SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
REGISTRATION NO. 2-66935
POST-EFFECTIVE AMENDMENT NO. 23
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-3007
AMENDMENT NO. 22
DAVIS HIGH INCOME FUND, INC.
(formerly, VENTURE INCOME (+) PLUS, INC)
124 East Marcy Street
Santa Fe, New Mexico 87501
(1-505-983-4335)
Agent For Service: Sheldon R. Stein
D'Ancona & Pflaum
30 North LaSalle Street
Suite 2900
Chicago, Illinois 60602
(1-312-580-2014)
It is proposed that this filing will become effective:
----- immediately upon filing pursuant to paragraph (b)
----- on , pursuant to paragraph (b)
----- 60 days after filing pursuant to paragraph (a)
--X-- on August 1, 1996, pursuant to paragraph (a)
of Rule 485
In accordance with Section 24(f) of the Investment Company Act of 1940
and Rule 24f-2 thereunder, Registrant has previously elected to register
an indefinite number of shares of its Common Stock. The 24f-2 Notice
was filed on or about May 10, 1996.
FORM N-1A
DAVIS HIGH INCOME FUND, INC.
POST-EFFECTIVE AMENDMENT NO. 23 TO REGISTRATION STATEMENT NO.
2-66935 UNDER THE SECURITIES ACT OF 1933 AND AMENDMENT NO. 22
UNDER THE INVESTMENT COMPANY ACT OF 1940 TO REGISTRATION
STATEMENT NO. 811-3007.
CROSS REFERENCE SHEET
---------------------
N-1A
Item No. Prospectus Caption or Placement
- ------- -------------------------------
1 Front Cover
2 Summary
3 Financial Highlights
4 Summary; Investment Objectives and Policies
5 Adviser, Sub-Adviser and Distributor; Method of Distribution;
Purchase of Shares; Summary; Investment
Objectives and Policies
5A Management's Discussion of Fund Performance (contained in
the 1995 Annual Report)
6 Summary; Shareholder Inquires; Dividends and Distributions;
Federal Income Taxes; Fund Shares
7 Purchase of Shares; Adviser and Distributor; Exchange of
Shares; Determining the Price of Shares; Dividends and Distributions
8 Redemption of Shares; Exchange of Shares
9 (Not Applicable)
Part B Caption or Placement
---------------------------
10 Cover Page
11 Table of Contents
12 (Not Applicable)
13 Investment Restrictions; Foreign Securities; "When Issued"
Securities; Repurchase Agreements; Lending Portfolio
Securities; Writing Covered Call Options; Portfolio Transactions
14 Management of the Company
15 Certain Shareholders of the Company
16 Investment Advisory Services; Custodian; Auditors;
Determining the Price of Shares; Distribution of Fund Shares
17 Portfolio Transactions
18 *
19 Determining the Price of Shares; Reduction of Class A Sales Charges
20 *
21 *
22 Performance Data
23 Financial Statements are incorporated by reference from the 1995
Annual Report to Shareholders.
____________________
* Included in Prospectus
<PAGE>
PROSPECTUS August 1, 1996
DAVIS HIGH INCOME FUND, INC.
124 East Marcy Street
Santa Fe, New Mexico 87501
1-800-279-0279
Minimum Investment Plans Available
Initial Purchase $1,000 Individual Retirement Account (IRA)
For Retirement Plans $250 Prototype Retirement Plans
Subsequent Investment $25 Exchange Privilege
Automatic Investment Plan
Automatic Withdrawals Plan
Davis High Income Fund, Inc. (the "Fund") seeks primarily to achieve a
high level of current income. The Fund also seeks to achieve capital
growth so long as such objective is consistent with its primary objective.
The Fund may invest up to 100% of its assets in lower rated bonds,
commonly known as "junk bonds," which entail greater risks, including
default risks, than those found in higher rated securities. Investors
should carefully consider these risks before investing. See "Investment
Objectives and Policies."
The Fund offers two classes of shares, each having different expense
levels and sales charges. You may choose to purchase Class A shares,
normally with a sales charge imposed at the time you purchase the shares
("front-end sales charge"), or Class B shares, on which no front-end sales
charge is imposed but upon which a deferred sales charge may be imposed
at the time of redemption depending on how long you have owned the
shares ("contingent deferred sales charge" or "CDSC"). On purchases of
Class A shares of $1 million or more, there is no front-end sales charge or
contingent deferred sales charge. Class B shares have a higher level of
expenses than Class A shares, including higher Rule 12b-1 distribution
fees and will have correspondingly lower returns than the Class A shares.
Class B shares automatically convert to Class A shares eight years after
purchase. These alternatives permit you to choose the method of
purchasing shares that is most beneficial to you, depending on the amount
of the purchase, the length of time you expect to hold the shares and other
circumstances. Shares of a particular class may be exchanged for shares
of the same class offered by another Davis Fund.
This Prospectus concisely sets forth information about the Fund that
prospective investors should know before investing. It should be read
carefully and retained for future reference. A Statement of Additional
Information dated August 1, 1996, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. A copy of
the Statement of Additional Information and other information may be
obtained without charge by writing to or calling the Fund at the above
address or telephone number.
___________________
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SUMMARY
Fund Expenses. The following table is intended to assist you in
understanding the various costs and expenses that an investor in each
class of the Fund will bear directly or indirectly. The information is
based on the Fund's fiscal year ended March 31, 1996. Expenses have been
restated to give effect to the reduction in management fees which took
place on May 1, 1996. You can refer to "Adviser and Distributor" and
"Sales Charges" for more information on transaction and operating
expenses of the Fund.
Shareholder Transaction Expenses Class A Class B
- -------------------------------- ------- -------
Maximum sales load imposed on purchases.............. 4.75% None
Maximum sales load imposed on reinvested dividends None None
Deferred sales load (a declining percentage of the
lesser of the net asset value of the shares
redeemed or the total cost of such shares)
Redeemed during first year....................... None 4.00%
Redeemed during second or third year............. None 3.00%
Redeemed during fourth or fifth year............. None 2.00%
Redeemed during sixth year....................... None 1.00%
Redeemed after sixth year........................ None None
Exchange Fee....................................... $5.00 $5.00
Annual Fund operating expenses (as a percentage of average net assets)
- ---------------------------------------------------------------------
Management fees.................................... 0.70% 0.70%
12b-1 fees*........................................ 0.18% 0.99%
Other expenses..................................... 0.58% 0.58%
Total Fund operating expenses.............. 1.46% 2.27%
* The effect of a Rule 12b-1 plan is that long-term shareholders may pay
more than the maximum front-end sales charge permitted under applicable
rules of the National Association of Securities Dealers, Inc.
Example:
You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return and (except as noted below) redemption at
the end of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- -------
Class A........................... $62 $91 $123 $214
Class B........................... $53 $91 $132 N/A
Class B (assuming no redemption
at end of period)........ $23 $71 $122 N/A
The 5% rate used in the example is only for illustration and is not
intended to be indicative of the future performance of the Fund, which may
be more or less than the assumed rate. Future expenses may be more or
less than those shown.
The Fund. Davis High Income Fund, Inc. is an open-end, diversified,
management investment company incorporated in Maryland in 1980 and is
registered under the Investment Company Act of 1940.
The Fund offers investors the choice between two classes of shares.
Class A shares may be purchased at a price equal to their net asset value
per share plus a front-end sales charge imposed at the time of purchase.
Purchases of $1 million or more of Class A shares may be purchased at net
asset value. Class B shares may be purchased at net asset value with no
front-end sales charge but are subject to a contingent deferred sales
charge on most redemptions made within six years after purchase. These
alternatives permit an investor to choose the method of purchasing shares
that is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares, and other circumstances.
Each class of shares pays a Rule 12b-1 distribution fee at an annual rate
not to exceed (i) for Class A shares, 0.25% of the Fund's aggregate average
daily net assets attributable to the Class A shares and (ii) for Class B
Shares, 1.00% of the Fund's aggregate average daily net assets
attributable to the Class B shares. The purpose and function of the
deferred sales charge and distribution fee with respect to the Class B
shares is the same as those of the front-end sales charge and distribution
services fee with respect to the Class A shares.
Each share of the Fund, whether Class A or Class B, represents an
identical interest in the investment portfolio of the Fund. However,
shares differ by class in important respects. For example, Class B shares
incur higher distribution services fees and bear certain other expenses
and will thus have a higher expense ratio and pay correspondingly lower
dividends than Class A shares. Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month in which
the shareholder's order to purchase was accepted, in the circumstances
and subject to the qualifications described in this Prospectus. The per
share net asset value of the Class B shares generally will be lower than
the per share net asset value of the Class A shares, reflecting the daily
expense accruals of additional distribution fees and certain other
expenses applicable to Class B shares. It is expected, however, that the
per share net asset value of the classes, which differ by approximately
the amount of the expense accrual differential between the classes will
tend to converge immediately on the ex date of the dividends or
distributions. The Board of Directors may offer additional classes of
shares in the future and may at any time discontinue the offering of any
class of shares. See "Purchase of Shares--Alternative Purchase
Arrangements".
Investment Objectives. The Fund's primary objective is to achieve a
high level of current income. The Fund also seeks capital growth so long
as such objective is consistent with its primary objective. The Fund
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. There is no assurance that the
investment objective of the Fund will be achieved. See "Investment
Objectives and Policies".
Investment Adviser, Sub-Adviser and Distributor. Davis Selected
Advisers, L.P., (the "Adviser") is the investment adviser and distributor
for the Fund. Stamper Capital & Investments, Inc., the ("Sub-Adviser") is
employed by the Adviser to provide day to day management of the Fund's
portfolio. See "Adviser, Sub-Adviser and Distributor".
