DAVIS HIGH INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
DAVIS HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
Dear Shareholder:
The Davis High Income Fund continues to deliver superior long-term
risk-adjusted returns, though it lagged its peer group in absolute terms
during the most recent period. For the six months ended September 30,
1996, Class A shares of the fund (at net asset value) returned 2.29%,
compared to a [...%] average for taxable high-yield funds. For the past
twelve months, Class A shares delivered a total return of 7.74%, vs. a
category average of 12.38%.1
Viewed from a longer-term perspective, the fund is doing what we
wish it to: building wealth over time with less price volatility than its
competitors. Since I took over management of the fund in the early `90s,
its long-term absolute performance is on par with taxable high-yield
funds as a whole; Class A shares have generated a five-year average
annual total return through 9/30/96 of 12.27%, just slightly below the
average of 12.54%. When we adjust these results for the amount of risk
taken in return for the reward, your fund is clearly superior.
For the three years ended September 30, Class A shares of the fund
have the lowest volatility (as measured by standard deviation) of all 92
high-yield funds tracked by Morningstar Inc. For the five years ended
September 30, Class A shares have the third lowest volatility out of 66
funds tracked by Morningstar. If the returns of the funds tacked by
Morningstar were adjusted for their respective risk levels, Class A Shares
of Davis High Income Fund would have the highest average annual total
return for five years, and the sixth highest for three years.2
In recognition of your Fund's superior risk-adjusted performance,
the Value Line Mutual Fund Survey gave the fund's Class A shares its
highest overall rank of 1 on a scale of 1, the "highest" dow n to 5, the
"Lowest" ) for the three years ended September 30, 1996.
Keeping a Tight Rein on Risk
Our primary tool in selecting securities for the fund is bottom-up credit
research. We evaluate numerous variables of the security and the issuing
company to determine the likelihood of being paid principal and interest
on a timely basis, and the chances of something going wrong. We look for
the upside but also seek to minimize the downside, which is particularly
important when a market adjustment seems likely.
For the past year, I have considered such an adjustment a very real
possibility and so have positioned the fund defensively, keeping a tight
rein on risk. This is the primary reason why absolute performance has
been adequate but not outstanding of late.
Little Value in the Current Situation
Currently, I see little value to be bought in the traditional corporate
high-yield bond market (However, I am finding some good relative value in
lesser followed areas of the Bond Market - see below). The difference, or
spread, between yields on B-rated corporate bonds and highly rated
long-term U.S. Treasury securities is now just 300 basis points, or 3.00%,
well below the historical average of 4.50%. In other words, an investor
could be taking on considerable additional risk in the high-yield market
for very little extra reward. This does not strike me as a good bargain.
DAVIS HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
Just as importantly, history tells us this narrow spread is not likely
to last. A reversal, which would bring spreads closer to the norm, would
also lose money for investors. As the yields on lower-rated bonds rose,
their prices would fall, chipping away at principal.
Record Levels of Credit Are Worrisome
About a year ago, I noticed that personal debt as a percent of per capita
income had reached peak levels and could lead to a reduction in consumer
spending. Since then, retails sales have fallen off, and delinquencies on
personal debt and personal bankruptcy rates have risen. Government credit
also has reached a zenith, particularly as long as there is pressure to cut
the national deficit. To me, this suggests a credit contraction and a rise
in interest rates that would depress bond prices. (As more uncertainty
seeps into the markets, investors will require more yield for the risk they
assume.)
Rates increased marginally between January and May. Since then,
the bond market has moved in short, volatile cycles, which I attribute to
alternating signals about inflation and deflation. Faced with no definitive
clues about the economy, investors are clearly uneasy and, I suspect,
believe the situation is deteriorating; they're simply unsure where to find
proof. If they are right and the economy is weakening, I would look for an
initial rise in interest rates before any decline.
My bottom line: I believe caution is warranted from an interest rate
standpoint, even though this is usually less of a concern with high-yield
securities because their larger coupons and short maturities typically
cushion the effect of a change in rates. My greater concern is credit risk.
A weaker economy would erode profits for businesses, affecting their
ability to meet their debt service obligations and causing the prices of
securities to drop.
How the Portfolio Is Invested
As always, the fund is widely diversified, with a total of 139 securities
at quarter-end.
Since I am very focused on yield per credit quality (i.e., ensuring
that for each additional level of risk in the portfolio there is a
more-than-commensurate increase in yield), I elevated the fund's average
credit rating to BB+, slightly above the B+ average for high-yield bond
funds. As mentioned earlier, I don't see much extra yield or value these
days for the higher risk in the lower-rated credits.
Furthermore, I have avoided cyclical companies that may not have
the staying power to make it through the full business cycle. In this
environment I prefer companies emerging from bankruptcy or
restructuring. These companies have already seen the worst and adjusted
accordingly. They have nowhere to go but up. In the event they do show
marked improvements, their debt ratings may be upgraded, boosting the
price of the security.
A good example is the senior secured 9.50% bonds due in April 2003
of Central Transport (formerly Tiphook Finance). The company provides
trailer and wagon rental services to shipping, distribution and
transportation industries worldwide. It has fleets of approximately
25,000 trailer and 2,200 rail freight wagons.
I purchased this position when the bonds were still on a "WI" (when
issued) basis, as the company was emerging from a corporate
restructuring. The company had found itself in trouble with too much debt
and had to exchange a large portion of its debt for equity. The bonds we
purchased are senior and are well secured by assets of the company.
Based on my research of the company and its industry, I believed the bonds
were trading
DAVIS HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
at roughly 75 basis points below the market because of the stigma of the
restructuring, which was just being completed at the time we purchased.
Taxable Munis and "Busted Converts"
There is considerable variety in the portfolio as well. Approximately 65%
is invested in high-yield bonds, many from large-capitalization,
well-known companies. The balance comprises a wide range of
lesser-known "specialty" securities and cash. By and large, these
specialty securities--"busted" convertibles, taxable municipal bonds,
private-label mortgage-backed securities and cushion bonds--have high
yields and are not followed by the broad investment community, leaving us
ample opportunity to pick and choose.
