placement of portfolio transactions. In seeking the
Fund's investment objectives, the Fund may trade to some degree in securities
for the short term if the Adviser or Sub-Adviser believes that such trading is
advisable.
In placing executions and paying brokerage commissions, the Adviser or
Sub-Adviser considers the financial responsibility and reputation of the broker
or dealer, the range and quality of the services made available to the Fund and
the professional services rendered, including execution, clearance procedures,
wire service quotations and ability to provide supplemental performance,
statistical and other research information for consideration, analysis and
evaluation by the Adviser's or Sub-Adviser's staff. In accordance with this
policy, brokerage
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transactions may not be executed solely on the basis of the lowest commission
rate available for a particular transaction. Research services provided to the
Adviser or Sub-Adviser by or through brokers who effect portfolio transactions
for the Fund may be used in servicing other accounts managed by the Adviser and
likewise research services provided by brokers used for transactions of other
accounts may be utilized by the Adviser or Sub-Adviser in performing services
for the Fund. Subject to the requirements of best execution, the placement of
orders by securities firms for shares of the Fund may be taken into account as
a factor in the placement of portfolio transactions.
On occasions when the Adviser or Sub-Adviser deems the purchase or
sale of a security to be in the best interests of a Fund as well as other
fiduciary accounts, the Adviser or Sub-Adviser may aggregate the securities to
be sold or purchased for a Fund with those to be sold or purchased for other
accounts in order to obtain the best net price and most favorable execution. In
such event, the allocation will be made by the Adviser or Sub-Adviser in the
manner considered to be most equitable and consistent with its fiduciary
obligations to all such fiduciary accounts, including the Fund involved. In
some instances, this procedure could adversely affect a Fund but the Adviser
and Sub-Adviser deem that any disadvantage in the procedure would be outweighed
by the increased selection available and the increased opportunity to engage in
volume transactions.
The Adviser and Sub-Adviser believe that research from brokers and
dealers is desirable, although not essential, in carrying out their functions,
in that such outside research supplements the efforts of the Adviser and
Sub-Adviser by corroborating data and enabling the Adviser and Sub-Adviser to
consider the views, information and analyses of other research staffs. Such
views, information and analyses include such matters as communicating with
persons having special expertise on certain companies, industries, areas of the
economy and/or securities prices, obtaining written materials on these or other
areas which might affect the economy and/or securities prices, obtaining
quotations on securities prices and obtaining information on the activities of
other institutional investors. The Adviser and Sub-Adviser research, at their
own expense, each security included in, or being considered for inclusion in,
the Fund's portfolios. As any particular research obtained by the Adviser or
Sub-Adviser may be useful to the Fund, the Board of Directors or its Committee
on Brokerage, in considering the reasonableness of the commissions paid by the
Fund, will not attempt to allocate, or require the Adviser or Sub-Adviser to
allocate, the relative costs or benefits of 969804332research.
Because of the Fund's investment policies, portfolio turnover rate
will vary. At times it could be high, which could require the payment of larger
amounts in brokerage commissions. The Adviser and Sub-Adviser are authorized to
place portfolio transactions with Shelby Cullom Davis & Co., a member of the
New York Stock Exchange, which may be deemed to be an affiliate of the Adviser,
if the commissions are fair and reasonable and comparable to commissions
charged by non-affiliated qualified brokerage firms for similar services. The
Fund anticipates that, during normal market conditions, its annual portfolio
turnover rate will be less than 100%.
INVESTMENT RESTRICTIONS
The fundamental investment restrictions set forth below may not be
changed without the approval of the holders of the lesser of (i) 67% of the
eligible votes, if the holders of more than 50% of the eligible votes are
represented or (ii) more than 50% of the eligible 964958160votes. All
percentage limitations set forth in these restrictions apply as of the time of
an investment without regard to later increases or decreases in the value of
securities or total or net assets.
DAVIS INTERNATIONAL GROWTH FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS
1. Senior 964957517Securities. The Fund may not issue senior securities
nor sell short more than 5% of its total assets. This limitation does
not apply to selling short against the box.
2. Borrowing. 964957298The Fund may borrow money from any source for
temporary purposes in an amount not exceeding 5% of total assets. The
Fund may borrow money from banks as a temporary measure in amounts not
exceeding 33 1/3% of the amount of its total assets (reduced by the
amount of all liabilities and indebtedness other than such borrowing)
when deemed desirable or appropriate to effect redemptions. The
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Fund will not purchase portfolio securities on margin and will not
purchase additional portfolio securities while borrowings exceed 5% of
the total assets of the Fund.
3. Underwriting. The Fund does not engage in the underwriting of
securities; however, the Fund may technically be considered an
"underwriter" if it sells restricted securities.
4. Concentration. The Fund does not concentrate its investments in any
one industry and may not buy 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 in that industry. (U.S. Government
Securities are not included in this limitation.).
5. Commodities, Futures Contracts, and 964957814Options. The Fund may not
purchase or sell futures contracts, forward contracts, options, and
other derivative investments except for the sole purpose of hedging
the portfolio against market, currency, interest rate, and other
risks. Hedging transactions include, but are not limited to, writing
covered calls, purchasing protective puts, selling futures to hedge
existing positions, and buying futures in anticipation of purchasing
the underlying securities. This prohibition does not limit the Fund's
ability to purchase warrants, or adjustable rate debt obligations.
6. Real 964957726Estate. The Fund may not purchase real estate or real
estate mortgages as such, but may purchase the liquid securities of
companies, including real estate investment trusts, holding real
estate or interests (including mortgage interests) therein.
7. Lending. The Fund may not lend money, except that it may buy debt
securities customarily acquired by institutional investors. These debt
securities may comprise all or a portion of an issue of "restricted"
debt securities. The Fund may also buy debt securities which have been
sold to the public and may enter into repurchase agreements. The Fund
may lend its portfolio securities subject to having 100% collateral in
cash, U.S. Government Securities, or other liquid securities. The Fund
will not lend securities if such a loan would cause more than 33 1/3%
of the total value of its assets (including collateral received) to
then be subject to such loans.
DAVIS INTERNATIONAL GROWTH FUND'S NON-FUNDAMENTAL POLICIES. In addition
to the foregoing restrictions, Davis International Growth Fund is subject to
certain other non-fundamental policies, which may be changed without
shareholder approval including the following:
1. Diversification. With respect to 75% of its total assets the Fund will
not: (a) make an investment that will cause more than 5% of the value of
its total assets to be invested in securities of any one issuer, except
such limitation shall not apply to obligations issued or guaranteed by the
United States ("U.S.") Government, its agencies or instrumentalities, or
(b) acquire more than 10% of the voting securities of any one issuer.
2. Illiquid Securities. The Fund may not purchase illiquid securities if more
than 15% of the value of the Fund's net assets would be invested in such
securities.
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Section II: Key Persons
ORGANIZATION OF THE COMPANY
THE COMPANY. Davis International Series, Inc. ("Company") is an
open-end, diversified, management investment company incorporated in Maryland
in 1994 and registered under the Investment Company Act of 1940. The Company is
a series investment company which may issue multiple series, each of which
would represent an interest in its separate portfolio. The Company currently
offers two series, the Davis International Growth Fund (the "Fund") and the
Davis International Total Return Fund.
FUND SHARES. The Fund may issue shares in different classes. The Fund
shares are currently divided into four classes, Class A, Class B, Class C, and
Class Y shares. The Board of Directors may offer additional classes in the
future and may at any time discontinue the offering of any class of shares.
Each share, when issued and paid for in accordance with the terms of the
offering, is fully paid and non-assessable. Shares have no preemptive or
subscription rights and are freely transferable. Each of the Fund's shares
represent an interest in the assets of the fund issuing the share and have
identical voting, dividend, liquidation and other rights and the same terms and
conditions as any other shares except that (i) each dollar of net asset value
per share is entitled to one vote, (ii) the expenses related to a particular
class, such as those related to the distribution of each class and the transfer
agency expenses of each class are borne solely by each such class and (iii)
each class of shares votes separately with respect to provisions of the Rule
12b-1 Distribution Plan, which pertains to a particular class, and other
matters for which separate class voting is appropriate under applicable law.
Each fractional share has the same rights, in proportion, as a full share.
Shares do not have cumulative voting rights; therefore, the holders of more
than 50% of the voting power of the Company can elect all of the directors of
the Company. Due to the differing expenses of the classes, dividends of Class B
and Class C shares are likely to be lower than for Class A shares, and are
likely to be higher for Class Y shares than for any other class of shares. For
more information about Class Y shares, call the Distributor at 1-800-279-0279
to obtain the Class Y prospectus.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the shareholders of the outstanding voting securities of an
investment company, such as the Company, will not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each series affected by such matter. Rule 18f-2 further
provides that a series shall be deemed to be affected by a matter unless it is
clear that the interests of each series in the matter are identical or that
that the matter does not affect any interest of such series. Rule 18f-2 exempts
the selection of independent accountants and the election of Board members from
the separate voting requirements of the Rule.
In accordance with Maryland law and the Company's By-laws, the Company
does not hold regular annual shareholder meetings. Shareholder meetings are
held when they are required under the Investment Company Act of 1940 or when
otherwise called for special purposes. Special shareholder meetings may be
called upon the written request of shareholders of at least 25% of the voting
power that could be cast at the meeting.
DIRECTORS AND OFFICERS
The Company's Board of Directors is responsible for the management and
supervision of the Fund. The Board approves all significant agreements between
the Company, on behalf of the Fund, and those companies that furnish services
to the Fund. The names and addresses of the directors and officers of the
Company are set forth below, together with their principal business
affiliations and occupations for the last five years.
The asterisk following the names of Jeremy H. Biggs, and Christopher
C. Davis indicates that they are considered to be "interested persons" of the
Company, as defined in the Investment Company Act. As indicated below, certain
directors and officers of the Company hold similar positions with the following
Fund that are managed by the Adviser: Davis New York Venture Fund, Inc., Davis
Investment Grade Bond Fund, Inc., Davis Tax-Free High Income Fund, Inc., and
Davis Series, Inc. (collectively the "Davis Funds").
13
<PAGE>
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.
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.
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.
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.
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.
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.
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, Venture Advisers, Inc.; President of Davis
Distributors, L.L.C. Former President and Chief Executive Officer of First of
Michigan Corporation. Former Executive Vice President and Chief Financial
Officer of Oppenheimer Management Corporation.
CAROLYN H. SPOLIDORO (11/19/52), 124 East Marcy Street, Santa Fe, NM
87501. Vice President of the Fund and each of the Davis Funds; Vice President,
Venture Advisers, Inc.