Purchases, Exchanges and Redemptions. Class A shares are sold at
net asset value plus a sales charge, and are redeemed at net asset value.
Purchases of $1 million or more of Class A shares may be purchased at net
asset value. Class B shares are sold at net asset value without a
front-end sales charge but may be subject to a deferred sales charge at
the time of redemption depending on how long such shares have been
owned. Initial and subsequent minimum investments may be made in
amounts equal to $1,000 and $25, respectively, except that the minimum
initial investment for retirement plans is $250. Shares may be exchanged
under certain circumstances at net asset value for the same class of
shares of certain other funds managed and distributed by the Adviser,
with a $5 service fee for each exchange payable to the Adviser. Accounts
with a market value of less than $250 caused by shareholder redemptions
are redeemable by the Fund. "See Purchase of Shares," "Exchange of
Shares" and "Redemption of Shares".
Shareholder Services. Questions regarding the Fund or your account
may be directed to Davis Selected Advisers, L.P. at 1-800-279-0279 or to
your sales representative. Written inquiries may be directed to Davis
Selected Advisers, L.P., P.O. Box 1688, Santa Fe, NM 87504-1688. During
drastic market conditions, the Adviser may experience difficulty in
accepting telephone redemptions. If you are unable to contact the Adviser
at the above telephone number, you should call 1-505-820-3000 Monday
through Friday between 8:00 a.m. and 4:00 p.m. Mountain Time.
FINANCIAL HIGHLIGHTS
The following table provides you with information about the
financial history of the Fund's shares. The table expresses the
information in terms of a single Class A or Class B share for the
respective periods presented and is supplementary information to the
Fund's financial statements which are included in the March 31, 1996
Annual Report to Shareholders. Such Annual Report may be obtained by
writing or calling the Fund. The Fund's financial statements and financial
highlights for the five years ended March 31, 1996, have been audited by
the Fund's independent certified public accountants, whose opinion thereon
is contained in the Annual Report.
<TABLE>
Class A
Year Ended March 31,
------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period....... $ 4.86 $ 5.14 $ 5.18 $ 4.92 $ 4.75 $ 6.07 $ 8.09 $ 8.59 $10.29 $10.70
Income From Investment
- ----------------------
Operations
- ----------
Net Investment Income.... 0.43 0.46 0.50 0.61 0.53 0.56 0.79 1.20 1.05 1.05
Net Gains or Losses on
Securities (both
realized and
unrealized)............ 0.03 0.24 0.06 0.25 0.43 (0.85) (1.63) (0.59) 1.37 0.02
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations........... 0.46 0.22 0.56 0.86 0.96 (0.29) 0.84 0.61 (0.32) 1.07
Less Distributions
- ------------------
Dividends from net
investment income...... 0.43 (0.46) (0.50) (0.60) (0.53) (0.56) (0.88) (1.11) (1.05) (1.11)
Distributions in excess
of realized gains...... - - (0.10) - - - - - - -
Returns of Capital....... (0.05) (0.04) - - (0.26) (0.47) (0.30) - (0.31)<F1> (0.37)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions........ (0.48) (0.50) (0.60) (0.60) (0.79) (1.03) (1.18) (1.11) (1.38) (1.48)
Net Asset Value,
End of Period............ $ 4.84 $ 4.86 $ 5.14 $ 5.18 $ 4.92 $ 4.75 $ 6.07 $ 8.09 $ 8.59 $10.29
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return<F2>........... 9.93% 4.69% 11.29% 18.81% 22.45% (5.32)% (11.69)% (7.24)% (3.16)% 11.16%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of
Period
(000 omitted).......... $53,816 $56,405 $64,663 $38,305 $24,986 $19,386 $29,909 $53,670 $67,397 $72,445
Ratio of Expenses to
Average Net Assets... 1.51% 1.53% 1.48% 1.81% 1.93% 2.09% 1.52% 1.26% 1.19% 1.14%
Ratio of Net Income to
Average Net Assets..... 8.92% 9.49% 9.31% 11.91% 11.01% 10.43% 10.64% 14.18% 11.09% 10.19%
Portfolio Turnover Rate.. 118.34% 98.94% 98.31% 84.93% 93.78% 76.92% 39.91% 85.91% 107.52% 166.65%
<FN>
<F1> The distribution includes $0.10 which represents amounts required
to be distributed for tax purposes to avoid imposition of
excise taxes on realized capital gains.
<F2> Sales charges are not reflected in calculation.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Year Four Months
ended ended
Class B March 31, March 31,
1996 1995<F2>
---- -----
<S> <C> <C>
Net Asset Value,
Beginning of Period................................................................ $ 4.85 $ 4.80
Income From Investment
- ----------------------
Operations
- ----------
Net Investment Income............................................................. 0.40 0.11
Net Gains or Losses on Securities (both realized and unrealized)................. - 0.05
------ ------
Total From Investment Operations................................................ 0.40 0.16
Less Distributions
- ------------------
Dividends from net investment income................................................. (0.40) (0.11)
Returns of Capital................................................................. (0.04) -
------ ------
Total Distributions............................................................. (0.44) (0.11)
Net Asset Value,
End of Period...................................................................... $ 4.81 $ 4.85
====== ======
Total Return<F1>..................................................................... 8.68% 4.28%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of
Period (000 omitted)............................................................. $ 6,599 $ 1,900
Ratio of Expenses to
Average Net Assets............................................................... 2.32% 2.36%<F3>
Ratio of Net Income
to Average Net Assets........................................................... 8.11% 8.66%<F3>
Portfolio Turnover
Rate............................................................................. 118.34% 98.94%
<FN>
<F1> Sales charges are not reflected in calculation.
<F2> Class B shares were initially issued December 1, 1994.
<F3> Annualized
</FN>
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
General. The Fund's primary investment objective is to achieve a
high level of current income. Secondarily, the Fund seeks capital growth
so long as such objective is consistent with the Fund's primary objective.
There is no assurance the Fund will succeed in achieving its objectives.
The Fund principally invests in high yield, high risk, fixed-income
securities.
Consistent with the Fund's principal investment objective, it is
anticipated that under normal conditions at least 80% of the Fund's total
assets will be invested in fixed-income securities and at least 65% of the
Fund's total assets will be invested in high income securities.
Fixed-income securities include convertible and non-convertible debt
securities and preferred stock. The Fund's remaining assets may be held
in cash or short-term instruments, or invested in common stocks or other
equity securities when such investments are consistent with the Fund's
investment objectives or are acquired as part of a unit consisting of a
combination of fixed-income and equity securities. The Fund may invest
in zero coupon, pay-in-kind and deferred interest bonds.
The market value of fixed-income securities will generally be
affected by changes in the level of interest rates. Increases in interest
rates tend to reduce the market value of fixed-income investments and
declines in interest rates tend to increase their value. Moreover, debt
issues with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation or depreciation than
securities with shorter maturities. Low or unrated securities tend to
have a limited market other than institutional investors and therefore
may have less liquidity than higher rated securities. This could, at times,
cause the Fund difficulty in disposing of such securities at favorable
prices. Fluctuations in the market value of the Fund's portfolio securities
subsequent to their acquisition will not affect cash income from such
securities but will be reflected in the Fund's net asset value. In addition,
the future earning power of an issuer and its ability to service its debt
may affect the market price of higher yielding debt.
The average maturity and the mix of investments of the Fund will
vary as the Sub-Adviser seeks to provide a high level of income
considering the available alternatives in the market. Since interest rates
vary with changes in economic, market, political and other conditions,
there can be no assurance that historic interest rates are indicative of
rates which may prevail in the future. Since the values of securities in
the Fund fluctuate depending upon market factors, the credit of the issuer
and inversely with current interest rate levels, the net asset value of its
shares will fluctuate. Consequently, there can be no assurance that the
Fund's objectives can be achieved or that its shareholders will be
protected from the risk of loss inherent in security ownership. The
Sub-Adviser attempts to adjust investments as considered advisable in
view of prevailing or anticipated market and credit conditions as
perceived by the Sub-Adviser. Portfolio securities may be purchased or
sold in anticipation of a rise or a decline in interest rates or a change in
credit quality.
There are market and investment risks with any security and the
value of an investment in the Fund will fluctuate over time. In seeking to
achieve its investment objectives, the Fund will invest in fixed-income
securities based on the Sub-Adviser's analysis without relying on any
ratings published by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"). The Fund will invest in a
particular security if, in the Sub-Adviser's view, the increased yield
offered, regardless of published ratings, is sufficient to compensate for
the assumed risk. Since investments will be based upon the Sub-Adviser's
analysis rather than on the basis of published ratings, achievement of the
Fund's goals may depend more upon the abilities of the Sub-Adviser than
would otherwise be the case. The higher yield, higher risk securities the
Fund seeks, whether rated or unrated, are speculative and subject to
greater market fluctuations and risk of loss of income and principal than
lower yielding, higher rated fixed-income securities. See "High Yield, High
Risk Debt Securities" below for a discussion of various risk factors
related to high yield, high risk fixed-income securities.
High Yield, High Risk Debt Securities. As discussed above, the Fund
may invest in low rated securities offering high current income. The
higher yields that the Fund seeks are generally obtainable from bonds
rated in the lower categories by recognized rating services and from
unrated securities. The Fund expects to invest principally in fixed-income
securities rated Baa or lower by Moody's or BBB or lower by S&P. A
substantial portion of the Fund's portfolio is usually invested in bonds
rated Ba or BB or lower by these rating services or which are unrated by
these agencies. The Fund may invest in D rated (defaulted) obligations.
Bonds rated Ba or BB or lower are below investment grade and are referred
to in the financial community as "junk bonds." At times the portfolio may
contain a larger proportion of higher rated securities when the
Sub-Adviser deems such holdings to provide a more advantageous return.