For instance, there is huge demand for tax-exempt municipal bonds,
while the majority of investors are unaware that taxable municipal bonds
even exist. In the most recent period, we were able to find a BB-rated
taxable zero-coupon bond due in 2022 from Wagner College. I purchased it
at a 10.92% yield to its 10-1-22 maturity. However, the bond has a
sinking fund which shortens its average maturity by slightly more than 10
years and gives it an 18.72% yield to that average maturity. These yields
compare very favorably to the taxable corporate market, where newly
issued BB-rated bonds are yielding around 9%. Of course, there is greater
interest rate risk and taxable municipals can sometimes be less liquid
than corporate bonds. Still, we made the purchase at 76% of the bond's
accreted value, giving us very good upside potential and downside
protection.
Another example of good yield per credit quality is the "busted"
convertible from DBA Systems, Inc., which develops and markets imaging
systems primarily for military applications. The company issued this
8.25% convertible bond late in 1985. The bonds are convertible into DBA
stock at per-share price of $19.50. If the company's stock price had risen
above this conversion price, the bondholder could have converted the bond
to shares, then sold at a profit. Instead, the stock price fell below the
conversion price (it is currently $6 per share), so the bond is "out of the
money" or "busted." It has no conversion value--why convert to stock you
could only sell at a loss?
Because the conversion option has so little value, the bond trades
like a regular corporate bond, based on its credit quality, coupon, maturity
and call provisions (i.e., the terms under which the company could retire
the debt early), though with a couple of differences. One is that most
convertible buyers want bonds that are in the money; they do not care
about this type of issue. There is little demand, so the price remains low.
Also, the issue is small, which reduces the pool of interested buyers even
more.
Issues like this one are not widely researched, so we scrutinize
them meticulously to ensure the issue and the company meet our criteria
before adding them to the portfolio. DBA's credit characteristics are
strong. Its market value is thirteen times greater than its debt and it has
more cash than long-term debt. The bond trades at a discount, so it has
good upside potential, and if the conversion feature ever became valuable
(i.e., the DBA's stock price rises above $19.50), the value of the bonds
could skyrocket. In the mean time, we are earning a healthy yield for the
risk we are taking.
DAVIS HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
What's Next?
Looking forward, I am more concerned about the possibility of economic
weakness than economic strength and inflation. An economic downturn
could result in deteriorating credit profiles for lower quality issues
causing their prices to drop and interest rates to rise. Therefore, until
the signals are clearer, I will maintain the fund's defensive stance,
closely monitor the portfolio's overall characteristics and sector
weightings, and keep a tight rein on both interest rate and credit risk.
Respectfully submitted,
/s/ B. Clark Stamper
B. Clark Stamper
Portfolio Manager
1 Lipper Analytical Services, Inc., based on NASD-reporting funds as of
10/1/96.
2 Total returns and standard deviations were calculated by
Morningstar and published in its Principia for Mutual Funds diskette
software (October 1996). Category average total return, category average
standard deviation, and individual fund total return/standard deviations
statistics were calculated from that published data.
3 Add Value Line disclosure.
<TABLE>
Davis High Income Fund, Inc.
Schedule of Investments
At September 30, 1996 (Unaudited)
=================================================================================================================================
<CAPTION>
Value
Principal (Note 1)
- --------- ------
CORPORATE BONDS AND NOTES - (72.53%)
<S> <C> <C>
AEROSPACE/AVIATION - (2.78%)
$ 1,085,000 K & F Industries Inc., Sr. Secured Notes, 11.875%, 12/01/03....................................... $ 1,177,225
500,000 Simula Inc., Sr. Sub. Conv. Notes, Series C, 10.00%, 09/10/99..................................... 500,000
-------------
1,677,225
-------------
CABLE/BROADCASTING & MEDIA - (6.96%)
500,000 Continental Cablevision Inc., Sr. Sub. Notes, 10.625%, 06/15/02................................... 537,507
150,000 Fundy Cable Ltd., Sr. Secured 2nd Priority Notes, 11.00%, 11/15/05................................ 157,500
1,000,000 Marcus Cable Holding Co. L.P., Sr. Secured Notes, Zero Cpn., 12/15/05............................. 680,000
500,000 News America Holdings Inc., Sr. Notes, 12.00%, 12/15/01........................................... 535,235
1,000,000 Park Broadcasting, Inc., Sr. Notes, 11.75%, 05/15/04 <F5>......................................... 1,147,500
500,000 Rifkin Acquisition Partners L.P., Sr. Sub. Notes, 11.125%, 01/15/06 <F5>.......................... 520,000
100,000 Spanish Broadcasting Systems Inc., Sr. Notes, 7.50%, 06/15/02..................................... 104,750
500,000 SFX Broadcasting Inc., Sr. Sub. Notes, Class B, 10.75%, 05/15/06 <F5>............................. 523,750
-------------
4,206,242
-------------
CHEMICALS - (0.91%)
500,000 Pioneer Americas Acquisition Corp., Sr. Notes, 13.375%, 04/01/05.................................. 550,000
-------------
COMPUTER PRODUCTS AND SERVICES _ (2.31%)
500,000 Anacomp, Inc., Series B Notes, 12.25%, 10/26/97................................................... 506,250
100,000 JTS Corporation, Conv. Sub. Deb., 5.25%, 04/29/02................................................. 71,000
279,200 San Jacinto Holdings Inc., Sr. Notes, 12.00%, 12/31/02............................................ 206,608
250,000 Sapiens International N.V., Euro Conv. Notes, 5.00%, 09/20/03..................................... 93,750
500,000 Triad Systems Corp., Sr. Notes, 12.25%, 08/01/99.................................................. 518,750
-------------
1,396,358
-------------
CONSUMER PRODUCTS & MERCHANDISE _ (2.44%)
250,000 Cinemark USA, Inc., Sr. Sub. Notes, 9.625%, 08/01/08 <F5>......................................... 246,875
1,000,000 International Semi-Tech Microelectronics Inc., Sr. Notes, Zero Cpn.,
08/15/03........................................................................................ 612,500
100,000 L.A. Gear, Inc., Conv. Sub. Deb., 7.75%, 11/30/02................................................. 55,000
350,000 MacAndrews & Forbes Holdings, Inc., Sub. Deb., 13.00%, 03/01/99................................... 351,750
200,000 Shop Vac Corp., Sr. Secured Notes, 10.625%, 09/01/03 <F5>......................................... 206,000
-------------
1,472,125
-------------
DEFENSE CONTRACTORS & PRODUCTS - (1.61%)
200,000 DBA Systems, Inc., Conv. Sub. Deb., 8.25%, 11/01/10............................................... 178,500
750,000 Tracor, Inc., Sr. Sub. Notes, 10.875%, 08/15/01................................................... 791,250
-------------
969,750
-------------
DIVERSIFIED SERVICES - (1.21%)
735,904 Emcor Group Inc., Sr. Notes, Series C, 11.00%, 12/15/01........................................... 734,064
-------------
Davis High Income Fund, Inc.