SHARRA L. REED (9/25/66), 124 East Marcy Street, Santa Fe NM 87501.
Vice President, Treasurer and Assistant Secretary of the Fund and each of the
Davis Funds, Selected American Shares, Inc., Selected Special Shares, Inc. and
Selected Capital Preservation Trust; Vice President of Venture Advisers, Inc.
Former Unit Manager with Investors Fiduciary Trust Company.
14
<PAGE>
THOMAS D. TAYS (3/7/57), 124 East Marcy Street, Santa Fe NM 87501.Vice
President and Secretary of the Fund and each of the Davis Funds, Selected
American Shares, Inc. Selected Special Shares, Inc. and Selected Capital
Preservation Trust. Vice President and Secretary, Venture Advisers, Inc., Davis
Selected Advisers-NY, Inc., and Davis Distributors, L.L.C. Former Vice
President and Special Counsel of U.S. Global Investors, Inc.
SHELDON R. STEIN (11/29/28), 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.
DIRECTORS' COMPENSATION SCHEDULE
During the year ended September 30, 1998, 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 $xx $xx
Keith R. Kroeger $xx $xx
The Very Reverend James R. Leo $xx $xx
Richard M. Murray $xx $xx
Theodore B. Smith, Jr. $xx $xx
* Davis International Growth Fund did not make its initial public offer prior
to the date of this SAI, thus the Fund did not pay any compensation to
directors. Davis International Total Return Fund was active prior to that date
and the board of directors rendered services, and were compensated for those
services.
** 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
As of the date of this SAI officers of the Adviser owned 100% of the
Fund's outstanding shares.
INVESTMENT ADVISORY SERVICES
Davis Selected Advisers, L.P. (the "Adviser") whose principal office
is at 124 East Marcy Street, Santa Fe, New Mexico 87501, serves as the
investment adviser of both Fund. Venture Advisers, Inc. is the Adviser's sole
general partner. Shelby M.C. Davis is the controlling shareholder of the
general partner. Subject to the direction and supervision of the Board of
Directors, the Adviser manages the investment and business operations of the
Fund. Davis Distributors, LLC ("the Distributor"), a subsidiary of the Adviser,
serves as the distributor or principal underwriter of the Fund's shares. Davis
Selected Advisers-NY, Inc., ("DSA-NY") a wholly owned subsidiary of the
Adviser, performs research and other services for the Fund on behalf of the
Adviser under a Sub-Advisory Agreement with the Adviser. The Adviser also acts
as investment adviser for Davis New York Venture Fund, Inc., Davis Intermediate
Investment Grade Bond Fund, Inc., Davis Tax-Free High Income Fund, Inc., Davis
Series, Inc., (collectively with the Fund, the "Davis Funds"), Selected
American Shares, Inc., Selected Special Shares, Inc. and
15
<PAGE>
Selected Capital Preservation Trust (collectively the "Selected Fund"). The
Distributor also acts as the principal underwriter for the Davis Funds and the
Selected Funds.
ADVISORY AGREEMENT. Pursuant to the Advisory Agreement, the Fund pays
the Adviser a fee according to a separate negotiated fee schedule. Advisory
fees are allocated among each Class of shares in proportion to each Classes'
relative total net assets.
The Fund pays the Adviser a fee at the annual rate based on average
net assets, as follows: 1.00% on the first $250 million; 0.90% on the next $250
million; and 0.80% of average net assets in excess of $500 969811091million.
These fees may be higher than that of most other mutual Fund but is
not necessarily higher than that paid by Fund with similar objectives. The
Company 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 operations.
All the fees paid to DSA-NY are paid by the Adviser and not the Fund.
The Advisory Agreement also makes provisions for portfolio
transactions and brokerage policies of the Fund which are discussed above under
"Portfolio Transactions."
In accordance with the provisions of the Investment Company Act of
1940, the Advisory Agreement will terminate automatically upon assignment and
is subject to cancellation upon 60 days' written notice by the Company's Board
of Directors, the vote of the holders of a majority of the Fund outstanding
shares, or the Adviser. The continuance of the Advisory Agreement must be
approved at least annually by the Fund 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.
Pursuant to the Advisory Agreement, the Adviser, subject to the
general supervision of the Fund's Board of Directors, provides management and
investment advice, and furnishes statistical, executive and clerical personnel,
bookkeeping, office space, and equipment necessary to carry out its investment
advisory functions and such corporate managerial duties as requested by the
Board of Directors of the Fund. The Fund bear all expenses other than those
specifically assumed by the Adviser under the Advisory Agreement, including
preparation of its tax returns, financial reports to regulatory authorities,
dividend determinations, transaction and accounting matters related to its
custodian bank, transfer agency, custodial and shareholder services, and
qualification of its shares under federal and state securities laws. The Fund
reimburses the Adviser for providing certain services including accounting and
administrative services, qualifying shares for sale with state agencies and
shareholder 969811298services969811298.
CODE OF ETHICS. The Adviser has adopted a Code of Ethics which
regulates the personal securities transactions of the Adviser's investment
personnel, other employees, and affiliates, with access to information
regarding securities transactions of the Fund. The Code of Ethics requires
investment personnel to disclose personal securities holdings upon commencement
of employment and all subsequent trading activity to the Adviser's Compliance
Officer. Investment personnel are prohibited from engaging in any securities
transactions, including the purchase of securities in a private offering,
without the prior consent of the Compliance Officer. Additionally, such
personnel are prohibited from purchasing securities in an initial public
offering and are prohibited from trading in any securities (i) for which the
fund has a pending buy or sell order, (ii) which the fund is considering buying
or selling, or (iii) which the fund purchased or sold within seven calendar
days.
DISTRIBUTION OF COMPANY SHARES
DISTRIBUTION PLANS. Class A, Class B, and Class C shares have each
adopted Distribution Plans under which the Fund 966504436reimburses the
Distributor for some of its distribution expenses. The Distribution Plans were
approved by the Fund's Board of Directors in accordance with Rule 12b-1 under
the Investment Company Act of 1940. Rule 12b-1 regulates the manner in which a
mutual fund may assume costs of distributing and promoting the sale of its
shares. Payments pursuant to a Distribution Plan are included in the operating
expenses of the Class.
16
<PAGE>
CLASS A SHARES. Payments under the Class A Distribution Plan are
limited to an annual rate of 0.25% of the average daily net asset value of the
Class A shares. Such payments are made to reimburse the Distributor for the
fees it pays to its salespersons and other firms for selling the Fund's Class A
shares, servicing its shareholders and maintaining its shareholder accounts.
Where a commission is paid for purchases of $1 million or more of Class A
shares and as long as the limits of the Distribution Plan have not been
reached, such payment is also made from 12b-1 distribution fees received from
the Fund. Normally, such fees are at the annual rate of 0.25% of the average
net asset value of the accounts serviced and maintained on the books of the
Fund. Payments under the Class A Distribution Plan may also be used to
reimburse the Distributor for other distribution costs (excluding overhead) not
covered in any year by any portion of the sales charges the Distributor
retains.
CLASS B SHARES. Payments under the Class B Distribution Plan are
limited to an annual rate of 1% of the average daily net asset value of the
Class B shares. In accordance with current applicable rules, such payments are
also limited to 6.25% of gross sales of Class B shares plus interest at 1% over
the prime rate on any unpaid amounts. The Distributor pays broker/dealers up to
4% in commissions on new sales of Class B shares. Up to an annual rate of 0.75%
of the average daily net assets is used to reimburse the Distributor for these
commission payments. Most or all of such commissions are reallowed to
salespersons and to firms responsible for such sales. No commissions are paid
by the Company with respect to sales by the Distributor to officers, directors,
and full-time employees of the fund, the Distributor, the Adviser, the
Adviser's general partner, or DSA-NY. Up to 0.25% of average net assets is used
to reimburse the Distributor for the payment of service and maintenance fees to
its salespersons and other firms for shareholder servicing and maintenance of
its shareholder accounts.
CLASS C SHARES. Payments under the Class C Distribution Plan are also
limited to an annual rate of 1% of the average daily net asset value of the
Class C shares, and are subject to the same 6.25% and 1% limitations applicable
to the Class B Distribution Plan. The entire amount of payments may be used to
reimburse the Distributor for the payments of commissions, service, and
maintenance fees to its salespersons and other firms for selling new Class C
shares, shareholder servicing and maintenance of its shareholder accounts.
CARRYOVER PAYMENTS. If, due to the foregoing payment limitations, the
Fund is unable to pay the Distributor the 4% commission on new sales of Class B
shares, or the 1% commission on new sales of Class C shares, the Distributor
intends, but is not obligated, to accept new orders for shares and pay
commissions in excess of the payments it receives from the fund. The
Distributor intends to seek full payment from the Fund of any excess amounts
with interest at 1% over the prime rate at such future date, when and to the
extent such payments on new sales would not be in excess of the limitations.
The Fund is not obligated to make such payments; the amount (if any), timing
and condition of any such payments are solely within the discretion of the
directors of the Company, who are not interested persons of the Distributor or
the Company and have no direct or indirect financial interest in the Class B
Distribution Plan (the "Independent Directors"). If the Fund terminates its
Class B share or Class C share Distribution Plan, the Distributor will ask the
Independent Directors to take whatever action they deem appropriate with regard
to the payment of any excess amounts.
ADDITIONAL INFORMATION CONCERNING THE DISTRIBUTION PLANS. In addition,
to the extent that any investment advisory fees paid by the Company may be
deemed to be indirectly financing any activity which is primarily intended to
result in the sale of Company shares within the meaning of Rule 12b-1, the
Distribution Plans authorize the payment of such fees.
The Distribution Plans continue annually so long as they are approved
in the manner provided by Rule 12b-1 or unless earlier terminated by vote of
the majority of the Independent Directors or a majority of a Fund's outstanding
Class of shares. The Distributor is required to furnish quarterly written
reports to the Board of Directors detailing the amounts expended under the
Distribution Plans. The Distribution Plans may be amended provided that all
such amendments comply with the applicable requirements then in effect under
Rule 12b-1. Currently, Rule 12b-1 provides that as long as the Distribution
Plans are in effect, the Company must commit the selection and nomination of
candidates for new Independent Directors to the sole discretion of the existing
Independent Directors.
DEALER COMPENSATION. As described herein, dealers or others may
receive different levels of compensation depending on which class of shares
they sell. The Distributor may make expense reimbursements for special training
of a dealer's registered representatives or personnel of dealers and other
firms who provide sales or other services in respect to the Fund and/or its
shareholders, or to defray the expenses of meetings, advertising or
17
<PAGE>
equipment. Any such amounts may be paid by the Distributor from the fees it
receives under the Class A, Class B and Class C Distribution Plans.