A brief description of the bond ratings of these two services is contained
herein under "Portfolio Composition." A more complete description is
contained in the Appendix. An investment in the Fund may not constitute a
complete investment program and may not be appropriate for all investors
or for short-term investing.
High yield, high risk debt securities are considered speculative with
respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation and generally will involve more credit risk
than securities in the higher rating categories. The market values of such
securities tend to reflect individual credit developments to a greater
extent than do higher rated securities which react primarily to
fluctuations in the general level of interest rates. Such lower rated
securities also tend to be more sensitive to economic, political and
industry conditions than are higher rated securities. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis
regarding individual lower rated bonds and the high yield, high risk market
may depress the prices for such securities. If such negative factors
adversely impact the market value of high yield, high risk securities, the
portfolio's net asset value will be adversely affected.
High yield, high risk bonds may be issued in a variety of
circumstances. Some of the more common circumstances are issuance by
corporations in the growth stage of their development, in connection with
a corporate reorganization or as part of a corporate takeover. Companies
that issue such high yielding, high risk bonds often are highly leveraged
and may not have available to them more traditional methods of financing.
Therefore, the risk associated with acquiring the bonds of such issuers
generally is greater than is the case with higher rated bonds. For
example, during an economic downturn or recession, highly leveraged
issuers of high yield, high risk bonds may experience financial stress.
During such periods, such issuers may not have sufficient revenues to
meet their principal and interest payment obligations. The issuer's ability
to service its debt obligations may also be adversely affected by specific
corporate developments, the issuer's inability to meet specific projected
business forecasts or the unavailability of additional financing. The risk
of loss due to default by the issuer is significantly greater for the holders
of high yielding bonds because such bonds are generally unsecured and are
often subordinated to other creditors of the issuer. The costs associated
with recovering principal and interest once a security has defaulted may
impact the return to holders of the security. If the Fund experiences
unexpectedly large net redemptions, it may be forced to sell high yield,
high risk bonds out of the portfolio without regard to the investment
merits of such sales. This could decrease the Fund's net assets. Since
some of the Fund's expenses are fixed, this could also reduce the Fund's
rate of return.
The Fund may have difficulty disposing of certain high yield, high
risk bonds because there may be a thin trading market for such bonds.
Because not all dealers maintain markets in all high yield, high risk bonds,
the Fund anticipates that such bonds could be sold only to a limited
number of dealers or institutional investors. The lack of a liquid
secondary market may have an adverse impact on market price and the
ability to dispose of particular issues and may also make it more difficult
for the Fund to obtain accurate market quotations or valuations for
purposes of valuing the Fund's assets. Market quotations generally are
available on many high yield issues only from a limited number of dealers
and may not necessarily represent firm bid prices of such dealers or
prices for actual sales. In addition, adverse publicity and investor
perceptions may decrease the values and liquidity of high yield, high risk
bonds regardless of a fundamental analysis of the investment merits of
such bonds. To the extent that the Fund purchases illiquid or restricted
bonds, it may incur special securities registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties relating to
such bonds.
Bonds may be subject to redemption or call provisions. If an issuer
exercises these provisions when investment rates are declining, the Fund
will be likely to replace such bonds with lower yielding bonds, resulting
in a decreased return. Zero coupon, pay-in-kind and deferred interest
bonds involve additional special considerations. Zero coupon bonds are
debt obligations that do not entitle the holder to any periodic payments of
interest prior to maturity or a specified cash payment date when the
securities begin paying current interest (the "cash payment date") and
therefore are issued and traded at a discount from their face amount or
par value. The market prices of zero coupon securities are generally more
volatile than the market prices of securities that pay interest
periodically and are likely to respond to changes in interest rates to a
greater degree than securities paying interest currently having similar
maturities and credit quality. Pay-in-kind bonds pay interest in the form
of other securities rather than cash. Deferred interest bonds defer the
payment of interest to a later date. Zero coupon, pay-in-kind or deferred
interest bonds carry additional risk in that, unlike bonds which pay
interest in cash throughout the period to maturity, the Fund will realize
no cash until the cash payment date unless a portion of such securities are
sold. The Fund has no assurance of the value or the liquidity of securities
received from pay-in-kind bonds. If the issuer defaults, the Fund may
obtain no return at all on its investment. To the extent that the Fund
invests in bonds that are original issue discount, zero coupon, pay-in-kind
or deferred interest bonds, the Fund may have taxable interest income in
excess of the cash actually received on these issues. In order to
distribute such income to avoid taxation to the Fund, the Fund may have to
sell portfolio securities to meet its taxable distribution requirements at
potentially adverse circumstances. See "Federal Income Taxes."
The investment philosophy of the Fund with respect to high yield,
high risk bonds is based on the premise that over the long term a broadly
diversified portfolio of high yield, high risk fixed-income securities
should, even taking into account possible losses, provide a higher net
return than that achievable on a portfolio of higher rated securities. The
Fund seeks to achieve a high yield while reducing relative risk through (a)
diversification, (b) credit analysis of the issuers in which the Fund
invests, (c) purchasing high yield securities at discounts from par or
stated value when practicable and (d) monitoring and seeking to anticipate
changes and trends in the economy and financial markets that might affect
the prices of portfolio securities. Ratings assigned by credit agencies do
not evaluate market risks. The Sub-Adviser's judgment as to the
"reasonableness" of the risk involved in any particular investment will be
a function of its experience in managing fixed-income investments and its
evaluation of general economic and financial conditions. This includes
analysis and evaluations of a specific issuer's business and management,
cash flow, earnings coverage of interest and dividends, ability to operate
under adverse economic conditions, fair market value of the issuer's
assets and such other considerations as the Sub-Adviser may deem
appropriate. The Sub-Adviser, while seeking to maximize current yield,
will monitor current developments with respect to portfolio securities,
potential investments and broad trends in the economy. Achievement of
the Fund's investment objectives will be more dependent upon the
Sub-Adviser's credit analysis than would be the case for funds
predominately investing in higher rated bonds. In some circumstances,
defensive strategies may be implemented to preserve or enhance capital
even at the sacrifice of current yield. There is, however, no assurance
that the Fund's objectives will be achieved or that the Fund's approach to
risk management will protect the shareholders against loss.
Portfolio Composition. The table below reflects the Fund's portfolio
composition by quality rating for the year ended March 31, 1996,
calculated on the basis of the average weighted ratings of all bonds held
during the year. The table reflects the percentage of total assets
represented by fixed-income securities rated by Moody's or S&P, by
unrated fixed-income securities and by other assets. The percentages
shown reflect the higher of the Moody's or S&P rating. U.S. Government
Securities, whether or not rated, are reflected as Aaa and AAA (highest
quality). Other assets may include money market instruments, repurchase
agreements, equity securities, net payables and receivables and cash. The
allocations in the table are not necessarily representative of the
composition of the Fund's portfolio at other times. Portfolio quality
ratings will change over time.
<TABLE>
Composition of the Fund's Portfolio by Quality Rating As a Percentage of
Total Assets at March 31, 1996
<CAPTION>
Fund's Assessment of General Definition
Moody's/S&P Rating Category Percentage Non-rated Securities of Bond Quality
- --------------------------- ---------- -------------------- ---------------
<S> <C> <C> <C>
Aaa/AAA.................... 4.23% 0.00% Highest quality
Aa/AA...................... 2.17% 0.00% High quality
A/A........................ 0.51% 0.00% Upper medium grade
Baa/BBB.................... 5.71% 0.00% Medium grade
Ba/BB...................... 20.66% 0.00% Some speculative elements
B/B........................ 31.30% 12.44% Speculative
Caa/CCC.................... 1.24% 0.00% More speculative
Ca, C/CC, C, D............. 4.45% 0.23% Very speculative, may be in default
Not Rated.................. 12.67% 0.00% Not rated by Moody's or S&P
Common and Preferred Stock. 2.11% 0.00%
Short-term Investments..... 14.95% 0.00%
------ ------
100.00% 12.67%
</TABLE>
The description of each bond quality category set forth in the table
above is intended to be a general guide and not a definitive statement as
to how Moody's and S&P define such rating category. A more complete
description of the rating categories is set forth in the Appendix. The
ratings of Moody's and S&P represent their opinions as to the quality of
the securities that they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute
standards of quality. There is no assurance that a rating assigned
initially will not change. The Fund may retain a security whose rating has
changed or has become unrated.
Restricted and Illiquid Securities. The Fund may invest in restricted
securities, i.e., securities which, if sold, would cause the Fund to be
deemed an "underwriter" under the Securities Act of 1933 (the "1933
Act") or which are subject to contractual restrictions on resale. The
Fund's policy is to not purchase or hold illiquid securities (which may
include restricted securities) if more than 15% of the Fund's net assets
would be illiquid. If at any time more than 15% of the Fund's net assets
are illiquid, steps will be taken as soon as practicable to reduce the
percentage of illiquid assets to 15% or less.
The restricted securities which the Fund may purchase include
securities which have not been registered under the 1933 Act but are
eligible for purchase and sale pursuant to Rule 144A ("Rule 144A
Securities"). This Rule permits certain qualified institutional buyers, such
as the Fund, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. The Sub-Adviser, under
criteria established by the 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 concerning illiquid
securities. In making this determination, the Sub-Adviser will consider
the frequency of trades and quotes, the number of dealers and potential
purchasers, dealer undertakings to make a market, and the nature of the
security and the market place trades (for example, the time needed to
dispose of the security, the method of soliciting offers and the mechanics
of transfer). The liquidity of Rule 144A Securities will also be monitored
by the Sub-Adviser and, if as a result of changed conditions, it is
determined that a Rule 144A Security is no longer liquid, the Fund's
holding of illiquid securities will be reviewed to determine what, if any,
action is required in light of the Fund's policy limiting investments in
such securities. Investing in Rule 144A Securities could have the effect
of increasing the amount of the Fund's investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
Foreign Securities and "When Issued" Securities. The Fund may
invest in foreign securities which are payable in U.S. dollars. Also the
Fund may, from time to time, invest in securities on a "when issued" or a
"delayed delivery" basis (that is, delivery and payment therefor normally
take place more than 7 and less than 30 days after the transaction date).