Schedule of Investments - Continued
At September 30, 1996 (Unaudited)
=================================================================================================================================
Value
Principal (Note 1)
- --------- ------
CORPORATE BONDS AND NOTES - Continued
ECOLOGICAL/ENVIRONMENTAL - (2.01%)
$ 735,000 Envirotest System Corp., Sr. Notes, 9.125%, 03/15/01.............................................. $ 672,525
500,000 Norcal Waste Systems Inc., Sr. Notes, 12.75% Incr. rate 11/15/05 <F5>............................. 545,000
-------------
1,217,525
-------------
EDUCATION - (0.38%)
250,000 La Petite Holdings Corp., Sr. Secured Notes, 9.625%, 08/01/97..................................... 231,250
-------------
ELECTRONICS - (0.12%)
43,000 Andersen Group, Inc., Conv. Sub. Deb., 10.50%, 10/15/02........................................... 36,872
600,000 Comptronix Corp., Conv. Sub. Deb., 6.75%, 03/01/02................................................ 33,000
-------------
69,872
-------------
ENERGY - (7.75%)
100,000 Amerigas Partners L.P., Sr. Notes, Series B, 10.125%, 04/15/07................................... 104,625
1,000,000 Clark R & M Holdings Inc., Sr. Secured Notes, Series A, Zero Cpn.,
02/15/00........................................................................................ 716,250
500,000 Deeptech Int'l, Inc., Sr. Secured Notes, 12.00%, 12/15/00......................................... 507,500
630,000 Empire Gas Corp., Sr. Secured Notes, 7.00/12.875%, 07/15/04....................................... 522,900
1,000,000 Gerrity Oil & Gas Corp., Sr. Sub Notes, 11.75%, 07/15/04.......................................... 1,071,250
626,000 Giant Industries Inc., Gtd. Sr. Sub. Notes, 9.75%, 11/15/03....................................... 633,825
500,000 HS Resources Inc., Sr. Sub. Notes, 9.875%, 12/01/03............................................... 493,750
100,000 Moran Energy Inc., Conv. Sub. Deb., 8.75%, 01/15/08............................................... 85,500
500,000 Trident NGL Holdings, Inc., Sub. Notes, 10.25%, 04/15/03.......................................... 550,625
-------------
4,686,225
-------------
EQUIPMENT LEASING - (2.60%)
945,500 Alps 96-1 D, Aircraft Lease, 12.75%, 06/15/06 <F5>................................................ 978,592
565,000 Central Transport Rental Finance Corp., Secured Notes, 9.50%, 04/30/03............................ 526,862
670,700 Technical Equipment Leasing Corp., Jr. Sub. Deb. Series A, 18.375%,
04/01/00<F2>.................................................................................... 67,070
-------------
1,572,524
-------------
FINANCIAL SERVICES AND INSURANCE - (2.09%)
50,000 CII Financial, Inc., Conv. Sub. Deb., 7.50%, 09/15/01............................................. 46,437
500,000 GPA Delaware Inc., Gtd. Notes, 8.75%, 12/15/98.................................................... 505,000
500,000 Home Holdings, Inc., Sr. Notes, 8.625%, 12/15/03.................................................. 197,500
500,000 PennCorp Financial Group, Inc., Sr. Sub. Notes, 9.25%, 12/15/03................................... 515,000
-------------
1,263,937
-------------
FOOD SERVICE AND DISTRIBUTION - (8.82%)
500,000 Darling International Inc., 1st Priority Sr. Sub. Notes, 11.00%, 07/15/00......................... 487,500
750,000 Envirodyne Industries, Inc., 1st Priority Sr. Secured Notes, 12.00%,
06/15/00........................................................................................ 800,625
500,000 Fresh Del Monte Produce N.V., Series A, Sr. Notes, 10.00%, 05/01/03 <F5>.......................... 473,125
690,000 Kroger Co., Lease Cert., 6.00%, 04/01/03.......................................................... 652,118
675,000 Kroger Co., Lease Cert., 12.95%, 02/01/09......................................................... 756,000
Davis High Income Fund, Inc.
Schedule of Investments - Continued
At September 30, 1996 (Unaudited)
=================================================================================================================================
Value
Principal (Note 1)
- --------- ------
CORPORATE BONDS AND NOTES _ Continued
FOOD SERVICE AND DISTRIBUTION _ Continued
$ 793,000 New Almacs Inc. Sr. Sub. Notes, 11.50%, 11/18/04<F2>.............................................. $ 67,405
1,500,000 PM Holdings Corp., Sub. Disc. Deb., Series B, 0%/11.50%, 09/01/05................................. 866,250
500,000 Safeway Inc., Sr. Secured Deb., 9.30%, 02/01/07................................................... 538,487
1,000,000 Southland Corporation, Deb., 4.00%, 06/15/04...................................................... 690,000
-------------
5,331,510
-------------
HEALTHCARE AND PHARMACEUTICAL - (6.93%)
180,000 Advanced Medical, Inc., Conv. Sub. Deb., 15.00%, 07/15/99......................................... 136,800
2,660,000 American Medical International, N.V., Euro Deb., Zero Cpn., 08/12/97.............................. 2,479,466
863,000 Glycomed Inc., Conv. Sub. Deb., 7.50%, 01/01/03................................................... 763,755
500,000 OrNda HealthCorp., Sr. Sub. Deb., 12.25%, 05/15/02................................................ 541,875
250,000 Regency Health Services, Inc., Sub. Notes, 12.25%, 07/15/03 <F5>.................................. 266,250
-------------
4,188,146
-------------
HOTELS, LODGING & GAMING - (0.85%)
500,000 Courtyard By Marriott II L.P., Sr. Secured Notes, 10.75%, 02/01/08 <F5>........................... 513,750
-------------
LEISURE/ENTERTAINMENT - (2.70%)
500,000 Act III Theaters Inc., Sr. Sub. Notes, 11.875%, 02/01/03.......................................... 546,875
100,000 Spectrum Holobyte Inc., Conv. Sub. Notes, 6.50%, 09/15/02<F5>..................................... 65,000
1,000,000 Underwater World Mall of America, Sr. Rev. Bds., 13.75%, 03/01/02 <F5>............................ 1,020,000
-------------
1,631,875
-------------
MANUFACTURING - (1.70%)
500,000 Carlisle Plastics Inc., Sr. Notes, 10.25%, 06/15/97............................................... 507,500
500,000 Key Plastics, Inc., Sr. Notes, Series B, 14.00%, 11/15/99......................................... 518,750
-------------
1,026,250
-------------
METALS - (0.84%)
500,000 Florida Steel Corp., Deb., 11.50%, 12/15/00....................................................... 508,750
-------------
PAPER PRODUCTS - (2.16%)
2,000,000 Crown Packaging Enterprises, Ltd., Sr. Secured Disc. Notes with Common
Stock attached, 0%/14%, 08/01/06................................................................ 779,140
500,000 Grupo Industrial Durango S.A. DE C.V. Notes, 12.00%, 07/15/01..................................... 524,375
-------------
1,303,515
-------------
PRECIOUS METALS - (1.55%)
1,170,000 Crown Resources Corp., Conv. Sub. Deb., 5.75%, 08/27/01........................................... 936,000
-------------
RESTAURANT - (0.36%)
250,000 TPI Enterprises Inc., Conv. Sub. Deb., 8.25%, 07/15/02............................................ 218,750
-------------
RETAIL - (1.92%)
500,000 Hill Stores Company, Sr. Notes, 12.5%, 07/01/03................................................... 451,250
666,548 Lehman ABS Corporation, Series 94-C2, Class A, 8.145%, 11/02/07................................... 553,235
420,000 Tops Appliance City Inc., Conv. Sub. Deb., 6.50%, 11/30/03........................................ 155,400
-------------
1,159,885
-------------
Davis High Income Fund, Inc.