In addition, the Distributor may, from time to time, pay additional
cash compensation or other promotional incentives to authorized dealers or
agents who sell shares of the Fund. In some instances, such cash compensation
or other incentives may be offered only to certain dealers or agents who employ
registered representatives who have sold or may sell significant amounts of
shares of the Fund and/or the other Davis Funds managed by the Adviser during a
specified period of time.
Shares of the Fund may also be sold through banks or bank-affiliated
dealers. Any determination that such banks or bank-affiliated dealers are
prohibited from selling shares of the Fund under the Glass-Steagall Act would
have no material adverse effects on the Fund. State securities laws may require
such firms to be licensed as securities dealers in order to sell shares of the
Fund.
KRC INVESTMENT ADVISERS, LLC. KRC Investment Advisers, LLC ("KRC"), a
registered investment adviser owned and managed by members of the immediate and
extended family of LeRoy E. Hoffberger, a Director of the Company, has entered
into a service agreement (the "Services Agreement") with the Distributor which
provides payments to KRC under the Fund Rule 12b-1 Plan. Under the Services
Agreement, KRC will provide shareholder maintenance services to clients, in
respect of shares of the Company, and the Distributor will pay KRC a fee at the
annual rate of 0.25% of average net assets of the accounts of clients
maintained and serviced by KRC. Payments made by the Distributor under the
Services Agreement will be reimbursed by the Company under its Rule 12b-1 Plan.
Those payments will be made in connection with shareholder maintenance services
provided by that investment adviser to its clients who are shareholders of the
Company which include, among others, Mr. Hoffberger and members of his
immediate and extended family and trusts of which they are beneficiaries or
trustees. The cost of these services and advisory services provided by KRC are
borne by the clients. Mr. Hoffberger does not have any ownership interest in or
otherwise have any control of KRC.
THE DISTRIBUTOR. Davis Distributors, LLC, ("the Distributor"), 124
East Marcy, Santa Fe, New Mexico, 87501 is a wholly owned subsidiary of the
Adviser and pursuant to a Distributing Agreement acts as principal underwriter
of the Fund shares on a continuing basis pursuant to a Distributing
Agreement. Pursuant to the Distributing Agreement, the Distributor
pays for all expenses in connection with the preparation, printing, and
distribution of advertising and sales literature for use in offering the Fund
shares to the public, including reports to shareholders to the extent they are
used as sales literature. The Distributor also pays for the preparation and
printing of prospectuses other than those forwarded to existing shareholders.
The continuance and assignment provisions of the Distributing Agreement are the
same as those of the Advisory Agreement.
The Distributor expects to receive sales charges for the sale of Class
A shares, and compensation on redemptions and repurchases of Class A, B, and C
shares. . The Distributor also expects to receive fees under the Class A, B, or
C Distribution Plans. It is expected that substantially all such sales charges
and fees will either be paid to dealers and sales personnel or be used to
reimburse the Distributor for amounts previously paid to dealers and sales
969812216personnel.
In the future, the Distributor may seek payment from Class B shares
and Class C shares of the Fund for the cumulative commissions earned by the
Distributor on the sale of the Fund's Class B shares and Class C shares,
reduced by cumulative commissions paid by the Fund and cumulative contingent
deferred sales charges paid by redeeming shareholders.
OTHER IMPORTANT SERVICE PROVIDERS
CUSTODIAN. State Street Bank and Trust Company ("State Street" or
"Custodian"), One Heritage Drive, North Quincy, Massachusetts 02171, serves as
custodian of the Company's assets. The Custodian maintains all of
18
<PAGE>
the instruments representing the Company's investments and all cash. The
Custodian delivers securities against payment upon sale and pays for securities
against delivery upon purchase. The Custodian also remits the Company assets in
payment of the Fund's expenses, pursuant to instructions of officers or
resolutions of the Board of Directors. The Custodian also provides certain fund
accounting and transfer agent services.
AUDITORS. KPMG Peat Marwick, 707 17th St. Suite 2300, Denver, Colorado
80202, serves as independent auditors for each of the Fund. 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.
COUNSEL. D'Ancona & Pflaum, 30 N. LaSalle Street, Suite 2900, Chicago,
IL. 60602, serves as counsel to the Company and also serves as counsel for
those members of the Board of Directors who are not affiliated with the
Adviser.
Section III: Purchase, Redeem and Exchanging Shares
PURCHASE OF SHARES
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. Class Y shares are offered only to certain qualified purchasers,
as described below.
There are three ways to make an initial investment of Class A, Class
B, or Class C shares in the Fund. One way is to fill out the Application Form
included in the Prospectus and mail it to State Street Bank and Trust Company
("State Street") at the address on the Form. 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.
The second way to make an initial investment is to have your dealer
order and remit payment for the shares on your behalf. The dealer can also
order the shares from the Distributor by telephone or wire. You can also use
this method for additional investments of at least $1,000.
The third way to purchase shares is by wire. Shares may be purchased
at any time by wiring federal Fund directly to State Street. Prior to an
initial investment by wire, the shareholder should telephone Davis
Distributors, LLC at 1-800-279-0279 to advise them of the investment and class
of shares and to obtain an account number and instructions. A completed Plan
Adoption Agreement or Application Form should be mailed to State Street after
the initial wire purchase. To assure proper credit, the wire instructions
should be made as follows:
State Street Bank and Trust Company,
Boston, MA 02210
Attn.: Mutual Fund Services
DAVIS INTERNATIONAL GROWTH FUND;
Shareholder Name,
Shareholder Account Number,
Federal Routing Number 011000028,
DDA Number 9904-606-2
After your initial investment, you can make additional investments of
at least $25. Simply mail a check payable to "The Davis Funds" to State Street
Bank and Trust Company, c/o The Davis Funds, P.O. Box 8406, Boston, MA
02266-8406. For overnight delivery, please send your check to State Street Bank
and Trust Company, c/o the Davis Funds, 66 Brooks Drive, Braintree, MA. 02184.
THIRD PARTY CHECKS WILL NOT BE ACCEPTED. The
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<PAGE>
check should be accompanied by a form which State Street will provide after
each purchase. If you do not have a form, you should tell State Street that you
want to invest the check in shares of the applicable fund. If you know your
account number, you should also provide it to State Street.
CERTIFICATES. The Company does not issue certificates for Class A
shares unless you request a certificate each time you make a purchase.
Certificates are not issued for Class B or Class C shares or for accounts using
the Automatic Withdrawal Plan.. The Company does not issue certificates for
Class Y shares. Instead, shares purchased are automatically credited to an
account maintained for you on the books of the Company by State Street. You
will receive a statement showing the details of the transaction and any other
transactions you had during the current year each time you add to or withdraw
from your account.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers four classes of shares. With certain exceptions
described below, Class A shares are sold with a front-end sales charge at the
time of purchase and are not subject to a sales charge when they are redeemed.
Class B shares are sold without a sales charge at the time of purchase, but are
subject to a deferred sales charge if they are redeemed within six years after
purchase. Class B shares will automatically convert to Class A shares eight
years after the end of the calendar month in which the shareholder's order to
purchase was accepted. Class C shares are purchased at their net asset value
per share without the imposition of a front-end sales charge but are subject to
a 1% deferred sales charge if redeemed within one year after purchase and do
not have a conversion feature. Class Y shares are offered to (i) trust
companies, bank trusts, pension plans, endowments or foundations acting on
behalf of their own account or one or more clients for which such institution
acts in a fiduciary capacity and investing at least $5,000,000 at any one time
("Institutions"); (ii) any state, county, city, department, authority or
similar agency which invests at least $5,000,000 at any one time ("Governmental
Entities"); and (iii) any investor with an account established under a "wrap
account" or other similar fee-based program sponsored and maintained by a
registered broker-dealer approved by the Distributor ("Wrap Program
Investors"). Class Y shares are sold at net asset value without the imposition
of Rule 12b-1 charges.
Depending on the amount of the purchase and the anticipated length of
time of the investment, investors may choose to purchase one Class of shares
rather than another. Investors who would rather pay the entire cost of
distribution at the time of investment, rather than spreading such cost over
time, might consider Class A shares. Other investors might consider Class B or
Class C shares, in which case 100% of the purchase price is invested
immediately. The Company will not accept any purchase of Class B shares in the
amount of $250,000 or more per investor. Such purchase must be made in Class A
shares. Class C shares may be more appropriate for the short-term investor. The
Company will not accept any purchase of Class C shares when Class A shares may
be purchased at net asset value.
CLASS A SHARES. Class A shares are sold at their net asset value plus
a sales charge. The amounts of the sales charges are shown in the following
table.
<TABLE>
<CAPTION>
Customary
Sales Charge Charge as Concession to Your
as Percentage Approximate Percentage Dealer as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- ------------------ ----------------- ------------------ -----------------
<C> <C> <C> <C>
$99,999 or less............ 4-3/4% 5.0% 4%
$100,000 to $249,999....... 3-1/2% 3.6% 3%
$250,000 to $499,999....... 2-1/2% 2.6% 2%
$500,000 to $749,999....... 2% 2.0% 1-3/4%
$750,000 to $999,999....... 1% 1.0% 3/4 of 1%
$1,000,000 or more......... 0% 0.0% 0%*
</TABLE>
* On purchases of $1 million or more, the investor pays no front-end sales
charge but a contingent deferred sales charge of 0.75% is imposed if shares
purchased at net asset value without a sales load are redeemed within the first
year after purchase. The Distributor may pay the financial service firm a
commission during the first year after such purchase at an annual rate as
follows:
Purchase Amount Commission
--------------- ----------
20
<PAGE>
First $3,000,000................................................ .75%
Next $2,000,000................................................ .50%
Over $5,000,000................................................ .25%
Where a commission is paid for purchases of $1 million or more, such
payment will be made from 12b-1 distribution fees received from the Company
and, in cases where the limits of the distribution plan in any year have been
reached, from the Distributor's own resources.
REDUCTION OF CLASS A SALES CHARGE. There are a number of ways to
reduce the sales charge imposed on the purchase of the Fund's Class A shares,
as described below. These reductions are based upon the fact that there is less
sales effort and expense involved in respect to purchases by affiliated persons
and purchases made in large quantities. If you claim any reduction of sales
charges, you or your dealer must so notify the Distributor (or State Street, if
the investment is mailed to State Street) when the purchase is made. Enough
information must be given to verify that you are entitled to such right.