It is the Fund's policy that any investment in foreign securities or on a
when issued or delayed delivery basis will not be made if such investment
would cause more than 5% of the value of the Fund's net assets to be
invested in either of such types of investments.
Repurchase Agreements. From time to time, the Fund may enter into
repurchase agreements whereby the Fund buys a security which is (i)
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"), or (ii) a bank obligation
or prime commercial paper, subject to the agreement of the seller to
repurchase the instrument and the Fund's agreement to resell it at a price
established to provide the Fund with the equivalent of a short-term
interest rate. These agreements are for short periods, normally a day, but
in no event longer than a week. These transactions are for the purpose of
efficiently utilizing cash awaiting investment and do not normally
represent any significant portion of the Fund's portfolio. The risk involved
is that if the seller were to default, the Fund would sustain a delay in its
ability to sell the instrument, additional expense, or a loss, particularly if
the seller was in bankruptcy proceedings. The Fund will monitor the
creditworthiness of the entities with which it makes such transactions.
Borrowing. The Fund may borrow money from banks for temporary or
emergency purposes in an amount not exceeding 10% of the value of its
total assets (excluding the amount borrowed), and may pledge an amount
not exceeding 15% of total assets (excluding the amount borrowed) to
secure such borrowing.
Temporary Defensive Investments. When market conditions dictate a
more defensive strategy, the Fund may temporarily, without limitation,
hold cash or invest in short-term money market instruments. The yield on
these instruments will generally be lower than the yield on the Fund's
regular portfolio.
Portfolio Transactions. The Adviser is responsible for the
placement of portfolio transactions, subject to the supervision of the
Board of Directors. The Fund may trade to some degree in securities for
the short-term and may sell securities to buy others with greater income
or profit potential or when it has realized a profit and the proceeds can be
more advantageously utilized. The Fund may also sell a security when the
Sub-Adviser believes such security will no longer continue to provide a
relatively high current yield or involves undue risk, or when the
Sub-Adviser deems it advisable to take a more defensive position or
return to a more aggressive stance. Because of the Fund's policies, the
Fund's portfolio turnover rate will vary. A higher portfolio turnover rate
could require the payment of larger amounts in brokerage commissions.
However, it is anticipated that most securities transactions will be
principal transactions, in which no brokerage commissions are incurred.
Research services and placement of orders by securities firms for shares
of the Fund may be taken into account as a factor in placing portfolio
transactions. Portfolio turnover rates are set forth in "Financial
Highlights".
Fundamental and Non-Fundamental Policies. The Fund has adopted
certain investment restrictions which are described in the Statement of
Additional Information. These restrictions and the Fund's investment
objectives may not be changed unless authorized by a vote of the
shareholders. All other investment policies are non-fundamental and may
be changed without shareholder approval. Percentage restrictions, except
the restriction with respect to illiquid securities, apply as of the time an
investment is made without regard to later increases or decreases in the
value of portfolio securities or total net assets.
ADVISER, SUB-ADVISER AND DISTRIBUTOR
Davis Selected Advisers, L.P. (the "Adviser") whose principal office
is at 124 East Marcy Street, Santa Fe, New Mexico 87501, serves as the
investment adviser and distributor of the 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 business
operations of the Fund and also acts as the distributor of the Fund's
shares. As discussed below, the Adviser has hired Stamper Capital &
Investments, Inc. as the Sub-adviser for the Fund. The Adviser also acts
as investment adviser and distributor for Davis New York Venture Fund,
Inc., Davis Tax-Free High Income Fund, Inc., Davis Series, Inc., Davis
International Series, Inc., (collectively with the Fund, the "Davis Funds"),
Selected American Shares, Inc., Selected Special Shares, Inc. and Selected
Capital Preservation Trust (collectively, the "Selected Funds").
The Adviser receives a fee at the annual rate of 0.70% on average net
assets up to $250 million, 0.60% on the next $250 million of average net
assets and 0.55% on average net assets over $500 million. This fee is
higher than that of most other mutual funds but is not necessarily higher
than that paid by funds with similar objectives. The Fund also reimburses
the Adviser for its costs of providing certain accounting and financial
reporting, shareholder services and compliance with state securities
laws.
Stamper Capital & Investments, Inc. (the "Sub-Adviser"), is the
Sub-Adviser for the Fund and manages the Fund's day to day investment
operations. The Fund pays no fees directly to the Sub-Adviser. All the
fees paid to Stamper Capital will be paid by the Adviser and not the Fund.
The Sub-Adviser will receive from the Adviser a fee equal to 30% of the
fees received by the Adviser from the Fund. The Sub-Adviser also provides
investment advisory services to employee benefit plans, institutions,
trust and individuals. The Sub-Adviser's offices are located at 380 Foam
Street, Suite 205, Monterey, CA 93940. B. Clark Stamper is the
controlling shareholder of the Sub-Adviser. The Adviser may acquire a
minority interest in the Sub-Adviser.
Portfolio Management. B. Clark Stamper has been the primary
portfolio manager of the Fund since June, 1990. He was a Senior Vice
President of the Adviser's General Partner and a Vice President of all of
the Davis Funds. He has also been the primary portfolio manager of Davis
Tax-Free High Income Fund, Inc., (a high yield municipal bond fund) since
June, 1990. He was the primary portfolio manager of Davis Series, Inc.'s
Government Bond Fund, (a U.S. Government Securities income fund) from
June, 1990 until April 30, 1995. He was the primary portfolio manager of
Selected Capital Preservation Trust's U.S. Government Income Fund from
May 1, 1993, until April 30, 1995. From July 1989 through June 1990, Mr.
Stamper was a senior credit analyst at National Securities and Research
Corporation, and served as a portfolio manager for an institutional
high-yield bond fund managed by an affiliate. Prior thereto, he was an
officer and credit manager of Dial Capital Management, which managed
high-yield funds for institutions.
Davis Selected Advisers, L.P., in its capacity as distributor, is also
reimbursed by the Fund for some of its distribution expenses through
Distribution Plans which have been adopted with respect to each class of
shares and approved by the Fund's Board of Directors and the shareholders
of each class in accordance with Rule 12b-1 under the Investment
Company Act of 1940. See "Distribution Plans" below for more details.
DISTRIBUTION PLANS
The Fund bears some of the costs of selling its shares under
Distribution Plans adopted with respect to its Class A and Class B shares
pursuant to Rule 12b-1 under the Investment Company Act of 1940. This
rule regulates the manner in which a mutual fund may assume costs of
distributing and promoting the sale of its shares.
Payments under the Class A Distribution Plan are limited to an
annual rate of 0.25% of the average daily net asset value of the Class A
shares. Such payments are made to reimburse the Adviser for the fees it
pays to its salespersons and other firms for selling Fund shares, servicing
shareholders and maintaining shareholder accounts. Normally, such fees
are at the annual rate of 0.25% of the average net asset value of the
accounts serviced and maintained on the books of the Fund. Payments
under the Class A Distribution Plan may also be used to reimburse the
Adviser for other distribution costs (excluding overhead) not covered in
any year by any portion of the sales charges the Adviser retains. See
"Purchase of Shares."
Payments under the Class B Distribution Plan are limited to an
annual rate of 1% of the average daily net asset value of the Class B
shares. In accordance with current applicable rules, such payments are
also limited to 6.25% of gross sales of Class B shares plus interest at 1%
over the prime rate on any unpaid amounts. Up to 0.75% of the average
daily net assets is used to pay the Adviser a 4% commission on new sales
of Class B Shares. Most or all of such commissions are reallowed to the
Adviser's salespersons and to firms responsible for such sales. No
commissions are paid by the Fund with respect to sales by the Adviser to
officers, directors and full-time employees of the Fund, the Adviser or the
Adviser's General Partner. Up to 0.25% of average net assets is used to
reimburse the Adviser for the payment of service and maintenance fees to
its salespersons and other firms for shareholder servicing and
maintenance of shareholder accounts.
If, due to the foregoing payment limitations, the Fund is unable to
pay the Adviser the 4% commission on new sales of Class B shares, the
Adviser intends, but is not obligated, to accept new orders for shares and
pay commissions in excess of the payments it receives from the Fund. The
Adviser intends to seek full payment from the Fund of any excess amounts
with interest at 1% over the prime rate at such future date when and to
the extent such payments on new sales would not be in excess of the
limitations. The Fund is not obligated to make such payments; the amount
(if any), timing and condition of any such payments are solely within the
discretion of the directors of the Fund who are not interested persons of
the Adviser or the Fund and have no direct or indirect financial interest in
the Class B Distribution Plan (the "Independent Directors"). If the Class B
Distribution Plan is terminated, the Adviser will ask the Independent
Directors to take whatever action they deem appropriate with regard to
the payment of any excess amounts.
In addition, the Plans provide that the Adviser, in its sole
discretion, may utilize its own resources for distributing and promoting
sales of Fund shares, including any profits from its advisory fees.
Each of the Distribution Plans may be terminated at any time by vote
of the Independent Directors or by vote of the respective class. Payments
pursuant to a Distribution Plan are included in the operating expenses of
the class.