Schedule of Investments - Continued
At September 30, 1996 (Unaudited)
=================================================================================================================================
Value
Principal (Note 1)
- --------- ------
CORPORATE BONDS AND NOTES _ Continued
TELECOMMUNICATIONS _ (8.49%)
$ 400,000 American Communication Services, Inc., Sr. Disc. Notes, 0%/12.75%,
04/01/06........................................................................................ $ 214,000
500,000 Echostar Communications Corp., Sr. Secured Disc. Notes, Zero Cpn.,
06/01/04........................................................................................ 396,250
1,000,000 Intelcom Group (USA), Inc., Sr. Disc. Notes, 0%/12.50%, 05/01/06 <F5>............................. 520,000
500,000 Millicom International Cellular S.A., Sr. Sub. Disc. Notes, 0%/13.50%,
06/01/06 <F5>................................................................................... 287,500
250,000 Nextlink Communications, Sr. Notes, 12.50%, 04/15/06 <F5>......................................... 260,000
500,000 Pegasus Media & Communications, Sr. Sub. Notes, 12.50%, 07/01/05 <F5>............................. 527,500
690,498 Porta Systems Inc., Conv. Sr. Notes, 0%, 01/02/98<F2>............................................. 372,869
556,000 Pronet, Inc., Sr. Sub. Notes, 11.875%, 06/15/05................................................... 519,860
500,000 USA Mobile Communications Holdings Inc., Sr. Notes, 14.00%, 11/01/04.............................. 568,750
500,000 UTS Hyperion Telecommunication, Sr. Disc. Notes, Series B, 7%/13.00%,
04/15/03 <F5>................................................................................... 307,500
1,000,000 Viatel Inc., Sr. Disc. Notes, 0%/15.00%, 01/15/05................................................. 606,611
325,000 Winstar Communications Inc., Sr. Sub. Disc. Notes, Zero Cpn., 10/15/05............................ 195,000
650,000 Winstar Communications, Inc., Sr. Disc. Notes, 0%/14.00%, 10/15/05................................ 357,500
-------------
5,133,340
-------------
TRANSPORTATION/SHIPPING - (1.80%)
250,000 Moran Transportation Co., 1st Preferred Shipping Mtg. Notes, 11.75%,
07/15/04 <F5>................................................................................... 262,500
444,000 Preston Corp., Conv. Sub. Deb., 7.00%, 05/01/11................................................... 300,255
500,000 TNT Transport (Europe) PLC/TNT (USA) Inc., Sr.Notes, 11.50%,
04/15/04........................................................................................ 526,250
-------------
1,089,005
-------------
UTILITIES - (1.24%)
750,000 Consolidated Hydro Inc., Sr. Discount Notes, Zero Cpn., 07/15/03.................................. 187,500
500,000 Midland Funding Corporation II, Sub. Secured Lease, 13.25%, 07/23/06.............................. 563,125
-------------
750,625
-------------
TOTAL CORPORATE BONDS AND NOTES (identified
cost $44,276,423)............................................................................... 43,838,498
-------------
Davis High Income Fund, Inc.
Schedule of Investments - Continued
At September 30, 1996 (Unaudited)
=================================================================================================================================
Value
Principal (Note 1)
- --------- ------
CORPORATE BONDS AND NOTES - Continued
MORTGAGE BACKED BONDS - (4.87%)
$ 258,592 Capstead Securities Corp., IV CMO, Series '92-7 CL Z-1, 8.75%, 05/25/23........................... $ 251,481
471,971 Chase Mortgage Finance Corp., Series '93-G-A1, REMIC, 7.00%, 04/25/01............................. 470,664
294,827 Citicorp Mtg. Securities, Inc., Series '89-16, 6.43%, 04/01/19.................................... 283,402
100,000 Federal Home Loan Mortgage Corporation, CMO, Series '93, CL 1630 E,
6.00%, 09/15/23................................................................................. 85,349
252,390 Federal Home Loan Mortgage Corporation, REMIC, Series '93, CL 1567 A,
5.90%, 08/15/23................................................................................. 222,104
293,852 Federal Home Loan Mortgage Corporation, CMO, Series '94, CL 1668 F,
7.34%, 02/15/14................................................................................. 301,178
410,754 First Nationwide Trust, Series '89-AR4-1, 9.50%, 09/25/19......................................... 409,518
217,503 Manufacturers Handover Mortgage Corporation, Series A, 11.50%, 04/20/15........................... 224,572
387,451 Merrill Lynch Mtg. Invst. Inc., Mtg. Pass-Through Certificates, Series A,
CL-A, 6.33%, 02/01/18........................................................................... 375,343
179,000 The Prudential Mortgage Securities Company, Mtg. Pass-Through
Certificates Series '92-38, CL A-8, Fixed Rate, 6.95%, 11/25/22................................. 157,410
15,062 Resolution Trust Corporation, REMIC, '92-Series M-3 CL A2, 8.625%,
07/25/30........................................................................................ 14,460
145,808 Resolution Trust Corporation, American Res. Mtg. Corp., Service Mtg.