(1) FAMILY OR GROUP PURCHASES. Certain purchases made by or for more
than one person may be considered to constitute a single purchase, including
(i) purchases for family members, including spouses and children under 21, (ii)
purchases by trust or other fiduciary accounts and purchases by Individual
Retirement Accounts for employees of a single employer and (iii) purchases made
by an organized group of persons, whether incorporated or not, if the group has
a purpose other than buying shares of mutual Fund. For further information on
group purchase reductions, contact the Adviser or your dealer.
(2) STATEMENTS OF INTENTION. Another way to reduce the sales charge is
by signing a Statement of Intention ("Statement"). See the Appendix: "Terms and
Conditions of a Statement of Intention." If you enter into a Statement of
Intention you (or any "single purchaser") may state that you intend to invest
at least $100,000 in the Fund 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 shares are in escrow pursuant to a Statement and
such shares are exchanged for shares of another Davis Funds, the escrow will
continue with respect to the acquired shares.
No additional sales charge will be payable if you invest the amount
you have indicated. Each purchase under a Statement will be made as if you were
buying the total amount indicated at one time. For example, if you indicate
that you intend to invest $100,000, you will pay a sales charge of 3-1/2% on
each purchase.
If you buy additional amounts during the period to qualify for an even
lower sales charge, you will be charged such lower charge. For example, if you
indicate that you intend to invest $100,000 and actually invest $250,000, you
will, by retroactive adjustment, pay a sales charge of 2-1/2%.
If during the 13-month period you invest less than the amount you have
indicated, you will pay an additional sales charge. For example, if you state
that you intend to invest $250,000 and actually invest only $100,000, you will,
by retroactive adjustment, pay a sales charge of 3-1/2%. The sales charge you
actually pay will be the same as if you had purchased the shares in a single
purchase.
A Statement does not bind you to buy, nor does it bind the Adviser to
sell, the shares covered by the Statement.
(3) RIGHTS OF ACCUMULATION. Another way to reduce the sales charge is
under a right of accumulation. This means that the larger purchase entitled to
a lower sales charge does not have to be in dollars invested at one time. The
larger purchases that you (or any "single purchaser") make at any one time can
be determined by adding to the amount of a current purchase the value of Fund
shares (at offering price) already owned by you.
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For example, if you owned $100,000 worth (at offering price) of shares
(including Class A, B and C shares of all Davis Funds, except Davis Government
Money Market Fund) and invest $5,000 in additional shares, the sales charge on
that $5,000 investment would be 3-1/2%, not 4-3/4%.
(4) COMBINED PURCHASES WITH OTHER DAVIS FUNDS. Your ownership or
purchase of Class A shares of other Davis Funds may also reduce your sales
charges in connection with the purchase of the Fund's Class A shares. This
applies to all three situations for reduction of sales charges discussed above.
If a "single purchaser" decides to buy a Fund Class A shares as well
as Class A shares of any of the other Davis Funds (other than shares of Davis
Government Money Market Fund) at the same time, these purchases will be
considered a single purchase for the purpose of calculating the sales charge.
For example, a single purchaser can invest at the same time $100,000 in Davis
International Growth Fund's Class A shares and $150,000 in the Class A shares
of Davis New York Venture Fund and pay a sales charge of 2-1/2%, not 3-1/2%.
Similarly, a Statement of Intention for the Fund's Class A shares and
for the Class A shares of the other Davis Funds (other than Davis Government
Money Market Fund) may be aggregated. In this connection, the Company's Class A
shares and the Class A shares of the other Davis Funds which you already own,
valued at the current offering price at the end of the period covered by your
Statement of Intention, may be included in the amount you have stated you
intend to invest pursuant to your Statement.
Lastly, the right of accumulation also applies to the Class A, Class B
and Class C shares of the other Davis Funds (other than Davis Government Money
Market Fund) which you own. Thus, the amount of current purchases of the Fund's
Class A shares which you make may be added to the value of the Class A shares
of the other Davis Funds (valued at their current offering price) already owned
by you in determining the applicable sales charge. For example, if you owned
$100,000 worth of shares of Davis Investment Grade Bond Fund and Davis
Financial Fund and Davis Convertible Securities Fund, (valued at the applicable
current offering price) and invest $5,000 in the 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 assert this right of
combining the shares you own of the other Davis Funds, you or your dealer must
notify the Distributor (or State Street, if the investment is mailed to State
Street) of the pertinent facts. Enough information must be given to permit
verification as to whether you are entitled to a reduction in sales charges.
(5) ISSUANCE OF SHARES AT NET ASSET VALUE. There are many situations
where the sales charge will not apply to the purchase of Class A shares, as
discussed in the Prospectus. A sales charge is not imposed on these
transactions either because of the purchaser deals directly with the Fund (as
in employee purchases) or because a responsible party (such as a financial
institution) is providing the necessary services usually provided by a
registered representative. In addition, the Fund occasionally may be provided
with an opportunity to purchase substantially all the assets of a public or
private investment company or to merge another such company into the Fund. This
offers the Fund the opportunity to obtain significant assets. No dealer
concession is involved. It is industry practice to effect such transactions at
net asset value as it would adversely affect the Fund's ability to do such
transactions if the Fund had to impose a sales charge.
(6) PURCHASES FOR EMPLOYEE BENEFIT PLANS. Trusteed or other fiduciary
accounts and Individual Retirement Accounts ("IRA") of a single employer are
treated as purchases of a single person. Purchases of and ownership by an
individual and such individual's spouse under an IRA are combined with their
other purchases and ownership.
(7) SALES AT NET ASSET VALUE. The sales charge will not apply to: (1)
Class A shares purchased through the automatic reinvestment of dividends and
distributions; (2) Class A shares purchased by directors, officers, and
employees of any fund for which the Adviser acts as investment adviser or
officers and employees of the Adviser, Sub-Adviser, or Distributor, including
former directors and officers and any spouse, child, parent, grandparent,
brother or sister ("immediate family members") of all of the foregoing, and any
employee benefit or payroll deduction plan established by or for such persons;
(3) Class A shares purchased by any registered representatives, principals, and
employees (and any immediate family member) of securities dealers having a
sales agreement with the Distributor; (4) initial purchases of Class A shares
totaling at least $250,000 but less than $5,000,000, made at
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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 Distributor or by investment advisors or financial planners who place
trades for their own accounts or the accounts of their clients and who charge a
management, consulting, or other fee for their services; and clients of such
investment advisors or financial planners who place trades for their own
accounts if the accounts, are linked to the master account of such investment
advisor or financial planner, on the books and records of the broker or agent;
and (7) Class A shares amounting to less than $5,000,000 purchased by any
state, county, city, department, authority or similar agency. Investors may be
charged a fee if they effect purchases in fund shares through a broker or
agent. The Fund may also issue Class A shares at net asset value incident to a
merger with or acquisition of assets of an investment company.
CLASS B SHARES. Class B shares are offered at net asset value, without
a front-end sales charge. The Distributor receives and usually reallows
commissions to firms responsible for the sale of such shares. With certain
exceptions described below, the Fund impose a deferred sales charge of 4% on
shares redeemed during the first year after purchase, 3% on shares redeemed
during the second or third year after purchase, 2% on shares redeemed during
the fourth or fifth year after purchase and 1% on shares redeemed during the
sixth year after purchase. However, on Class B shares of the Fund which are
acquired in exchange from Class B shares of other Davis Funds which were
purchased prior to December 1, 1994, the Fund will impose a deferred sales
charge of 4% on shares redeemed during the first calendar year after purchase;
3% on shares redeemed during the second calendar year after purchase; 2% on
shares redeemed during the third calendar year after purchase; and 1% on shares
redeemed during the fourth calendar year after purchase; and, no deferred sales
charge is imposed on amounts redeemed after four calendar years from purchase.
Class B shares will be subject to a maximum Rule 12b-1 fee at the annual rate
of 1% of the class's average daily net asset value. The Fund will not accept
any purchase of Class B shares in the amount of $250,000 or more per investor.
Class B shares that have been outstanding for eight years will
automatically convert to Class A shares without imposition of a front-end sales
charge. The Class B shares so converted will no longer be subject to the higher
expenses borne by Class B shares. Because the net asset value per share of the
Class A shares may be higher or lower than that of the Class B shares at the
time of conversion, although the dollar value will be the same, a shareholder
may receive more or less Class A shares than the number of Class B shares
converted. Under a private Internal Revenue Service Ruling, such a conversion
will not constitute a taxable event under the federal income tax law. In the
event that this ceases to be the case, the Board of Directors will consider
what action, if any, is appropriate and in the best interests of the Class B
shareholders. In addition, certain Class B shares held by certain defined
contribution plans automatically convert to Class A shares based on increases
of plan assets.
CLASS B SPECIAL DISTRIBUTION ARRANGEMENTS. Class B shares of the Fund
are made available to Retirement Plan Participants such as 401K or 403B Plans
at NAV with the waiver of Contingent Deferred Sales Charge ("CDSC") if:
(i) the Retirement Plan is recordkept on a daily valuation basis by
Merrill Lynch and, on the date the Retirement Plan sponsor signs the
Merrill Lynch Recordkeeping Service Agreement, the Retirement Plan has
less than $3 million in assets invested in broker/dealer Fund 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 Fund advised or managed by MLAM (collectively, the "Applicable
Investments"); or
(ii) the Retirement Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract of alliance arrangement with Merrill Lynch, and on the date
the Retirement Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement, the Retirement Plan has less than $3 million in
assets, excluding money market Fund, invested in Applicable
Investments; or
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(iii) the Retirement Plan has less than 500 eligible employees, as
determined by the Merrill Lynch plan conversion manager, on the date
the Retirement Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement.
Retirement Plans recordkept on a daily basis by Merrill Lynch or an
independent recordkeeper under a contract with Merrill Lynch that are currently
investing in Class B shares of the Davis Mutual Fund convert to Class A shares
once the Retirement Plan has reached $5 million invested in Applicable
Investments. The Retirement Plan will receive a Retirement Plan level share
conversion. The Fund may make similar exceptions for other financial
institutions sponsoring or administering similar benefit plans.
CLASS C SHARES. Class C shares are offered at net asset value without
a sales charge at the time of purchase. Class C shares redeemed within one year
of purchase will be subject to a 1% charge upon redemption. Class C shares do
not have a conversion feature. The Fund will not accept any purchases of Class
C shares when Class A shares may be purchased at net asset value.
The Distributor will pay a commission to the firm responsible for the
sale of Class C shares. No other fees will be paid by the Distributor during
the one-year period following purchase. The Distributor will be reimbursed for
the commission paid from 12b-1 fees paid by the Fund during the one-year
period. If Class C shares are redeemed within the one-year period after
purchase, the 1% redemption charge will be paid to the Distributor. After Class
C shares have been outstanding for more than one year, the Distributor will
make quarterly payments to the firm responsible for the sale of the shares in
amounts equal to 0.75% of the annual average daily net asset value of such
shares for sales fees and 0.25% of the annual average daily net asset value of
such shares for service and maintenance fees.