As described above, dealers or others may receive different levels
of compensation depending on which class of shares they sell. The
Adviser may make expense reimbursements for special training of a
dealer's registered representatives, advertising or equipment, or to defray
the expenses of dealer meetings. Any such amounts may be paid by the
Adviser from the fees it receives under the Class A and Class B
Distribution Plans.
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.
PURCHASE OF SHARES
General. You can purchase Class A or Class B shares of the Fund
from any dealer or other person having a sales agreement with the
Adviser.
There are three ways to make an initial investment in the Fund. One
way is to fill out the Application Form included in this Prospectus and
mail it to State Street Bank and Trust Company ("State Street") at the
address on the Form. The dealer must also sign the Form. Your dealer or
sales representative will help you fill out the Form. You should enclose a
check (minimum $1,000, except $250 for retirement plans) payable as
indicated on the Form. All purchases made by check should be in U.S.
dollars and made payable to the Davis Funds, or in the case of a retirement
account, the custodian or trustee. Third party checks will not be accepted.
When purchases are made by check, redemptions will not be allowed until
the investment being redeemed has been in the account for 15 calendar
days.
Another way to make an initial investment is to have your dealer
order and pay for the shares. In this case, you must pay your dealer. The
dealer can order the shares from the Adviser by telephone or wire. You
can also use this method for additional investments of at least $1,000.
The third way to purchase shares is by wire. Shares may be
purchased at any time by wiring federal funds directly to State Street.
Prior to an initial investment by wire, the shareholder should telephone
Davis Selected Advisers, L.P. at 1-800-279-0279 to advise them of the
investment and class of shares and to obtain an account number and
instructions. A completed Plan Adoption Agreement or Application Form
should be mailed to State Street after the initial wire purchase. To
assure proper credit, the wire instructions should be made as follows:
State Street Bank and Trust Company,
Boston, MA 02210
Attn.: Mutual Fund Services
DAVIS HIGH INCOME FUND, INC.
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 "State Street Bank and
Trust Company," c/o The Davis Funds, P.O. Box 8406, Boston, MA
02266-8406. The check should be accompanied by a form which State
Street will provide after each purchase. If you do not have a form, you
should tell State Street that you want to invest the check in shares of the
Fund. If you know your account number, you should also give it to State
Street.
The Fund does not issue certificates for Class A shares unless you
request a certificate each time you make a purchase. Certificates are not
issued for Class B shares. Instead, Class B shares purchased are
automatically credited to an account maintained for you on the books of
the Fund by State Street. Each time you add to or withdraw from your
account, you will receive a statement showing the details of the
transaction and any other transactions you had during the current year.
Alternative Purchase Arrangements. The Fund offers two classes of
shares. With certain exceptions described below, Class A shares are sold
with a front-end sales charge at the time of purchase and are not subject
to a sales charge when they are redeemed. Class B shares are sold
without a sales charge at the 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 at
the end of eight years after purchase.
Depending on the amount of the purchase and the anticipated length
of time of investment, investors may choose to purchase one class of
shares rather than the other. Investors who would rather pay the entire
cost of distribution at the time of investment, rather than spreading such
cost over time, might consider Class A shares. Other investors might
consider Class B shares, in which case 100% of the purchase price is
invested immediately. The Fund will not accept any purchase of Class B
shares in the amount of $250,000 or more per investor. Such purchase
must be made in Class A shares. See also "Distribution Plans" for more
information.
Class A Shares. Class A shares are sold at their net asset value plus
a sales charge. The amounts of the sales charges are shown in the table
below.
<TABLE>
<CAPTION>
Customary
Sales Charge Charge as Concession to
as Approximate Your Dealer as
Percentage Percentage Percentage
of Offering of Amount of Offering
Amount of Purchase Price Invested Price
- ------------------ ----- -------- ----
<S> <C> <C> <C>
$ 99,999 or less.............. 4-3/4% 5.0% 4%
$ 100,000 to $249,999.............. 3-1/2% 3.6% 3%
$ 250,000 to $499,999.............. 2-1/2% 2.6% 2%
$ 500,000 to $749,999.............. 2% 2.0% 1-3/4%
$ 750,000 to $999,999.............. 1% 1.0% 3/4 of 1%
$ 1,000,000 or more.............. 0% 0.0% 0%<F1>
<FN>
<F1> On purchases of $1 million or more, the investor pays no initial or
contingent deferred sales charge. However, the Adviser may pay the
financial service firm a commission during the first year after such
purchase at an annual rate as follows:
</FN>
</TABLE>
Purchase Amount Commission
--------------- ----------
First $3,000,00.......................................... 0.75%
Next $2,000,00.......................................... 0.50%
Over $5,000,00.......................................... 0.25%
Such commission will be paid quarterly at the end of each fiscal quarter
for the first year after purchase. Where a commission is paid because of
purchases of $1 million or more, such payment will be made from 12b-1
distribution fees received from the Fund and, in cases where the limits of
the distribution plan in any year have been reached, from the distributor's
own resources.
There are a number of ways to reduce the sales charge on the
purchase of Class A shares, as set forth below.
(i) Family Purchases: Purchases made by an individual, such
individual's spouse and children under 21 are combined and treated as a
purchase of a single person.
(ii) Group Purchases: The purchases of an organized group, whether
or not incorporated, are combined and treated as the purchase of a single
person. The organization must have been organized for a purpose other
than to purchase shares of mutual funds.
(iii) Purchases for Employee Benefit Plans: Trusteed or other
fiduciary accounts and Individual Retirement Accounts ("IRA") of a single
employer are treated as purchases of a single person. Purchases of and
ownership by an individual and such individual's spouse under an IRA are
combined with their other purchases and ownership.
(iv) Purchases under a Statement of Intention: By executing the
"Statement of Intention" included in the Application Form at the back of
the Prospectus, purchases of Class A shares of $100,000 or more made
over a 13-month period may be made at the applicable price for the
aggregate shares actually purchased during the period. Please see "Terms
and Conditions" at back of this prospectus.
(v) Rights of Accumulation: If you notify your dealer or the Adviser
you may include the Class A shares you already own (valued at maximum
offering price) in calculating the price applicable to your current
purchase.
(vi) Combined Purchases with other Davis Funds: Purchases of Class
A shares of the Fund may be combined with your purchases of Class A
shares of other Davis Funds, including Davis New York Venture Fund, Inc.,
Davis Tax-Free High Income Fund, Inc., Davis International Series, Inc. and
all funds offered by Davis Series, Inc. (other than Davis Government Money
Market Fund), separately or under combined Statements of Intention or
rights of accumulation to determine the price applicable to your purchases
of Class A shares of the Fund.
(vii) Sales at Net Asset Value: The sales charge will not apply to:
(1) Class A shares purchased through the automatic reinvestment of
dividends and distributions (see "Dividends and Distributions"); (2) Class A
shares purchased by directors, officers and employees of any Fund for
which the Adviser or the Adviser's General Partner acts as investment
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 Adviser; (4) initial purchases of Class A shares
totaling $250,000 or more, made at any one time by banks, trust
companies and other financial institutions (collectively "Institutions") on
behalf of one or more clients for which such Institution acts in a fiduciary
capacity; (5) initial purchases of Class A shares totaling $250,000 or
more by a registered investment adviser on behalf of a client for which
the adviser is authorized to make investment decisions or otherwise acts
in a fiduciary capacity; (6) Class A shares purchased by any single account
covering a minimum of 250 participants and representing a defined
benefit plan, defined contribution plan, cash or deferred plan qualified
under 401(a) or 401(k) of the Internal Revenue Code or a plan established
under section 403(b), 457 or 501(c)(9) of such Code; (7) Class A shares
purchased by persons participating in a "wrap account" or similar
fee-based program sponsored and maintained by a registered
broker-dealer approved by the Fund's Adviser; and (8) Class A shares
purchased by any state, county, city, department, authority or similar
agency prohibited by law from paying a sales charge. The Fund may also
issue Class A shares at net asset value incident to a merger with or
acquisition of assets of an investment company.
Class B Shares. Class B shares are offered at net asset value,
without a front-end sales charge. With certain exceptions described
below, the Fund imposes a deferred sales charge of 4% on shares redeemed
during the first year after purchase, 3% on shares redeemed during the
second or third year after purchase, 2% on shares redeemed during the
forth or fifth year after purchase and 1% on shares redeemed during the
sixth year after purchase. However, on Class B shares of the Fund which
are acquired upon exchange from Class B shares of other Davis Funds
which were purchased prior to December 1, 1994, the Fund will impose a
deferred sales charge of 4% on shares redeemed during the first calendar
year after purchase; 3% on shares redeemed during the second calendar
year after purchase; 2% on shares redeemed during the third calendar year
after purchase; and 1% on shares redeemed during the fourth calendar year
after purchase, and no deferred sales charge is imposed on amounts
redeemed after four calendar years from purchase. Class B shares will be
subject to a maximum Rule 12b-1 fee at the annual rate of 1% of the
class's average daily net asset value.
Class B shares that have been outstanding for eight years will
automatically convert to Class A shares without imposition of a front-end
sales charge or exchange fee. The Class B shares so converted will no
longer be subject to the higher expenses borne by Class B shares. Because
the net asset value per share of the Class A shares may be higher or lower
than that of the Class B shares at the time of conversion, although the
dollar value will be the same, a shareholder may receive more or less
Class A shares than the number of Class B shares converted. Under the
Fund's private Internal Revenue Service Ruling such a conversion will not
constitute a taxable event under the federal income tax law. In the event
that this ceases to be the case, the Board of Directors will consider what
action, if any, is appropriate and in the best interests of the Class B
shareholders.