Pass-Through Certificates, Series '92-7 CL A1, 6.82%, 03/25/22.................................. 126,306
23,000 Ryland Acceptance Corporation Four, CMO, Series '85, CL 85-D, 9.25%,
04/01/12........................................................................................ 23,144
-------------
TOTAL MORTGAGE BACKED BONDS (identified cost $2,877,313)..................................... 2,944,931
-------------
Davis High Income Fund, Inc.
Schedule of Investments - Continued
At September 30, 1996 (Unaudited)
=================================================================================================================================
Value
Principal (Note 1)
- --------- ------
CORPORATE BONDS AND NOTES - Continued
TAXABLE MUNICIPAL BONDS - (6.10%)
$ 670,000 Adams Cnty., CO, IDR Series A Pool Gtd. - Executive Life, 9.00%,
11/01/96<F1>.................................................................................... $ 67,000
300,000 Commerce Refuse to Energy Auth., Taxable Ref. Rev. Bds., '90 Series,
10.50%, 07/01/00................................................................................ 306,828
195,000 El Paso Hsg. Fin. Corp., Multi-Fam. Res. Loan Program, Securitized Mult-
Fam. Hsg. Rev. Bds., Series '86A, 8.88%, 10/15/96............................................... 9,752
432,000 Illinois HFA Rev. Bds., Series C, MBIA, 10.30%, 08/15/03.......................................... 441,526
20,000 Jackson Michigan Osteopathic Hosp., 1st Mtg. Ten Year Extendible Bds.,
9.50%, 12/01/11................................................................................. 16,866
100,000 Louisiana HFA Multi Fam. Mtg. Rev. Bds., Gtd. Executive Life, 8.61%,
08/01/96<F1>.................................................................................... 5,000
100,000 Louisiana St. Agriculture Fin. Auth., Security Agriculture Rev. Bds.,
Series A, Gtd. Executive Life, 8.80%, 10/01/96.................................................. 5,000
1,825,000 Massachusetts St. HFA Res., Series C, 10.90%, 08/01/20............................................ 1,871,537
265,000 Mayor and City Council of Baltimore, Econ. Dev. Taxable Lease Rev. Bds.
(Arcade Ltd. Partnership Prj.) Series '92, 8.50%, 08/01/02...................................... 279,387
675,480 Memphis, TN Hlth. Educ. & Hsg. Fac. Brd., Multi Fam. Hsg. Rev.
Securitized, Series '86A, 8.68%, 09/15/96....................................................... 33,841
115,000 Missouri St., Hsg. Dev. Cmnty., Multi Fam. Hsg. Rev. Bds., FHA Insured
Mtg. Loans, 9.25%, 12/01/30..................................................................... 121,084
20,000 Nebraska Invst. Fin. Auth., Agriculture Rev. Bds., Series A, Gtd. Executive
Life, 8.34%, 11/01/93........................................................................... 1,000
440,000 New York St. HFA Rev. Multi Fam. Mtg. Series B, Sonyma Prg.
Insurance, 8.875%, 08/15/14..................................................................... 458,269
807,000 The Southeast TX Hsg. Fin. Corp. Securitized Multi Fam. Hsg. Rev. Bds.
Series '86A, 8.60%, 09/01/96.................................................................... 40,350
30,000 Utah St. Hsg. Fin. Agy. Sngl. Fam. Mtg., Series A, 9.40%, 07/01/99................................ 31,265
-------------
TOTAL TAXABLE MUNICIPAL BONDS (identified cost $4,829,383).................................. 3,688,705
-------------
PREFERRED STOCKS - (0.10%)
6,200 Westmoreland Coal Co., Dep. Shares Pfd. Conv. Series A, 8.50%..................................... 58,125
-------------
TOTAL PREFERRED STOCK (identified cost $80,910).............................................. 58,125
-------------
Davis High Income Fund, Inc.
Schedule of Investments - Continued
At September 30, 1996 (Unaudited)
=================================================================================================================================
Value
Principal (Note 1)
- --------- ------
CORPORATE BONDS AND NOTES - Continued
COMMON STOCKS - (2.52%)
16,920 Advanced Medical, Inc<F3>......................................................................... $ 49,702
135,951 Canyon Resources Corporation<F3>.................................................................. 373,865
120 Pegasus Media & Communications<F3><F5>............................................................ 39,000
17,460 Porta Systems Corporation<F3>..................................................................... 41,467
222 San Jacinto Holdings Inc<F3>...................................................................... 889
727,930 Sunshine Mining Co<F3>............................................................................ 1,018,309
-------------
TOTAL COMMON STOCK (identified cost $1,839,770).............................................. 1,523,232
-------------
WARRANTS - (0.18%)
500 Chattem Inc., expire 8/17/99...................................................................... 1,000
869 Empire Gas Corp., expire 07/15/04................................................................. 24,332
500 UTS Hyperion Telecommunication, expire 04/15/01 <F5>.............................................. 5,000
500 Petro PSC Properties L.P., Petro Fin'l. Corp., expire 06/01/97.................................... 21,750
100 Spanish Broadcasting Systems Inc., expire 06/30/99................................................ 18,250
21,825 Sunshine Mining Co., expire 03/09/99.............................................................. 9,548
205 Wright Medical Technology, Inc., expire 06/30/03.................................................. 26,650
-------------
TOTAL WARRANTS (identified cost $18,291)..................................................... 106,530
-------------
SHORT TERM - (13.32%)
$ 3,790,000 Federal Home Loan Mortgage Discount Note, 5.7%, 10/01/96.......................................... 3,790,000
4,260,090 Federal Home Loan Mortgage Association Discount Note, 5.18%, 10/09/96............................. 4,260,090
-------------
TOTAL SHORT TERM (identified cost $8,050,090)................................................ 8,050,090
-------------
TOTAL INVESTMENTS (identified cost $61,972,180)-
(99.62%)<F4>............................................................................... 60,210,111
OTHER ASSETS LESS LIABILITIES - (0.38%)...................................................... (227,952)
-------------
NET ASSETS - 100%.......................................................................... $ 60,438,063
=============
<FN>
<F1> These securities are in default but have made partial payments.
<F2> These securities are in default and are not currently paying interest.