Under a program with Prudential Securities, Inc. ("PruArray"), the
Distributor will not advance a 1% commission at the time of purchase, no
contingent deferred sales charge is assessed and the 12b-1 fee is paid directly
to PruArray.
CONTINGENT DEFERRED SALES CHARGES. Any contingent deferred sales
charge ("CDSC") imposed upon the redemption of Class A, Class B or Class C
shares is a percentage of the lesser of (i) the net asset value of the shares
redeemed or (ii) the original cost of such shares. No CDSC is imposed when you
redeem amounts derived from (a) increases in the value of shares redeemed above
the net cost of such shares or (b) certain shares with respect to which the
Fund did not pay a commission on issuance, including shares acquired through
reinvestment of dividend income and capital gains distributions. Upon request
for a redemption, shares not subject to the CDSC will be redeemed first.
Thereafter, shares held the longest will be the first to be redeemed.
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-Adviser, or
Distributor, including former directors and officers and immediate family
members of all of the foregoing, and any employee benefit or payroll deduction
plan established by or for such persons; and (f) on redemptions pursuant to the
right of the Company to liquidate a shareholder's account if the aggregate net
asset value of the shares held in such account falls below an established
minimum amount.
CLASS Y SHARES. Class Y shares are offered through a separate
Prospectus to (i) trust companies, bank trusts, endowments, pension plans or
foundations ("Institutions) acting on behalf of their own account or one or
more clients for which such Institution acts in a fiduciary capacity and
investing at least $5,000,000 at any one time; (ii) any state, county, city,
department, authority or similar agency which invests at least $5,000,000
("Government
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Entities"); and (iii) any investor with an account established under a "wrap
account" or other similar fee-based program sponsored and maintained by a
registered broker-dealer approved by the Fund's Distributor ("Wrap Program
Investors"). Wrap Program Investors may only purchase Class Y shares through
the sponsors of such programs who have entered into agreements with Davis
Distributors, LLC.
Wrap Program Investors should be aware that both Class A and Class Y
shares are made available by the Fund at net asset value to sponsors of wrap
programs. However, Class A shares are subject to additional expenses under the
Fund's Rule 12b-1 Plan and sponsors of wrap programs utilizing Class A shares
are generally entitled to payments under the Plan. If the sponsor has selected
Class A shares, investors should discuss these charges with their program's
sponsor and weigh the benefits of any services to be provided by the sponsor
against the higher expenses paid by Class A shareholders.
SPECIAL SERVICES
PROTOTYPE RETIREMENT PLANS. The Distributor and certain qualified
dealers have available prototype retirement plans (e.g. 401(k), profit sharing,
money purchase, Simplified Employee Pension ("SEP") plans, model 403(b) and 457
plans for charitable, educational and governmental entities) sponsored by the
Company for corporations and self-employed individuals. The Distributor and
certain qualified dealers also have prototype Individual Retirement Account
("IRA") plans (deductible IRAs, non-deductible IRAs, including "Roth IRAs", and
educational IRAs) and SIMPLE IRA plans for both individuals and employers.
These plans utilize the shares of the Company and other Davis Funds as their
investment vehicle. State Street acts as custodian or trustee for such plans,
and charges the participant $10 to establish each account and an annual
maintenance fee of $10 per social security number. Such fees will be redeemed
automatically at year-end from your account, unless you elect to pay the fee
directly prior to such time.
AUTOMATIC INVESTMENT PLAN. You may arrange for automatic monthly
investing whereby State Street will be authorized to initiate a debit to your
bank account of a specific amount (minimum $25) each month which will be used
to purchase the Fund shares. The account minimums of $1,000 for non-retirement
accounts and $250 for retirement accounts will be waived, if pursuant to the
automatic investment plan, the account balance will meet the minimum investment
requirements within twelve months of the initial investment. For institutions
that are members of the Automated Clearing House system (ACH), such purchases
can be processed electronically on any day of the month between the 4th and
28th day of each month. After each automatic investment, you will receive a
transaction confirmation, and the debit should be reflected on your next bank
statement. You may terminate the Automatic Investment Plan at any time. If you
desire to utilize this plan, you may use the appropriate designation on the
Application Form. Class Y shares are not eligible to participate in the
Automatic Investment Plan.
DIVIDEND DIVERSIFICATION PROGRAM. You may also establish a dividend
diversification program which allows you to have all dividends and any other
distributions automatically invested in shares of one or more of the Davis
Funds, subject to state securities law requirements and the minimum investment
requirements set forth below. You must receive a current prospectus for the
other fund or Fund prior to investment. Shares will be purchased at the chosen
fund's net asset value on the dividend payment date. A dividend diversification
account must be in the same registration as the distributing fund account and
must be of the same class of shares. All accounts established or utilized under
this program must have a minimum initial value, and all subsequent investments
must be at least $25. This program can be amended or terminated at any time,
upon at least 60 days' notice. If you would like to participate in this
program, you may use the appropriate designation on the Application Form. Class
Y shares are not eligible to participate in the Dividend Diversification
Program.
TELEPHONE PRIVILEGE. Unless you have provided in your application that
the telephone privilege is not to be available, the telephone privilege is
automatically available under certain circumstances for exchanging shares and
for redeeming shares. BY EXERCISING THE TELEPHONE PRIVILEGE TO SELL OR EXCHANGE
SHARES, YOU AGREE THAT THE DISTRIBUTOR SHALL NOT BE LIABLE FOR FOLLOWING
TELEPHONE INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE. Reasonable procedures
will be employed to confirm that such instructions are genuine and if not
employed, the Company may be liable for unauthorized instructions. Such
procedures will include a request for personal
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identification (account or social security number) and tape recording of the
instructions. You should be aware that during unusual market conditions we
might have difficulty in accepting telephone requests, in which case you should
contact us by mail.
EXCHANGE OF SHARES
GENERAL. The exchange privilege is a convenient way to buy shares in
other Davis Funds in order to respond to changes in your goals or in market
conditions. If such goals or market conditions change, the Davis Funds offer a
variety of investment objectives that includes common stock Fund, tax-exempt,
government and corporate bond Fund, and a money market fund. However, the Fund
is intended as long-term investments and are not intended for short-term
trades. Shares of a particular class of a fund may be exchanged only for shares
of the same class of another Davis Fund except that Class A shareholders who
are eligible to purchase Class Y shares may exchange their shares for Class Y
shares of the Fund. All of the Davis Funds offer Class A, Class B, Class C and
Class Y shares. The shares to be received upon exchange must be legally
available for sale in your state. For Class A, Class B or Class C shares the
net asset value of the initial shares being acquired must meet the required
minimum of $1,000 unless such exchange is under the Automatic Exchange Program
described below. For Class Y shares the net asset value of the initial shares
being acquired must be at least $5,000,000 for Institutions and Government
Entities or minimums set by wrap program sponsors.
Shares may be exchanged at relative net asset value without any
additional charge. However, if any shares being exchanged are subject to an
escrow or segregated account pursuant to the terms of a Statement of Intention
or a CDSC, such shares will be exchanged at relative net asset value, but the
escrow or segregated account will continue with respect to the shares acquired
in the exchange. In addition, the terms of any CDSC, or redemption fee
applicable at the time of exchange, will continue to apply to any shares
acquired upon exchange.
Before you decide to make an exchange, you must obtain the current
prospectus of the desired fund. Call your broker or the Distributor for
information and a prospectus for any of the other Davis Funds registered in
your state. Read the prospectus carefully. If you decide to exchange your
shares, contact your broker/dealer, the Distributor, or send State Street a
written unconditional request for the exchange and follow the instructions
regarding delivery of share certificates contained in the section on
"Redemption of Shares." A medallion signature guarantee is not required for
such an exchange. However, if shares are also redeemed for cash in connection
with the exchange transaction, a medallion signature guarantee may be required.
A medallion signature guarantee is a written confirmation from an eligible
guarantor institution, such as a securities broker-dealer or a commercial bank,
that the signature(s) on the account is (are) valid. Unfortunately, no other
form of signature verification can be accepted. Your dealer may charge an
additional fee for handling an exercise of the exchange privilege.
An exchange involves both a redemption and a purchase, and normally
both are done on the same day. However, in certain instances such as where a
large redemption is involved, the investment of redemption proceeds into shares
of other Davis Funds may take up to seven days. For federal income tax
purposes, exchanges between funds are treated as a sale and purchase.
Therefore, there will usually be a recognizable capital gain or loss due to an
exchange. An exchange between different classes of the same fund is not a
taxable event.
The number of times you may exchange shares among the Davis Funds
within a specified period of time may be limited at the discretion of the
Distributor. Currently, more than four exchanges out of a fund during a
twelve-month period are not permitted without the prior written approval of the
Distributor. The Company reserves the right to terminate or amend the exchange
privilege at any time upon 60 days' notice.
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 Company also offers an automatic
monthly exchange program. All accounts established or utilized under this
program must have the same registration and a minimum initial value of at least
$250. All subsequent exchanges must have a value of at least $25. Each month,
shares will be
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simultaneously redeemed and purchased at the chosen fund's applicable price. If
you would like to participate in this program, you may use the appropriate
designation on the Application Form.
REDEMPTION OF SHARES
GENERAL. You can redeem, or sell back to the Company, all or part of
your shares at any time at net asset value less any applicable sales charges.
You can do this by sending a written request to State Street Bank and Trust
Company, c/o The Davis Funds, P.O. Box 8406, Boston, MA 02266-8406, indicating
how many of your shares or what dollar amount you want to redeem. If more than
one person owns the shares to be redeemed, all owners must sign the request.
The signatures on the request must correspond to the account from which the
shares are being redeemed.
Sometimes State Street needs more documents to verify authority to
make a redemption. This usually happens when the owner is a corporation,
partnership or fiduciary (such as a trustee or the executor of an estate) or if
the person making the request is not the registered owner of the shares.
If shares to be redeemed are represented by a certificate, the
certificate must be signed by the owner or owners and must be sent to State
Street with the request.
For the protection of all shareholders, the Company also requires that
signatures appearing on a share certificate, stock power or redemption request
where the proceeds would be more than $50,000, must be medallion signature
guaranteed by an eligible guarantor institution, such as a securities
broker-dealer, or a commercial bank. A medallion signature guarantee is also
required in the event that any modification to the Company's application is
made after the account is established, including the selection of the Expedited
Redemption Privilege. In some situations 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 medallion signature guarantee program. This provision also
applies to exchanges when there is also a redemption for cash. A medallion
signature guarantee on redemption requests where the proceeds would be $50,000
or less is not required, provided that such proceeds are being sent to the
address of record and, in order to ensure authenticity of an address change,
such address of record has not been changed within the last 30 days. All
notifications of address changes must be in writing.