Any contingent deferred sales charge imposed upon the redemption
of Class B shares is a percentage of the lesser of (i) the net asset value of
the shares redeemed or (ii) the original cost of such shares. No contingent
deferred sales charge is imposed when you redeem amounts derived from
(a) increases in the value of shares redeemed above the net cost of such
shares or (b) certain shares with respect to which the Fund did not pay a
commission on issuance, including shares acquired through reinvestment
of dividend income and capital gains distributions. Upon request for
redemption, shares not subject to the contingent deferred sales charge
will be redeemed first. Thereafter, shares held the longest will be the
first to be redeemed.
The contingent deferred sales charge will be waived as follows: (1)
on redemptions following a shareholder's death or disability, as defined in
Section 72(m)(7) of the Internal Revenue Code of 1986, as amended (the
"Code"); (2) on taxable periodic distributions from a qualified retirement
plan or IRA upon retirement or attainment of age 59-1/2 (e.g. the
applicable contingent deferred sales charge, if any, is imposed upon a
lump sum redemption at any age whether or not it is taxable) or
distribution necessary to make a tax-free return of contributions to avoid
tax penalty; (3) on redemptions of shares sold to directors, officers and
employees of the Fund, its Adviser or the Adviser's General Partner,
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; (4) on redemptions made as tax-free
returns of contributions to avoid tax penalty; and (5) on redemptions
pursuant to the right of the Fund to liquidate a shareholder's account if
the aggregate net asset value of the shares held in such account falls
below an established minimum amount.
Prototype Retirement Plans. The Adviser and certain qualified
dealers have available prototype retirement plans sponsored by the Fund
for corporations and self-employed individuals and prototype Individual
Retirement Account ("IRA") plans for both individuals and employers.
These plans utilize the shares of the Fund and other Funds managed and
distributed by the Adviser as their investment vehicle. State Street acts
as custodian or trustee for the plans and charges the participant $10 to
establish each account and an annual maintenance fee of $10 per account.
Such fees will be redeemed automatically at year end from your account,
unless you elect to pay the fee directly.
Automatic Investment Plan. Shareholders may arrange for automatic
monthly investing whereby State Street will be authorized to initiate a
debit to the shareholder's bank account of a specific amount (minimum
$25) each month which will be used to purchase Fund shares. For
institutions that are members of the Automated Clearing House system
(ACH), such purchases can be processed electronically on any day of the
month between the 3rd and 28th day of each month. After each automatic
investment, the shareholder will receive a transaction confirmation and
the debit should be reflected on the shareholder's next bank statement.
The plan may be terminated at any time by the shareholder. If you desire
to utilize this plan, you may use the appropriate designation on the
Application Form.
Dividend Diversification Program. You may also establish a dividend
diversification program which allows you to have all dividends and any
other distributions automatically invested in shares of 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 a 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 of at least $250 and all subsequent investments
must be at least $25. This program can be amended or terminated at any
time, upon at least 60 days' notice. If you would like to participate in this
program, you may use the appropriate designation on the Application Form.
TELEPHONE PRIVILEGE
Unless you have provided in your application that the telephone
privilege is not to be available, the telephone privilege is automatically
available under certain circumstances for exchanging shares and for
redeeming shares. By exercising the telephone privilege to sell or
exchange shares, you agree that the Fund shall not be liable for following
telephone instructions reasonably believed to be genuine. Reasonable
procedures will be employed to confirm that such instructions are genuine
and if not employed, the Fund may be liable for unauthorized instructions.
Such procedures will include a request for personal identification
(account or social security number) and tape recording of the instructions.
You should be aware that during unusual market conditions we may have
difficulty in accepting telephone requests in which case you should
contact us by mail. See "Exchange of Shares - By Telephone", "Redemption
of Shares - By Telephone" and "Redemption of Shares - Expedited
Redemption Privilege".
EXCHANGE OF SHARES
General. You may exchange shares of the Fund for shares of the same
class of the other Davis Funds. This exchange privilege is a convenient
way to buy shares in other Davis Funds in order to respond to changes in
your goals or in market conditions. If such goals or market conditions
change, the Davis Funds offer a variety of investment objectives that
includes common stock funds, tax-exempt and corporate bond funds, and a
money market fund. However, the Fund is intended as a long-term
investment and is not intended for short-term trades. Shares of a
particular class of the Fund may be exchanged only for shares of the same
class of another Davis Fund. All of the Davis Funds offer Class A and
Class B shares. The shares to be received upon exchange must be legally
available for sale in your state. The net asset value of the initial shares
being acquired must be at least $1,000 unless such exchange is under the
Automatic Exchange Program described below. There is a $5 service
charge payable to the Distributor for each exchange other than an exchange
under the Automatic Exchange Program.
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 term of any CDSC to
which any Class B shares are subject at the time of exchange will
continue to apply to any Class B shares acquired upon exchange.
Before you decide to make an exchange, you must obtain the current
prospectus of the desired fund. Call your broker or the Adviser for
information and a prospectus for any of the other Davis Funds registered
in your state. Read the prospectus carefully. If you decide to exchange
your shares, send State Street a written unconditional request for the
exchange and follow the instructions regarding delivery of share
certificates contained in the section on "Redemption of Shares". A
signature guarantee is not required for such an exchange. However, if
shares are also redeemed for cash in connection with the exchange
transaction, a signature guarantee may be required. See "Redemption of
Shares". Your dealer may charge an additional fee for handling an exercise
of the exchange privilege.
An exchange involves both a redemption and a purchase, and normally
both are done on the same day. However, in certain instances such as
where a large redemption is involved, the investment of redemption
proceeds into shares of other Davis Funds may take up to seven days. For
federal income tax purposes, exchanges are treated as a sale and purchase.
Therefore, there will usually be a recognizable capital gain or loss due to
an exchange.
The number of times a shareholder may exchange shares among the
Davis Funds within a specified period of time may be limited at the
discretion of the Adviser. Currently, more than three exchanges out of a
fund during a twelve month period are not permitted without the prior
written approval of the Adviser. The Fund reserves the right to terminate
or amend the exchange privilege at any time upon 60 or more 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 note under "Telephone Privilege"
which is also applicable to exchanges.
Automatic Exchange Program. The Fund also offers an automatic
monthly exchange program. All accounts established or utilized under this
program must have the same registration and a minimum initial value of
at least $250. All subsequent exchanges must have a value of at least
$25. Each month shares will be simultaneously redeemed and purchased at
the chosen fund's applicable offering price. If you would like to
participate in this program, you may use the appropriate designation on
the Application Form.
REDEMPTION OF SHARES
General. You can redeem, or sell back to the Fund, all or part of your
shares at any time. You can do this by sending a written request to State
Street Bank and Trust Company, c/o The Davis Funds, P.O. Box 8406,
Boston, MA 02266-8406, indicating how many of your shares or what
dollar amount you want to redeem. If more than one person owns the
shares to be redeemed, each of the owners must sign the request. The
signatures on the request must be the same as the way in which the
shares are registered.
Sometimes State Street needs more documents to verify authority
to make a redemption. This usually happens when the owner is a
corporation, partnership or fiduciary (such as a trustee or the executor of
an estate) or if the person making the request is not the registered owner
of the shares.
If shares to be redeemed are represented by a certificate, the
certificate, signed by the owner or owners, must be sent to State Street
with the request.
For the protection of all shareholders, the Fund also requires that
signatures appearing on a share certificate, stock power or redemption
request where the proceeds would be more than $25,000 must be
guaranteed by a bank, credit union, savings association, securities
exchange, broker, dealer or other guarantor institution. The transfer agent
may reject a request from any of the foregoing eligible guarantors, if such
guarantor does not satisfy the transfer agent's written standards or
procedures or if such guarantor is not a member or participant of a
signature guarantee program. This provision also applies to exchanges
when there is also a redemption for cash. A signature guarantee on
redemption requests where the proceeds would be $25,000 or less is not
required, provided that such proceeds are being sent to the address of
record and, in order to ensure authenticity of an address change, such
address of record has not been changed within the last 30 days.
Redemption proceeds are normally paid to you within seven days
after State Street receives your proper redemption request. Payment for
redemptions can be suspended under certain emergency conditions
determined by the Securities and Exchange Commission or if the New York
Stock Exchange is closed for other than customary or holiday closings. If
any of the shares redeemed were just bought by you, payment to you may
be delayed until your purchase check has cleared (which usually takes up
to 15 days from the purchase date). You can avoid any such redemption
delay by paying for your shares with a certified or cashiers check or by
bank wire or federal funds.
Redemptions are ordinarily paid to you in cash. However, the Fund's
Board of Directors is authorized to decide that conditions exist making
cash payments undesirable, although the Board has never reached such a
decision. If the Board should decide to make payment in other than cash,
redemptions could be paid in securities, valued at the value used in
computing the Fund's net asset value. There would be brokerage costs
incurred by the shareholder in selling such redemption proceeds. We must,
however, redeem shares solely in cash up to the lesser of $250,000 or 1%
of the Fund's net asset value, whichever is smaller, during any 90-day
period for any one shareholder.
Your shares may also be redeemed through participating dealers.
Under this method, the Adviser repurchases the shares from your dealer if
your dealer is a member of the Adviser's selling group. Your dealer may,
but is not required to, use this method in selling back your shares. If your
dealer does this, the dealer may place the repurchase request by telephone
or wire. Your dealer may charge you a service fee or commission. No
charge is payable if you redeem your own shares through State Street
rather than having a dealer arrange for a repurchase.
Expedited Redemption Privilege. Accounts other than prototype
retirement plans and IRAs may designate on the Expedited Redemption
Privilege Form an account with any commercial bank and have the cash
proceeds from the redemption sent, by either wire or electronically
through the Automated Clearing House system ("ACH"), to a
pre-designated bank account. State Street will accept instructions to
redeem shares and make payment to a pre-designated commercial bank
account by (a) written request signed by the registered shareholder, (b)
telephone request by any Qualified Dealer to Davis Selected Advisers, L.P.