<F3> Non-income producing security.
<F4> Aggregate cost for Federal income tax purposes is $61,972,180.
<F5> These securities are subject to Rule 144A. The Board of Directors
of the Fund has determined that there is sufficient liquidity in these
securities to realize current valuations.
At September 30, 1996, unrealized appreciation (depreciation) of
securities for Federal income tax purposes was as follows:
Unrealized appreciation................................................................................. $ 2,393,185
Unrealized depreciation................................................................................. (4,155,254)
-------------
Net unrealized depreciation........................................................................ $ (1,762,069)
=============
</FN>
</TABLE>
<TABLE>
DAVIS HIGH INCOME FUND, INC.
Statement of Assets and Liabilities
At September 30, 1996 (Unaudited)
=================================================================================================================================
<S> <C>
ASSETS:
Investments in securities, at value (identified cost $61,972,180) (Note 1)...................................... $ 60,210,111
Cash ........................................................................................................... 27,989
Receivables:
Interest and dividends........................................................................................ 1,005,060
Capital stock sold............................................................................................ 20,677
Investments sold.............................................................................................. 45,092
-------------
Total assets............................................................................................ 61,308,929
-------------
LIABILITIES:
Payables:
Capital stock reacquired...................................................................................... 48,576
Investments purchased......................................................................................... 725,450
Accrued expenses................................................................................................ 6,508
Other Liabilities............................................................................................... 30,332
-------------
Total liabilities....................................................................................... 870,866
-------------
NET ASSETS (Note 5)............................................................................................... $ 60,438,063
=============
CLASS A SHARES
Net assets...................................................................................................... $ 51,592,585
Shares outstanding.............................................................................................. 10,880,386
Net asset value and redemption price per share (net assets/shares outstanding).................................. $ 4.74
=======
Maximum offering price per share (100/95.25 of$4.74)<F1>........................................................ $ 4.98
=======
CLASS B SHARES
Net assets...................................................................................................... $ 8,845,478
Shares outstanding.............................................................................................. 1,879,806
Net asset value, offering and redemption price per share (net assets/shares outstanding)........................ $ 4.71
=======
Net assets consist of:
Deficit in undistributed net investment income.................................................................. $ (317,260)
Unrealized depreciation of investments.......................................................................... (1,762,069)
Accumulated net realized loss................................................................................... (23,948,579)
Paid-in capital................................................................................................. 86,465,971
-------------
Net assets.............................................................................................. $ 60,438,063
=============
<FN>
<F1> On purchases of $100,000 or more, the offering price is reduced.
</FN>
</TABLE>
<TABLE>
DAVIS HIGH INCOME FUND, INC.
Statement of Operations
Six months ended September 30, 1996 (Unaudited)
=================================================================================================================================
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest...................................................................................................... $ 3,148,207
Dividends..................................................................................................... _
-------------
Total income............................................................................................ 3,148,207
-------------
Expenses:
Management fees (Note 3)..................................................................... $ 214,153
Custodian fees............................................................................... 44,958
Transfer agent fees (Note 3)................................................................. 36,923
Audit fees................................................................................... 13,483
Legal fees................................................................................... 8,206
Accounting fees (Note 3)..................................................................... 7,998
Reports to shareholders...................................................................... 22,006
Directors' fees and expenses................................................................. 11,399
Registration and filing fees................................................................. 24,751
Miscellaneous................................................................................ 7,607
Commissions paid under distribution plan (Note 3)
Class A.................................................................................... 50,273
Class B.................................................................................... 38,956
-------------
Total expenses............................................................................................ 480,713
Fee Reductions (Note 6)................................................................................... (2,757)
-------------
Net expenses.............................................................................................. 477,956
-------------
Net investment income................................................................................... 2,670,251
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from investment transactions.................................................................. (304,665)
Net decrease in unrealized depreciation of investments during the period........................................ (625,722)
-------------
Net realized and unrealized gain (loss) oninvestments......................................................... (930,387)
-------------
Net increase in net assets resulting from operations.......................................................... $ 1,739,864
=============
</TABLE>
See Notes to Financial Statements
<TABLE>
DAVIS HIGH INCOME FUND, INC.
Statement Of Changes in Net Assets
=================================================================================================================================
<CAPTION>
Six Months
ended
September 30, Year ended
1996 March 31,
(Unaudited) 1996
--------- ----
<S> <C> <C>
Operations:
Net investment income................................................ $ 2,670,251 $ 5,417,365
Net realized gain (loss) from investment transactions................ (304,665) (80,868)
Net decrease in unrealized depreciation
of investments..................................................... (625,722) 383,278
------------ -----------
Net increase in net assets resulting from operations......... 1,739,864 5,719,775
Distributions to shareholders from:
Net investment income
Class A ($0.24 and $0.43 per share, respectively).................. (2,629,772) (5,039,427)
Class B ($0.22 and $0.40 per share, respectively).................. (357,740) (377,939)
Paid-in capital
Class A ($0.05 per share).......................................... _ (525,379)
Class B ($0.04 per share).......................................... _ (46,649)
Total increase (decrease) in net assets23,2302,109,514
Net Assets:
Beginning of year.................................................... 60,414,833 58,305,319
----------- -----------
End of year (including undistributed net income (deficit)
of ($317,260) and $-0-, respectively).............................. $ 60,438,063 $ 60,414,833
============ ============
</TABLE>
See Notes to Financial Statements
DAVIS HIGH INCOME FUND, INC.
Notes to Financial Statements
(Unaudited)
Note 1 - Summary of Significant Accounting Policies.
The Company is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. Its
primary objective is to achieve a high level of current income. The
Company also seeks capital growth so long as such objective is consistent
with its primary objective. The Company invests primarily in high yield,
high risk, low rated and unrated bonds commonly referred to as "junk
bonds." Such securities are speculative and subject to greater market
fluctuations and risk of loss of income and principal than higher rated
bonds. On December 1, 1994, the Company commenced the offering of
shares in two classes, Class A and Class B. The Class A shares are sold
with a front-end sales charge and the Class B shares are sold at net asset
value and may be subject to a contingent deferred sales charge upon
redemption. All classes have identical rights with respect to voting
(exclusive of each Class's distribution arrangement), liquidation and
distributions. The following is a summary of significant accounting
policies followed by the Company in the preparation of its financial
statements.
Security Valuation.