Redemption proceeds are normally paid to you within seven days after
State Street receives your proper redemption request. Payment for redemptions
can be suspended under certain emergency conditions determined by the
Securities and Exchange Commission or if the New York Stock Exchange is closed
for other than customary or holiday closings. If any of the shares redeemed
were just bought by you, payment to you may be delayed until your purchase
check has cleared (which usually takes up to 15 days from the purchase date).
You can avoid any redemption delay by paying for your shares with a bank wire
or federal Fund.
Redemptions are ordinarily paid to you in cash. However, the Company's
Board of Directors is authorized to decide if conditions exist making cash
payments undesirable, (although the Board has never reached such a decision).
If the Board of Directors should decide to make payments other than in cash,
redemptions could be paid in securities, valued at the value used in computing
a fund's net asset value. There would be brokerage costs incurred by the
shareholder in selling such redemption proceeds. We must, however, redeem
shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net
asset value, whichever is smaller, during any 90-day period for any one
shareholder.
Your shares may also be redeemed through participating dealers. Under
this method, the Distributor repurchases the shares from your dealer, if your
dealer is a member of the Distributor's selling group. Your dealer may, but is
not required to, use this method in selling back your shares and may place
repurchase request by telephone or wire. Your dealer may charge you a service
fee or commission. No such charge is incurred if you redeem your own shares
through State Street rather than having a dealer arrange for a repurchase.
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EXPEDITED REDEMPTION PRIVILEGE. Investors with accounts other than
prototype retirement plans and IRAs may designate on the Expedited Redemption
Privilege Form (included in the application), 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. Class Y shareholders are not eligible for the
expedited redemption privilege. 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 a
facsimile request signed by the shareholder to State Street. At the time of
redemption, the shareholder must request that federal Fund 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. Payments by ACH will
usually arrive at your bank two banking days after you call. Payments by wire
are 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.
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, medallion guaranteed by an eligible financial institution.
Additional documentation may also 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. On shares that are redeemed you will receive the payment you have
requested approximately on the 25th day of the month. Withdrawals involve
redemption of shares and may produce gain or loss for income tax purposes.
Shares of the Fund initially acquired by exchange from any of the other Davis
Funds will remain subject to an escrow or segregated account to which any of
the exchanged shares were subject. If you utilize this program, any applicable
CDSCs will be imposed on such shares redeemed. Purchase of additional shares
concurrent with withdrawals may be disadvantageous to you because of tax and
sales load consequences. If the amount you withdraw exceeds the dividends on
your shares, your account will suffer depletion. You may terminate your
Automatic Withdrawals Plan at any time without charge or penalty. The Company
reserves the right to terminate or modify the Automatic Withdrawals Plan at any
time. Class Y shares are not eligible for the Automatic Withdrawal Plan.
INVOLUNTARY REDEMPTIONS. To relieve the Company of the cost of
maintaining uneconomical accounts, the Company may effect the redemption of
shares at net asset value in any account if the account, due to shareholder
redemptions, has a value of less than $250. At least 60 days prior to such
involuntary redemption, the Company will mail a notice to the shareholder so
that an additional purchase may be effected to avoid such redemption.
SUBSEQUENT REPURCHASES. After some or all of your shares are redeemed
or repurchased, you may decide to put back all or part of your proceeds into
the same Class of a fund's shares. Any such shares will be issued without sales
charge at the net asset value next determined after you have returned the
amount of your proceeds. In addition, any applicable CDSC assessed on such
shares will be returned to the account. Shares will be deemed to have been
purchased on the original purchase date for purposes of calculating the CDSC
and the conversion period. This can be done by sending State Street or the
Distributor a letter, together with a check for the reinstatement
28
<PAGE>
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.
Section IV: General Information
DETERMINING THE PRICE OF SHARES
NET ASSET VALUE. The net asset value per share of each class is
determined daily by dividing the total value of investments and other assets,
less any liabilities, by the total outstanding shares. The net asset value of
the Fund is determined daily as of the earlier of the close of the New York
Stock Exchange (the "Exchange") or 4:00 p.m., Eastern Time, on each day that
the Exchange is open for trading.
The price per share for purchases or redemptions made directly through
State Street is generally the value next computed after State Street receives
the purchase order or redemption request. In order for your purchase order or
redemption request to be effective on the day you place your order with your
broker-dealer or other financial institution, such broker-dealer or financial
institution must (i) receive your order before 4:00 p.m. Eastern time and (ii)
promptly transmit the order to State Street. The broker-dealer or financial
institution is responsible for promptly transmitting purchase orders or
redemption requests to State Street so that you may receive the same day's net
asset value. Note that in the case of redemptions and repurchases of shares
owned by corporations, trusts, or estates, or of shares represented by
outstanding certificates, State Street may require additional documents to
effect the redemption and the applicable price will be determined as of the
close of the next computation following the receipt of the required
documentation or outstanding certificates. See "Redemption of Shares."
The Company does not price its shares or accept orders for purchases
or redemptions on days when the New York Stock Exchange is closed. Such days
currently include New Year's Day, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Certain brokers and certain designated intermediaries on their behalf
may accept purchase and redemption orders. The Distributor will be deemed to
have received such an order when the broker or the designee has accepted the
order. Customer orders are priced at the net asset value next computed after
such acceptance. Such order may be transmitted to the Fund or its agents
several hours after the time of the acceptance and pricing.
VALUATION OF PORTFOLIO SECURITIES. Portfolio securities are normally
valued using current market valuations. Securities traded on a national
securities exchange are valued at the last published sales price on the
exchange, or in the absence of recorded sales, at the average of closing bid
and asked prices on such exchange. Over-the-counter securities are valued at
the average of closing bid and asked prices.
Because the Fund's securities are traded in markets that close at
different times, events affecting portfolio values that occur between the time
that their prices are determined and the time the Fund's shares are priced will
generally not be reflected in the Fund's share price.
The value of securities denominated in foreign currencies and traded
in foreign markets will have their value converted into the U.S. dollar
equivalents at the prevailing market rate as computed by State Street Bank &
Trust Company. Fluctuation in the value of foreign currencies in relation to
the U.S. dollar may affect the net asset value of the Fund's shares even if
there has not been any change in the foreign currency price of the Fund's
investments.
Investments in short-term securities (maturing in sixty days or less)
are valued at amortized cost unless the Board of Directors determines that such
cost is not a fair value. Assets for which there are no quotations available
will be valued at a fair value as determined by or at the direction of the
Board of Directors.
29
<PAGE>
YEAR 2000 AND EURO CONVERSION ISSUES
Like all financial service providers, the Adviser, Sub-Adviser,
Distributor, and third parties providing investment advisory, administrative,
transfer agent, custodial and other services (jointly the "Service Providers")
utilize systems that may be affected by Year 2000 transition issues and/or by
Euro Conversion issues.
YEAR 2000 ISSUES. The services provided to the Fund and the
shareholders by the Service Providers depend on the smooth functioning of their
computer systems and those of other parties they deal with. Many computer
software systems in use today cannot distinguish the year 2000 from the year
1900 because of the way dates are encoded and calculated.
EURO CONVERSION ISSUES. Accurate pricing of the Company's assets
depends upon accurate valuation of securities denominated in foreign
currencies. On January 1, 1999, eleven of the fifteen member states of the
European Union are scheduled to convert to a common currency, the "euro."
Conversion to the euro may present Service Providers with technical challenges
to adapt information technology and other systems to accommodate
euro-denominated transactions. The euro conversion also may affect market risk
with respect to the international equity securities which the Company invests
in.
Difficulties with Year 2000 or Euro Conversion issues could have a
negative impact on handling securities trades, payments of interest and
dividends, pricing and account services. Although, at this time, there can be
no assurance that there will be no adverse impact on the Fund, the Service
Providers have advised the Fund that they have been actively working on
necessary changes to their computer systems to prepare for the Year 2000 and
the Euro Conversion and expect that their systems, and those of other parties
they deal with, will be adapted in time for these events. In addition, there
can be no assurance that the companies which the Fund invest in will not
experience difficulties with Year 2000 or Euro Conversion issues which may
negatively effect the market value of those companies.
DIVIDENDS AND DISTRIBUTIONS
There are two sources of income, net income and realized capital gains
made to you by the Fund. You will receive confirmation statements for dividends
declared and shares purchased through reinvestment of dividends. You will also
receive confirmations after each purchase and after each redemption. Different
classes of shares may be expected to have different expense ratios due to
differing distribution services fees and certain other expenses. Classes with
higher expense ratios will pay correspondingly lower dividends than Classes
with lower expense ratios. For tax purposes, information concerning
distributions will be mailed annually to shareholders.
Shareholders have the option to receive all dividends and
distributions in cash, to have all dividends and distributions reinvested, or
to have income dividends paid in cash and capital gain distributions
reinvested. Reinvestment of all dividends and distributions is automatic for
accounts utilizing the Automatic Withdrawals Plan. The reinvestment of
dividends and distributions is made at net asset value (without any initial or
contingent deferred sales charge) on the payment date.
For the protection of the shareholder, upon receipt of the second
dividend check which has been returned to State Street as undeliverable,
undelivered dividends will be invested in additional shares at the current net
asset value and the account designated as a dividend reinvestment account.
Because Class B and Class C shares incur higher distribution service
fees and bear certain other expenses, such classes will have a higher expense
ratio and will pay correspondingly lower dividends than Class A shares or Class
Y shares. Information concerning distributions will be mailed to shareholders
annually. 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 capital gain distributions
reinvested. The reinvestment of dividends and distributions is made at net
asset value (without any sales charge) on the dividend payment date. Upon
receipt of the second dividend check which has been returned to State Street as
undeliverable, undelivered dividends will be invested in additional shares at
the current net asset value and the account designated as a dividend
reinvestment account.
30
<PAGE>
FEDERAL INCOME TAXES
This section is not intended to be a full discussion of all the
aspects of the federal income tax law and its effects on the Fund and its
shareholders. Shareholders may be subject to state and local taxes on
distributions. Each investor should consult his or her own tax adviser
regarding the effect of federal, state, and local taxes on any investment in
the Fund.