(1-800-279-0279), or (c) by telegraphic request by the shareholder to
State Street. At the time of redemption, the shareholder must request
that federal funds be wired or transferred by ACH to the bank account the
shareholder has designated on the application. The redemption proceeds
under this procedure may not be directed to a savings bank, savings and
loan or credit union account except by arrangement with its correspondent
bank or unless such institution is a member of the Federal Reserve
System. The Adviser, in its discretion, may limit the amount that may be
redeemed by a shareholder in any day under the Expedited Redemption
Privilege to $25,000. There is a $5 charge by State Street for wire
service, and receiving banks may also charge for this service. Payment by
ACH will arrive usually 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 your call. The Expedited Redemption Privilege may be
terminated, modified or suspended by the Company at any time. See
"Telephone Privilege".
The name of the registered shareholder and corresponding Fund
account number must be supplied. The Expedited Redemption Privilege
Form provides for the appropriate information concerning the commercial
bank and account number. Changes in ownership, account number
(including the identity of your bank) or authorized signatories of the
pre-designated account may be made by written notice to State Street
with your signature and those of new owners or signers on the account
guaranteed by a commercial bank or trust company. Additional
documentation may be required to change the designated account where
shares are held by a corporation, partnership, executor, administrator,
trustee or guardian.
By Telephone. You can redeem shares by telephone and receive a
check by mail, but please keep in mind:
The check can only be issued for up to $25,000;
The check can only be issued to the registered owner (who must be an
individual);
The check can only be sent to the address of record; and
Your current address of record must have been on file for 30 days.
Automatic Withdrawals Plan. Under the Automatic Withdrawals
Plan, you can indicate to State Street how many dollars you would like to
receive each month or each quarter. Your account must have a value of at
least $10,000 to start a plan. Shares are redeemed so that you will
receive the payment you have requested approximately in the middle of the
month. Withdrawals involve redemption of shares and may produce gain or
loss for income tax purposes. Shares of the Fund initially acquired by
exchange from any of the other Davis Fund shares will remain subject to
an escrow or segregated account to which any of the exchanged shares
were subject. If you utilize this program using Class B shares, any
applicable contingent deferred sales charges will be imposed on such
Class B shares redeemed. Purchase of additional shares concurrent with
withdrawals may be disadvantageous to you owing to tax consequences. If
the amount you withdraw exceeds the dividends on your shares, your
account will suffer depletion. Your Automatic Withdrawals Plan may be
terminated by you at any time without charge or penalty. The Fund
reserves the right to terminate or modify the Automatic Withdrawals Plan
at any time. Call or write the Fund if you want further information on the
Automatic Withdrawals Plan.
Involuntary Redemptions. To relieve the Fund of the cost of
maintaining uneconomical accounts, the Fund may effect the redemption of
shares at net asset value in any account if the account, due to shareholder
redemptions, has a value of less than $250. At least 60 days prior to such
involuntary redemption, the Fund will mail a notice to the shareholder so
that an additional purchase may be effected to avoid such redemption.
Subsequent Repurchases. After some of or all your Class A or Class
B shares are redeemed or repurchased, you may decide to put back all or
part of your proceeds into the same Class of the Fund's shares. Any such
shares will be issued without sales charge at the net asset value next
determined after you have returned the amount of your proceeds. In
addition, any CDSC assessed on Class B shares will be returned to the
account. Class B shares will be deemed to have been purchased on the
original purchase date for purposes of calculating the CDSC and conversion
period. This can be done by sending the Fund or the Adviser a letter,
together with a check for the reinstatement amount. The letter must be
received, together with the payment, within 30 days after the redemption
or repurchase. You can only use this privilege once. See "Federal Income
Tax".
DETERMINING THE PRICE OF SHARES
The Fund offers 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. Both classes have identical rights
with respect to voting (exclusive of each Class' distribution
arrangement), liquidation and distributions. The net asset value per share
of each class is determined daily by dividing the total value of
investments and other assets, less any liabilities, by the total number of
total outstanding shares of each class. Because Class B shares incur
higher distribution services fees and bear certain other expenses, such
shares will have a higher expense ratio and will pay correspondingly lower
dividends than Class A shares. Fixed-income securities may be valued on
the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. (Pricing
services 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. Short-term
securities maturing in 60 days or less will be valued at amortized cost
(unless the Board of Directors determines that amortized cost would not
represent a fair value). If there is a material difference in the market
value and amortized cost value of short-term securities, market value
will be used. Assets for which there are no quotations available will be
valued at a fair value as determined by the Board of Directors.
The net asset value per share is determined as of the earlier of
close of the exchange or 4:00 p.m. Eastern Time on each day the New York
Stock Exchange is open. The price per share for purchases or redemptions
made directly through State Street normally is such value next computed
after State Street receives the purchase order or redemption request. If
the purchase order or redemption request is placed with your dealer, then
the applicable price is normally computed as of 4:00 p.m. Eastern Time on
the day the dealer receives the order, provided that the dealer receives
the order before 4:00 p.m. Eastern Time. Otherwise, the applicable price
is the next determined net asset value. It is the responsibility of your
dealer to promptly forward purchase and redemption orders to the Adviser.
Note that in the case of redemptions and repurchases of shares owned by
corporations, trusts or estates, State Street may require additional
documents to effect the redemption and the applicable price will be
determined as of the close of the next computation following the receipt
of the required documentation. See "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS
There are two sources for the payments made to you by the Fund.
The first is net investment income. Payments from this source are made
monthly. The second source is realized capital gains, distribution of
which are paid at least annually. You will receive quarterly confirmation
statements for dividends declared and shares purchased through
reinvestment of dividends. You will also receive confirmations after each
purchase (other than through dividend reinvestment) and after each
redemption. Because Class B shares incur higher distribution services
fees and bear certain other expenses, such class will have a higher
expense ratio and will pay correspondingly lower dividends than Class A
shares. For tax purposes, information concerning distributions will be
mailed annually to shareholders.
The Fund currently declares monthly distributions based on the
Adviser's projections of estimated net investment income. The amount of
each distribution may differ from actual net investment income
determined in accordance with generally accepted accounting principles.
The Fund at times may continue to pay distributions based on expectation
of future investment results and to provide stable distributions for its
shareholders even though, as a result of temporary market conditions or
other factors, the Fund may have failed to achieve projected investment
results for a given period. In such cases, the Fund's distributions may
include a return of capital to shareholders. Shareholders who reinvest
their distributions are largely unaffected by such returns of capital. In
the case of shareholders who do not reinvest, a return of capital is
equivalent to a partial redemption of the shareholder's investment.
Shareholders have the option to receive all dividends and
distributions in cash, to have all dividends and distributions reinvested,
or to have income dividends and short-term capital gain distributions paid
in cash and long-term capital gain distributions reinvested. The
reinvestment of dividends and distributions is made at net asset value
(without any sales charge) on the 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.
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 an investment in
the Fund.
The Fund intends to continue to qualify, as it has since inception, 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. If for any calendar year the
distributed earnings required under the Code exceed the amount
distributed, an excise tax equal to 4% of the excess will be imposed on the
Fund. The Fund intends to make distributions during each calendar year
sufficient to prevent imposition of the excise tax.
Distributions of net investment income and net realized short-term
capital gains will be taxable to shareholders as ordinary income.
Distributions of net long-term capital gains will be taxable to
shareholders as long-term capital gain regardless of how long the shares
have been held. Distributions will be treated the same for tax purposes
whether received in cash or in additional shares. Dividends declared in
the last calendar month to shareholders of record in such month and paid
by the end of the following January are treated as received by the
shareholder in the year in which they are declared.
A gain or loss for tax purposes may be realized on the redemption of
shares. If the shareholder realizes a loss on the sale or exchange of any
shares held for six months or less, and if the shareholder received a
capital distribution during such period, then such loss will be treated as a
long-term capital loss to the extent of any such capital gain distribution.
Interest on indebtedness incurred by non-corporate shareholders to
purchase or carry shares of the Fund will be deductible only up to the
amount of the shareholders' net investment income.
FUND SHARES
Shares issued by the Fund are currently divided into two classes,
Class A shares and Class B shares. The Board of Directors may offer
additional classes in the future and may at any time discontinue the
offering of any class of shares. Each share, when issued and paid for in
accordance with the terms of the offering, is fully paid and
non-assessable. Shares have no preemptive or subscription rights and are
freely transferable. Each share of the Fund represents an interest in the
assets of the Fund and has identical voting, dividend, liquidation and other
rights and the same terms and conditions as any other shares except that
(i) each dollar of net asset value per share is entitled to one vote, (ii) the
expenses related to a particular class, such as those related to the
distribution of shares 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 Fund can elect all of the directors of the
Fund.
In accordance with Maryland law and the Fund's By-laws, the Fund
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 holding
at least 10% of the outstanding shares of the Fund.
PERFORMANCE DATA
From time to time, the Fund may advertise information regarding its
performance. The Fund may also publish its "distribution rate." Such
information will consist of its "yield" and "total return" and will be
calculated separately for each class. These performance figures are based
upon historical results and are not intended to indicate future
performance.
"Yield" is computed by dividing the net investment income per share
(as defined in applicable regulations of the Securities and Exchange
Commission) during a specified 30-day period by the maximum offering
price per share on the last day of such period. Yield is an annualized
figure, in that it assumes that the same level of net investment income is
generated over a one year period. The yield formula annualizes net
investment income by providing for semi-annual compounding.
"Total return" refers to the Fund's average annual compounded rate
of return over a stated period that would equate an initial amount
invested at the beginning of the period to the ending redeemable value of
the investment. In the event the Fund advertises its total return, the
stated periods will be one, five and ten years, and may also include longer
or shorter periods, including the life of the Fund. The computation of total
return assumes reinvestment of all dividends and distributions, and
deduction of all charges and expenses.