Fixed income securities may be valued on the basis of prices provided by a
pricing agent when such prices are believed to reflect the fair market
value of such securities. (Pricing agents generally take into account
institutional size trading in similar groups of securities). Securities not
priced in this manner will be priced at the last published sales price if
traded on that day and, if not traded, at the mean between the most recent
quoted bid and asked prices provided by investment dealers. The pricing
service and valuation procedures are reviewed and subject to approval by
the Board of Directors. If no quotations are available, securities will be
valued at fair value as determined in good faith by the Board of Directors.
Short-term obligations are valued at amortized cost, which approximates
value.
Federal Income Taxes.
It is the Company's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders.
Therefore, no provision for federal income tax is required. At September
30, 1996, the Fund had approximately $23,644,000 of capital loss
carryovers available to offset future capital gains, if any, of which
$1,743,000, $4,918,000, $7,606,000, $4,382,000, $1,409,000, $3,505,000
and $81,000 expire in 1997, 1998, 1999, 2000, 2001, 2003 and 2004,
respectively.
Securities Transactions and Related Investment Income.
Securities transactions are accounted for on the trade date (date the order
to buy or sell is executed) with gain or loss on the sale of securities being
determined based upon identified cost. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis.
Discounts and premiums on debt securities are amortized in accordance
with the requirements of the internal revenue code.
Dividends and Distributions to Shareholders.
Dividends and distributions to shareholders are recorded on the
ex-dividend date.
Use of Estimates in Financial Statements.
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of income and
expenses during the reporting period. Actual results may differ from these
estimates.
DAVIS HIGH INCOME FUND, INC.
Notes to Financial Statements, continued
(Unaudited)
Note 2 - Purchases and Sales of Securities.
Purchases and sales of investment securities (excluding short term
securities) during the six months ended September 30, 1996, were
$21,417,739 and $19,741,787, respectively.
Note 3 - Investment Advisory Fees and Other Transactions with Affiliates.
The Company pays advisory fees for investment management and advisory
services under a management agreement with Davis Selected Advisers,
L.P. (the "Adviser"). The agreement provides for a monthly fee of .0625 of
1% (equivalent to .75 of 1% per annum) of the first $250 million of
average daily net assets of the Company. Effective May 1, 1996, the
management agreement was amended and the monthly fee was changed to
.0583 of 1% (equivalent to .70 of 1% per annum) of the first $250 million
of average daily net assets of the Company. Regardless of the above
provisions, the Adviser will pay or refund to the Company any expenses
(including the fee under the agreement but excluding interest, taxes,
brokerage fees, payments made to the Distributor under any Rule 12b-1
Distribution Plan adopted by the Company and, where permitted,
extraordinary expenses) in excess of the most restrictive applicable
expense limitation prescribed by any statute or regulatory authority of
any jurisdiction in which the Company's shares are qualified for offer and
sale. The Adviser believes that the most restrictive expense limitations
presently applicable are 2 1/2% for the first $30 million of average net
assets, 2% for the next $70 million of average net assets and 1 1/2% for
any additional average net assets. Davis Selected Advisers, L.P. is paid
for registering Company shares for sale in various states. The fee for the
six months ended September 30, 1996 amounted to $6,000. Davis Selected
Advisers, L.P. is paid for certain transfer agent services. The fee for the
six months ended September 30, 1996 amounted to $2,936. Davis Selected
Advisers, L.P. is also paid for certain accounting services. The fee for the
six months ended September 30, 1996 amounted to $7,998. Certain
directors and the officers of the Fund are also directors and officers of
the general partner of Davis Selected Advisers, L. P.
Note 4 _ Distribution and Underwriting Fees
Class A Shares
Class A shares of the Company are sold at net asset value plus a
sales charge and are redeemed at net asset value (without a contingent
deferred sales charge).
During the six months ended September 30, 1996, the Company's
Underwriter, Davis Selected Advisers, L.P., received $58,347 from
commissions earned on sales of Class A shares of the Fund of which
$8,829 was retained by the Underwriter and the remaining $49,518 was
reallowed to investment dealers. Davis Selected Advisers, L.P. paid the
costs of prospectuses in excess of those required to be filed as part of the
Company's registration statement, sales literature and other expenses
assumed or incurred by it in connection with such sales.
The Underwriter is reimbursed for amounts paid to dealers as a
maintenance fee with respect to Class A shares sold by dealers and
remaining outstanding during the period. The maintenance fee is paid at
the annual rate of 1/4 of 1% of the average net assets maintained by the
responsible dealers. The Underwriter is not reimbursed for accounts in
which the Underwriter pays no service fees to other firms. The
maintenance fee for Class A shares of the Company for the six months
ended September 30, 1996 was $50,272.
DAVIS HIGH INCOME FUND
Notes to Financial Statements, continued
(Unaudited)
Class B Shares
Class B shares of the Company are sold at net asset value and are
redeemed at net asset value less a contingent deferred sales charge if
redeemed within six years of purchase.
The Company pays the Distributor a 4% commission on the proceeds
from the sale of the Company's Class B shares and the Distributor
reallows 4% to the qualified dealer responsible for the sale of the shares.
A rule implemented by the National Association of Securities Dealers,
Inc., ("NASD") limits the percentage of the Company's annual average net
assets attributable to Class B shares which may be used to reimburse the
Distributor. The limit is 1%, of which 0.75% may be used to pay
distribution expenses and 0.25% may be used to pay shareholder service
fees. The NASD rule also limits the aggregate amount the Company may
pay for distribution to 6.25% of gross sales since inception of the Rule
12b-1 plan plus interest at 1% over the prime rate on unpaid amounts. The
Distributor intends to seek full payment (plus interest at prime plus 1%)
of distribution charges that exceed the 1% annual limit in some future
period or periods when the plan limits have not been reached.
During the six months ended September 30, 1996, Class B shares of
the Company made distribution plan payments which included commissions
of $29,409 and maintenance fees of $9,547.
Commissions earned by the Distributor during the six months ended
September 30, 1996 on the sale of Class B shares of the Company
amounted to $74,445 of which $72,713 was reallowed to qualified selling
dealers.
The Distributor intends to seek payment from Class B shares of the
Company in the amount of $261,649, representing the cumulative
commissions earned by the Distributor on the sale of the Company's Class
B shares reduced by cumulative commissions paid by the Company and
cumulative contingent deferred sales charge paid by redeeming
shareholders. The Company has no contractual obligation to pay any such
distribution charges and the amount, if any, timing and condition of such
payment are solely within the discretion of the Directors who are not
interested persons of the Company or the Distributor.