The Fund intend to continue to qualify as a regulated investment
company under the Internal Revenue Code (the "Code"), and if so qualified, will
not be liable for federal income tax to the extent its earnings are
distributed, except in respect to realization of the "built-in gains" as
described below. If, for any calendar year, the distribution of earnings
required under the Code exceeds the amount distributed, an excise tax, equal to
4% of the excess, will be imposed on the applicable fund. The Fund intends to
make distributions during each calendar year sufficient to prevent imposition
of the excise tax.
Distributions of net investment income and net realized short-term
capital gains will be taxable to shareholders as ordinary income. Distributions
of net long-term capital gains (other than the built-in gains as discussed
below) will be taxable to shareholders as long-term capital gain regardless of
how long the shares have been held. Distributions will be treated the same for
tax purposes whether received in cash or in additional shares. Dividends
declared in the last calendar month to shareholders of record in such month and
paid by the end of the following January are treated as received by the
shareholder in the year in which they are declared. A gain or loss for tax
purposes may be realized on the redemption of shares. If the shareholder
realizes a loss on the sale or exchange of any shares held for six months or
less and if the shareholder received a capital gain distribution during that
period, then the loss is treated as a long-term capital loss to the extent of
such distribution.
FOREIGN TAXES ON FUND INCOME. Income received by the Fund from its
foreign investments may be subject to withholding and other foreign 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.
The United States has entered into tax treaties with many foreign
countries which may reduce or eliminate these taxes. It is impossible to
determine in advance the effective rate of foreign tax to which the Fund will
be subject, since the amount of the Fund's assets to be invested in foreign
countries will vary.
If the Fund is liable for foreign income taxes and if more than 50% of
the value of the Fund's total assets at the close of its taxable year consists
of the stock or securities of foreign corporations, the Fund may elect to "pass
through" to the Fund's shareholders the amount of foreign income taxes paid by
the Fund. Pursuant to such election, shareholders would be required to (i)
include in gross income their pro-rata shares of foreign taxes paid by the Fund
and (ii) treat their pro-rata share of these taxes as paid by them.
Shareholders would then be permitted to either deduct their pro-rata share of
foreign taxes in computing their taxable income or use it as a foreign tax
credit against Federal income taxes. No deduction for foreign taxes could be
claimed by a shareholder who does not itemize deductions, and the amount of
foreign taxes for which any shareholder may claim a credit in any year may be
subject to limitations under the Code. Shareholders who are not liable for
Federal income taxes, such as retirement plans qualified under Section 401 of
the Code, will not be affected by any "pass through" of foreign tax payments.
The Fund intends to meet, for each fiscal year, the requirements of
the Code to "pass through" to its shareholders foreign income taxes paid, but
there can be no assurance that the Fund will be able to do so or will elect to
do so. Each shareholder will be notified within 60 days after the close of each
taxable year of the Fund whether the foreign taxes paid by the Fund will "pass
through" for that year, and, if so, the amount of each shareholder's pro-rata
share (by country) of the foreign taxes paid by the Fund and the dividend paid
by the Fund which represents income derived from foreign sources.
31
<PAGE>
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
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 of shares. These
performance figures are based upon historical results and are not intended to
indicate future performance.
TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN
"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. This calculated amount is then expressed as a percentage
by multiplying by 100.
"Average annual total return" measures both the net investment income
generated by, and the effect of any realized or unrealized appreciation or
depreciation of, the underlying investments in the fund's portfolio. Average
annual total return is calculated separately for each class in accordance with
the standardized method prescribed by the Securities and Exchange Commission by
determining the average annual compounded rates of return over the periods
indicated, that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)n = ERV
Where: P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the
end of the period of a hypothetical
$1,000 payment made at the
beginning of such period
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates and (ii) deducts (a) the
maximum front-end or applicable contingent deferred sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory fees, charged as expenses to all shareholder accounts.
OTHER FUND STATISTICS
In reports or other communications to shareholders and in advertising
material, the performance of the Fund may be compared to recognized unmanaged
indices or averages of the performance of similar securities. Also, the
performance of the Fund may be compared to that of other funds of comparable
size and objectives as listed in the rankings prepared by Lipper Analytical
Services, Inc., Morningstar, Inc. or similar independent mutual fund rating
services, and the Fund may use evaluations published by nationally recognized
independent ranking services and publications. Any given performance comparison
should not be considered representative of the Fund's performance for any
future period.
32
<PAGE>
In advertising and sales literature the Fund may publish various
statistics describing its investment portfolio such as the Fund's average Price
to Book and Price to Earnings ratios, beta, alpha, R-squared, standard
deviation, etc.
The Fund has not yet published an Annual Report. When they are
available, the Annual Report and Semi-Annual Report to Shareholders will
contain additional performance information and will be made available upon
request and without charge by calling Davis Funds toll-free at 1-800-279-0279,
Monday-Friday, 7 a.m. to 4 p.m. Mountain Time.
33
<PAGE>
APPENDIX
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.
34
<PAGE>
FORM N-1A
DAVIS INTERNATONAL SERIES, INC.
POST-EFFECTIVE AMENDMENT NO. 7 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 23. Exhibits:
(a)(1) Articles of Incorporation. Articles of Incorporation,
incorporated by reference to Exhibit 1 to Registrant's
Pre-Amendment No. 2, File No. 33-86578.
(a)(2) Articles Supplementary to Articles of Incorporation.
Incorporated by reference to exhibit 1(b) to Registrant's
Post-Effective Amendment No. 5, File No. 33-86578.
(a)(3)* Articles Supplementary to Articles of Incorporation,
designating the Davis International Growth Fund.
(b) By-laws. incorporated by reference to Exhibit 2 to
Registrant's Pre-Effective Amendment No. 2, File No.
33-86578.
(c) Instruments Defining Rights of Security Holders. Not
applicable.
(d)(1) Investment Advisory Contracts. incorporated by reference to
Exhibit 5 (a) to Registrant's Pre-Effective Amendment No. 2,
File No. 33-86578.
(d)(2) Sub-Advisory Agreement with Davis Selected Advisers-NY, Inc.
incorporated by reference to Exhibit 5(c) to Registrant's
Pre-Effective Amendment No. 2 File No. 33-86578
(e)(1) Underwriting Contracts. Distributor's Agreement, incorporated
by reference to Exhibit 6 to Registrant's Pre-Effective
Amendment No. 2, File No. 33-86578.
1
<PAGE>
(e)(2) Transfer and Assumption Agreement to the Underwriting
Contract. Incorporated by reference to exhibit No. 6(b) to
Registrant's Post-Effective Amendment No. 5, File No.
33-86578.
(f) Bonus or Profit Sharing Contracts. Not applicable.
(g)(1) Custodian Agreement. Incorporated by reference to Exhibit (8)
to Registrant's Registration Statement on Form N-1A, File No.
33-86578.
(g)(2)** Amendment to Custodian Contract, adding Davis International
Growth Fund.
(h)(1) Other Material Contracts. Transfer Agency and Service
Agreement, incorporated by reference to Exhibit (9) to
Registrant's Registration Statement on Form N-1A, File No.
33-86578.
(h)(2)** Amendment to Transfer Agency and Service Agreement, adding
the Davis International Growth Fund.
(i)** Legal Opinion. Opinion and Consent of Counsel, (D'Ancona &
Pflaum).
(j) Other Opinions. Not Applicable.
(k) Omitted Financial Statements. Not Applicable.
(l) Initial Capital Agreements. Not Applicable
(m)(1) Rule 12b-1 Plan. Distribution Plan for Class A shares, as
amended, incorporated by reference to exhibit 15(a)
Registrant's Post-Effective Amendment No. 5, File No.
33-86578.
(m)(2) Distribution Plan for Class B shares, incorporated by
reference to Exhibit 15(b) to Registrant's Amendment No. 2,
File No. 33-86578.
(m)(3) Distribution Plan for Class C shares, incorporated by
reference to exhibit 15(c) Registrant's Post-Effective
Amendment No. 5, File No. 33-86578.
(n) Financial Data Schedule. Not applicable
2
<PAGE>
(o) Rule 18f-3 Plan. 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.
(p)* Other Exhibits. Powers of Attorney of the Registrant,
Officers and Board of Directors appointing Sheldon Stein and
Arthur Don as attorneys-in-fact.
* Filed Herein
** To be Filed by Amendment
Item 24. Persons Controlled by or Under Common Control With Registrant
Not applicable
Item 25. Indemnification
Registrant's Articles of Incorporation indemnifies its directors,
officers and employees to the full extent permitted by Section 2-418 of the
Maryland General Corporation Law, subject only to the provisions of the
Investment Company Act of 1940. The indemnification provisions of the Maryland
General Corporation Law (the "Law") permit, among other things, corporations to
indemnify directors and officers unless it is proved that the individual (1)
acted in bad faith or with active and deliberate dishonesty, (2) actually
received an improper personal benefit in money, property or services, or (3) in
the case of a criminal proceeding, had reasonable cause to believe that his act
or omission was unlawful. The Law was also amended to permit corporations to
indemnify directors and officers for amounts paid in settlement of
stockholders' derivative suits.
In addition, the Registrant's directors and officers are covered under
a policy to indemnify them for loss (subject to certain deductibles) including
costs of defense incurred by reason of alleged errors or omissions, neglect or
breach of duty. The policy has a number of exclusions including alleged acts,
errors, or omissions which are finally adjudicated or established to be
deliberate, dishonest, malicious or fraudulent or to constitute willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties
in respect to any registered investment company. This coverage is incidental to
a general policy carried by the Registrant's adviser.
In addition to the foregoing indemnification, Registrant's Articles of
Incorporation exculpate directors and officers with respect to monetary damages
except to the extent that an individual actually received an improper benefit
in money property or services or to the extent that a final adjudication finds
that the individual acted with active and deliberate dishonesty.
Item 26. 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 Part B of this
Registration Statement at the section entitled "Investment Advisory Services"
in the Statement of Additional Information.
3
<PAGE>
Item 27. Principal Underwriter
(a) Davis Distributors, LLC, a wholly owned subsidiary of the Adviser,
located at 124 East Marcy Street, Santa Fe, NM 87501, is the principal
underwriter for the Registrant and also acts as principal underwriter for Davis
New York Venture Fund, Inc., Davis Tax-Free High Income Fund, Inc., Davis
Intermediate Investment Grade Bond Fund, Inc., Davis Series, Inc., Selected
American Shares, Inc., Selected Special Shares, Inc. and Selected Capital
Preservation Trust.