A contingent deferred sales charge is imposed upon redemption of
certain Class B shares of the Company within six years of the original
purchase. The charge is a declining percentage starting at 4% of the
lesser of net asset value of the shares redeemed or the total cost of such
shares. During the four months ended September 30, 1996 the Distributor
received contingent deferred sales charges of $7,441 from redemptions of
Class B shares of the Company.
DAVIS HIGH INCOME FUND, INC.
Notes to Financial Statements, continued
(Unaudited)
===============================================================================
Note 5 - Capital Stock
At September 30, 1996, there were 1,000,000,000 shares of capital stock ($0.05
par value per share) authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
For the Six Months Ended
Class A September 30, 1996 For the Year Ended
(Unaudited) March 31, 1996
------------------------ ------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C><C> <C> <C>
Shares subscribed......................................... 561,839 $ 2,672,836 2,023,310 $ 9,816,406
Shares issued to shareholders
in connection with
reinvestment of
distributions........................................... 345,740 1,644,013 704,353 3,408,315
---------- ------------ ---------- ------------
907,579 4,316,849 2,727,663 13,224,721
Shares reacquired......................................... (1,142,273) (5,443,828) (3,213,613) (15,601,779)
---------- ------------ ---------- ------------
Net decrease.......................................... (234,694) $ (1,126,979) (485,950) $ (2,377,058)
=========== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended
Class B September 30, 1996 For the Year Ended
(Unaudited) March 31, 1996
------------------------ ------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares subscribed........................................ 598,242 $ 2,828,876 1,288,020 $ 6,239,050
Shares issued to shareholders
in connection with
reinvestment of
distributions.......................................... 35,984 169,785 33,677 162,136
------------ ------------ ----------- ------------
634,226 2,998,661 1,321,697 6,401,186
Shares reacquired........................................ (127,128) (600,804) (340,802) (1,644,995)
------------ ------------ ----------- ------------
Net increase......................................... 507,098 $ 2,397,857 980,895 $ 4,756,191
============ ============ =========== ============
</TABLE>
Note 6 - Custody Fees
Under an agreement with the custodian bank, custody fees are
reduced by credits for cash balances. Such reductions amounted to $2,757
during the year ended September 30, 1996.
<TABLE>
DAVIS HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Financial Highlights for a share of capital stock outstanding throughout
each period.
--------------------------------------Class A--------------------------- -----------Class B-------------
<CAPTION>
Six Six
Months Months Four
ended ended Months
September 30, September 30, ended
1996 Year ended March 31, 1996 March 31,
(Unaudited) 1996 1995 1994 1993 1992 (Unaudited) 1996 1995
-------- ---- ---- ---- ---- ---- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.............. $ 4.84 $ 4.86 $ 5.14 $ 5.18 $ 4.92 $ 4.75 $ 4.81 $4.85 $ 4.80
------ ------ ------ ------ ------ ------ ------ ------ ------
Income From Investment
- ----------------------
Operations
- ----------
Net Investment
Income............ 0.21 0.43 0.46 0.50 0.61 0.53 0.20 0.40 0.11
Net Gains or
Losses on
Securities (both
realized and
unrealized)....... (0.07) 0.03 (0.24) 0.06 0.25 0.43 (0.08) - 0.05
------ ------ ------ ------ ------ ------ ------ ------ ------
Total From
Investment
Operations.... 0.14 0.46 0.22 0.56 0.86 0.96 .12 0.40 0.16
------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions
- ------------------
Dividends (from
net investment
income)........... (0.24) (0.43) (0.46) (0.50) (0.60) (0.53) (0.22) (0.40) (0.11)
Returns of
Capital........... _ (0.05) (0.04) - - (0.26) _ (0.04) _
Distribution in
excess of
realized gains.... _ _ - (0.10) _ _ _ _ -
Total
------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions. (0.24) (0.48) (0.50) (0.60) (0.60) (0.79) (0.22) (0.44) (0.11)
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period....... $ 4.74 $ 4.84 $ 4.86 $ 5.14 $ 5.18 $ 4.92 $ 4.71 $ 4.81 $ 4.85
====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return <F1>..... 2.98% 9.93% 4.69% 11.29% 18.81% 22.45% 2.60% 8.68% 4.28%
- ------------
Ratios/Supplemental
- -------------------
Data
- ----
Net Assets, End of
Period (000
omitted).......... 51,593 53,816 56,405 64,663 38,305 24,986 8,845 6,599 1,900
Ratio of Expenses
to Average
Net Assets........ 1.49%<F2> 1.51% 1.53% 1.48% 1.81% 1.93% 2.29%<F2> 2.44% 2.36%<F2>
Ratio of Net
Income to
Average Net
Assets............ 8.93%<F2> 8.92% 9.49% 9.31% 11.91% 11.01% 8.13%<F2> 8.11% 8.66%<F2>
Portfolio Turnover
Rate.............. 37.00% 118.34% 98.94% 98.31% 84.93% 93.78% 37.00% 118.34% 98.94%
<FN>
<F1> Sales charges are not reflected in calculation.
<F2> Annualized
</FN>
</TABLE>
DAVIS HIGH INCOME
FUND, INC.
124 East Marcy Street Santa Fe, New Mexico 87501
Directors Officers
Wesley E. Bass Jeremy H. Biggs
Jeremy H. Biggs Chairman
Marc P. Blum Shelby M.C. Davis
Shelby M.C. Davis President
Eugene M. Feinblatt Carl R. Luff
Jerry D. Geist Vice President, Treasurer
D. James Guzy & Assistant Treasurer
G. Bernard Hamilton Raymond O. Padilla
LeRoy E. Hoffberger Vice President, Secretary
Laurence W. Levine & Assistant Treasurer
Christian R. Sonne Carolyn H. Spolidoro
Edwin R. Werner Vice President
Andrew A. Davis
Vice President
Christopher C. Davis
Vice President
Eileen R. Street
Assistant Treasurer
& Assistant Secretary
Investment Adviser & Distributor
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
Transfer Agent & Custodian
State Street Bank and Trust Company
c/o The Davis Funds
P.O. Box 8406
Boston, MA 02266-8406
Counsel
D'Ancona & Pflaum
30 North LaSalle Street
Chicago, Illinois 60602
=============================================================================
For more information about Davis High Income Fund including management
fee, charges and expenses, see the current prospectus which must precede
or accompany this report.
=============================================================================