(b) Management of the Principal Underwriters:
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS UNDERWRITER WITH REGISTRANT
- ---------------- ----------- ---------------
Kenneth C. Eich President Vice President
124 East Marcy Street
Santa Fe, NM 87501
Gary P. Tyc Vice President, Treasurer None
124 East Marcy Street and Assistant Secretary
Santa Fe, NM 87501
Thomas D. Tays Vice President and Vice President and Secretary
124 East Marcy Street Secretary
Santa Fe, NM 87501
Russell O. Wiese Senior Vice President None
124 East Marcy Street
Santa Fe, NM 87501
Sharra Reed Assistant Treasurer Vice President, Treasurer and
124 East Marcy Street Assistant Secretary.
Santa Fe, NM 87501
(c) Not applicable.
Item 28. Location of Accounts and Records
Accounts and records are maintained at the offices of Davis Selected
Advisers, L.P., 124 East Marcy Street, Santa Fe, New Mexico 87501, and at the
offices of the Registrant's custodian, State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02107, and the Registrant's
transfer agent State Street Bank and Trust, c/o Service Agent, BFDS, Two
Heritage Drive, 7th Floor, North Quincy, Massachusetts 02107.
Item 29. Management Services
Not applicable
4
<PAGE>
Item 30. Undertakings
Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders upon request and without charge.
5
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago and State of Illinois on the 15th day of
October, 1998.
DAVIS INTERNATIONAL SERIES, INC.
*By: /s/ Arthur Don
-----------------------------
Arthur Don
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated.
Signature Title Date
--------- ----- ----
Shelby M.C. Davis* President, Chief Executive Officer October 15, 1998
- ----------------------
Shelby M.C. Davis
Sharra L. Reed* Principal Financial Officer
- ---------------------- and Treasurer
Sharra L. Reed October 15, 1998
*By: /s/ Arthur Don
-----------------------------
Arthur Don
Attorney-in-Fact
*Arthur Don signs this document on behalf of the Registrant and each of the
foregoing officers pursuant to the powers of attorney filed as Exhibit (p) to
Registrant's current Post-Effective Amendment number 7 to Registrant's
Registration Statement.
/s/ Arthur Don
-----------------------------
Arthur Don
Attorney-in-Fact
6
<PAGE>
DAVIS INTERNATONAL SERIES, INC.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on October 15, 1998 by the following
persons in the capacities indicated.
Signature Title
--------- -----
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.
*Arthur Don signs this document on behalf of each of the foregoing persons
pursuant to the powers of attorney filed as Exhibit (p) to Registrant's current
Post-Effective Amendment No 7 to Registrant's Registration Statement.
/s/Arthur Don
----------------------------
Arthur Don
Attorney-in-Fact
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION PURSUANT
TO SECTIONS 2-208 AND 2-208.1 OF THE MARYLAND
GENERAL CORPORATION LAW
Davis International Series, Inc., a Maryland corporation, having its
principal office in Baltimore, Maryland, hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: Prior to the designation and classification of the common stock
of the corporation, the corporation had a total of 5,000,000,000
authorized shares, $0.001 par value per share, 4,500,000,000 shares of
which are unclassified and 500,000,000 shares of which are designated
as the Davis International Total Return Fund, of which 150,000,000
shares are classified as Davis International Total Return Fund Class A
Common Stock, 150,000,000 shares are classified as Davis International
Total Return Fund Class B Common Stock, 25,000,000 shares are
classified as Davis International Total Return Fund Class C Common
Stock, 150,000,000 shares of which are classified as Davis
International Total Return Fund Class Y Common Stock and 25,000,000 of
which are unclassified. The aggregate par value of all the authorized
stock is $50,000,000, of which $45,000,000 is unclassified and
$5,000,000 is classified.
SECOND: The Articles of Incorporation are hereby supplemented by (I)
designating a new series of common stock to be known as Davis
International Growth Fund Class A Common Stock, Davis International
Growth Fund Class B Common Stock, Davis International Growth Fund
Class C Common Stock and Davis International Growth Fund Class Y
Common Stock; and (ii) designating out of the unclassified shares
500,000,000 shares as Davis International Growth Fund Class A Common
Stock, 350,000,000 shares as Davis International Growth Fund Class B
Common Stock, 120,000,000 shares as Davis International Growth Fund
Class C Common Stock, and 30,000,000 shares as Davis International
Growth Fund Class Y Common Stock.
THIRD: The Class A Common Stock, Class B Common Stock, Class C Common
Stock and Class Y Common Stock of each Fund shall represent investment
in the same pool of assets with respect to each such Fund and shall
have the same preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms
and conditions of redemption except as set forth in the Articles of
Incorporation of the Corporation and as set forth below:
(i) Expenses related to the distribution of each class of
stock and such other expenses as may be permitted by rule or
order of the Securities and Exchange Commission and as the
Board of Directors shall deem appropriate shall be borne
solely by each class, and the bearing of such
<PAGE>
expenses shall be appropriately reflected (in the manner
determined by the Board of Directors) in the net asset value,
dividends, distribution and liquidation rights of the stock
of such Class:
(ii) The Class A Common Stock may be subject to a front-end
load and a Rule 12b-1 distribution fee as determined by the
Board of Directors from time to time prior to issuance of
such stock and, in addition, Class A Common Stock may also be
subject to a contingent deferred sales charge, as determined
by the Board of Directors from time to time prior to issuance
of such stock;
(iii) The Class B Common Stock may be sold without a
front-end sales load and may be subject to a contingent
deferred sales charge and a Rule 12b-1 distribution fee as
determined by the Board of Directors from time to time prior
to issuance of such stock and shall be converted to Class A
Common Stock at the end of eight (8) years after purchase or
such earlier period as determined by the Board of Directors
including giving effect to reciprocal exchange privileges;
(iv) The Class C Common Stock may be sold without a front-end
sales load and may be subject to a contingent deferred sales
charge and to a Rule 12b-1 distribution fee as determined by
the Board of Directors from time to time prior to issuance of
such stock;
(v) The Class Y Common Stock may be sold without a front-end
sales load or contingent deferred sales charge and without a
Rule 12b-1 distribution fee;
(vi) Each class shall vote separately on matters pertaining
only to that class, as the Board of Directors shall from time
to time determine; and
(vii) Nothing herein shall prohibit the imposition of a
redemption fee or exchange fee upon any Class as may be
determined by the Board of Directors from time to time;
FOURTH: Immediately following the designation of stock, the
corporation will have a total of 5,000,000,000 shares, $0.001 par
value per share, 3,500,000,000 of which shares shall be undesignated;
500,000,000 of which shares shall be designated as Davis International
Total Return Fund, of which 150,000,000 shares shall be classified as
Davis International Total Return Fund Class A Common Stock,
150,000,000 shares shall be classified as Davis International Total
Return Fund Class B Common Stock, 25,000,000 shares shall be
classified as Davis International Total Return Fund Class C Common
Stock, 150,000,000 shares shall be classified as Davis International
Total Return Fund Class Y Common Stock, and 25,000,000 shares shall be
unclassified; and 1,000,000,000 of which shares shall be designated
the Davis International Growth Fund, of which 500,000,000
<PAGE>
shares shall be classified as Davis International Growth Fund Class A
Common Stock, 350,000,000 shares shall be classified as Davis
International Growth Fund Class B Common Stock, 120,000,000 shares
shall be classified as Davis International Growth Fund Class C Common
Stock and 30,000,000 shares shall be classified as Davis International
Growth Fund Class Y Common Stock. The aggregate par value of all the
authorized stock is $50,000,000, of which $35,000,000 is unclassified
and $15,000,000 is classified.
FIFTH: The stock of the Corporation has been designated and classified
by the Board of Directors of the Corporation in accordance with and
pursuant to Article FIFTH, Section (b) of the Articles of
Incorporation of the Corporation.
SIXTH: The Corporation is registered as an open-end investment company
with the Securities and Exchange Commission pursuant to the Investment
Company Act of 1940.
SEVENTH: The Board of Directors duly adopted a resolution (i)
designating a new series of common stock to be known as Davis
International Growth Fund Class A Common Stock, Class B Common Stock,
Class C Common and Class Y Common Stock; and (ii) designating out of
the unclassified shares 500,000,000 shares as Davis International
Growth Fund Class A Common Stock, 350,000,000 shares as Davis
International Growth Fund Class B Common Stock, 120,000,000 shares as
Davis International Growth Fund Class C Common Stock; and 30,000,000
shares of Davis International Growth Fund Class Y Common Stock.
IN WITNESS WHEREOF, Davis International Series, Inc., has caused these
presents to be signed in its name and on its behalf by its Vice President and
witnessed by its Secretary on October 6, 1998.
DAVIS INTERNATIONAL SERIES, INC.
BY:
-------------------------------------
Kenneth C. Eich, Vice President
ATTEST:
- -------------------------------
Thomas D. Tays, Secretary
<PAGE>
THE UNDERSGINED, the Vice President of DAVIS INTERNATIONAL SERIES,
INC., who executed on behalf of said Corporation the foregoing Articles
Supplementary to the Charter, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said Corporation, the foregoing
Articles Supplementary to the Charter to be the corporate act of said
Corporation, and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects under the penalties of
perjury.
DATED: October 6, 1998
------------------------------------
Kenneth C. Eich, Vice President
<PAGE>
DAVIS INTERNATIONAL SERIES, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
constitutes and appoints Sheldon R. Stein and Arthur Don, and each of them, as
the undersigned's attorneys-in-fact, each with the power of substitution, for
him or her in any and all capacities, to sign any post-effective amendments to
the registration statement under 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 other applicable state or
federal regulatory authorities. Each of the undersigned hereby ratifies and
confirms all that each of the aforenamed attorneys-in-fact, or his substitute
or substitutes, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney as of the date listed below.
REGISTRANT:
Davis International Series, Inc. (Registrant)
By: Date: July 28, 1998
----------------------------------- --------------
Jeremy H. Biggs
Chairman of the Board of Directors
OFFICERS:
Date: July 28, 1998
- -------------------------------------- --------------
Shelby M.C. Davis
President
Date: July 28, 1998
- -------------------------------------- --------------
Sharra L. Reed
Treasurer, Chief Financial Officer and
Chief Accounting Officer
<PAGE>
DIRECTORS:
Date: July 28, 1998
- -------------------------------------- --------------
Jeremy H. Biggs
Date: July 28, 1998
- -------------------------------------- --------------
Christopher C. Davis
Date: July 28, 1998
- -------------------------------------- --------------
G. Bernard Hamilton
Date: July 28, 1998
- -------------------------------------- --------------
Keith R. Kroeger
Date: July 28, 1998
- -------------------------------------- --------------
The Very Reverend James R. Leo
Date: July 28, 1998
- -------------------------------------- --------------
Richard M. Murray
Date: July 28, 1998
- -------------------------------------- --------------
Theodore B. Smith, Jr.