"Distribution rate" is determined by dividing the income dividends
per share for a stated period by the net asset value per share on the last
day of such period. Distribution rates published are measures of the level
of income dividends distributed during a specified period. Thus, such
rates differ from yield (which measures income actually earned by a Fund)
and total return (which measures actual income, plus realized and
unrealized gains or losses of a Fund's investments). Consequently,
distribution rates alone should not be considered complete measures of
performance.
In addition, a table showing the performance of an assumed
investment of $10,000 may be used from time to time. The Fund may also
quote total return and aggregate total return performance data for various
other specified time periods. Such data will be calculated substantially
as described above, except that (1) the rates of return calculated will not
be average annual rates, but rather, actual annual, annualized or aggregate
rates of return and (2) sales charges will not be included with respect to
annual or annualized rates of return calculations. Aside from the impact
on the performance data calculations of including or excluding the sales
charges, actual annual or annualized total return data generally will be
lower than average annual total return data since the average annual rates
of return reflect compounding; aggregate total return data generally will
be higher than average annual total return data since the aggregate rates
of return reflect compounding over a longer period of time.
In reports or other communications to shareholders and in
advertising material, the performance of the Fund may be compared to
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 similar 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.
The Fund's 1996 Annual Report contains additional performance
information and will be made available upon request and without charge.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to Davis Selected Advisers,
L.P., by writing to P.O. Box 1688, Santa Fe, NM 87504-1688 or by calling
1-800-279-0279.
APPENDIX
QUALITY RATINGS OF DEBT SECURITIES
Moody's Investors Service, Inc. Corporate Bond Ratings
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long term risks appear
somewhat greater than Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e. they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any longer period of time
may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect
to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative to a high degree. Such issues are often in default or have
other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Standard & Poor's Corporation Corporate Bond Ratings
AAA - Debt rated 'AAA' has the highest rating assigned by Standard
and Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated 'AA' has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated 'BBB' is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB - Debt rated 'BB' has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB- rating.
B - Debt rated 'B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial or economic conditions will
likely impair capacity or willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BB or BB- rating.
CCC - Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
'CCC' rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied 'B' or 'B_' rating.
CC - The rating 'CC' is typically applied to debt subordinated to
senior debt that is assigned an actual or implied 'CCC' rating.
C - The rating 'C' is typically applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC_' debt rating. The 'C'
rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
CI - The rating 'CI' is reserved for income bonds on which no interest
is being paid.
D - Debt rated 'D' is in payment default. The 'D' rating category is
used when interest payments or principal payments are not made on the
date due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The 'D'
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
TERMS AND CONDITIONS FOR A STATEMENT OF INTENTION (CLASS A SHARES ONLY)
TERMS OF ESCROW:
1. Out of my initial purchase (or subsequent purchases if necessary) 5%
of the dollar amount specified in this Statement will be held in escrow by
State Street in the form of shares (computed to the nearest full share at
the public offering price applicable to the initial purchase hereunder)
registered in my name. For example, if the minimum amount specified
under this statement is $100,000 and the public offering price applicable
to transactions of $100,000 is $10 a share, 500 shares (with a value of
$5,000) would be held in escrow.
2. In the event I should exchange some or all of my shares to those of
another mutual fund for which Davis Selected Advisers, L.P. acts as
adviser, according to the terms of this prospectus, I hereby authorize
State Street to escrow the applicable number of shares of the new fund,
until such time as this Statement is complete.
3. If my total purchases are at least equal to the intended purchases,
the shares in escrow will be delivered to me or to my order.
4. If my total purchases are less than the intended purchases, I will
remit to Davis Selected Advisers, L.P. the difference in the dollar amount
of sales charge actually paid by me and the sales charge which I would
have paid if the total purchase had been made at a single time. If
remittance is not made within 20 days after written request by Davis
Selected Advisers, L.P. or my dealer, State Street will redeem an
appropriate number of the escrowed shares in order to realize such
difference.
5. I hereby irrevocably constitute and appoint State Street
my attorney to surrender for redemption any or all escrowed shares with
full power of substitution in the premises.
6. Shares remaining after the redemption referred to in Paragraph
No. 4 will be credited to my account.
7. The duties of State Street are only such as are herein provided being
purely ministerial in nature, and it shall incur no liability whatever
except for willful misconduct or gross negligence so long as it has acted
in good faith. It shall be under no responsibility other than faithfully to
follow the instructions herein. It may consult with legal counsel and
shall be fully protected in any action taken in good faith in accordance
with advice from such counsel. It shall not be required to defend any legal
proceedings which may be instituted against it in respect of the subject
matter of this Agreement unless requested to do so and indemnified to its
satisfaction against the cost and expense of such defense.
8. If my total purchases are more than the intended purchases and such
total is sufficient to qualify for an additional quantity discount, a
retroactive price adjustment shall be made for all purchases made under
such Statement to reflect the quantity discount applicable to the
aggregate amount of such purchases during the thirteen-month period.
EXPEDITED REDEMPTION PRIVILEGE
[ ] If you wish the Expedited Redemption Privilege please check the box
to the left and complete the following information.
I (we) hereby authorize State Street Bank and Trust Company, Davis
Selected Advisers, L. P., and/or the Davis Funds to act upon instructions
received by telephone or telegraph, believed by them to be genuine, and to
redeem shares in my (our) account in any of the Davis Funds and to wire
the proceeds of such redemption to the predesignated bank listed below. I
(we) hereby agree that neither State Street Bank and Trust Company, nor
Davis Selected Advisers, L. P. nor the Davis Funds nor any of their
officers or employees, will be liable for any loss, liability, cost or
expense for acting upon such instructions.
- ------------------------------------- -------------------------------------
Signature of Shareholder Signature of Co-Shareholder
- ------------------------------------- -------------------------------------
Name of Commercial Bank (Title of Account at Bank)
- ------------------------------------- -------------------------------------
(Street) (Account Number at Bank)
- ------------------------------------- -------------------------------------
(City) (State) (Zip) (ABA/Transit Routing Number)
==============================================================================
TABLE OF CONTENTS
PAGE
Summary.............................................................. 2
Financial Highlights................................................. 4
Investment Objectives and Policies................................... 5
Adviser, Sub-Adviser and Distributor................................. 10
Distribution Plans................................................... 11
Purchase of Shares................................................... 12
Telephone Privilege.................................................. 16
Exchange of Shares................................................... 16
Redemption of Shares................................................. 17
Determining the Price of Shares...................................... 20
Dividends and Distributions20
Federal Income Taxes................................................. 21
Fund Shares.......................................................... 21
Performance Data..................................................... 22
Shareholder Inquiries................................................ 23
Appendix - Quality Ratings of Debt Securities........................ 23
==============================================================================
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1996
Davis High Income Fund, Inc.
124 East Marcy Street
Santa Fe, New Mexico 87501
1-800-279-0279
TABLE OF CONTENTS
Topic Page
Investment Restrictions............................................... 2
Foreign Securities.................................................... 3
"When Issued" Securities.............................................. 3
Repurchase Agreements................................................. 3
Lending Portfolio Securities.......................................... 4
Writing Covered Call Options.......................................... 4
Portfolio Transactions................................................ 6
Directors and Officers................................................ 6
Directors Compensation Schedule....................................... 8
Certain Shareholders of the Fund...................................... 9
Investment Advisory Services.......................................... 10
Custodian............................................................. 11
Auditors.............................................................. 11
Determining the Price of Shares....................................... 11
Reduction of Class A Sales Charge..................................... 11
Distribution of Fund Shares........................................... 13
Performance Data...................................................... 13
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus dated August 1, 1996. The
Prospectus may be obtained from the Company.
The Fund's March 31, 1996 Annual Report to Shareholders accompanies
this Statement of Additional Information and the financial statements
appearing therein are incorporated herein by reference.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below and the Fund's
investment objectives set forth in the Prospectus may not be changed
without the approval of the holders of the lesser of (i) 67% of the eligible
votes, if the holders of more than 50% of the eligible votes are
represented or (ii) more than 50% of the eligible votes. 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.
1. The Fund may not buy or sell commodities or commodity contracts.
2. The Fund may not purchase real estate or real estate mortgages as
such, but the Fund may purchase the liquid securities of companies,
including real estate investment trusts, holding real estate or interests
(including mortgage interests) therein.
3. The Fund may not buy the securities of any company if the Fund
would then own more than 10% of such company's voting securities or any
class of such company's securities. For this purpose all debt securities of
an issuer are deemed to comprise a single class.
4. The Fund may not buy the securities of any company if more than 5%
of the value of its total assets would then be invested in that company;
the Fund may, however, without limitation, invest in obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities
("U.S. Government Securities") and repurchase agreements with respect
thereto.
5. The Fund may not buy the securities of companies in any one industry
if more than 25% of the value of the Fund's total assets would then be
invested in companies in that industry.
6. The Fund may not purchase or write put or call options, except that
it may write listed, covered call options and make closing transactions in
respect thereof, provided that no more than 20% of the value of the Fund's
total assets would be subject to such calls.
7. The Fund may not buy the securities of companies in continuous
operation for less than three years (including predecessors) if more than
5% of the value of the Fund's total assets would then be invested in such
securities.
8. The Fund may not buy securities issued by other investment
companies except incident to an acquisition of assets or a merger.
9. The Fund may not sell short, buy on margin or engage in arbitrage
transactions.
10. The Fund does not invest for the purpose of exercising control or
management of other companies.
11. The Fund may not borrow money except from banks for extraordinary
or emergency purposes in amounts not exceeding 10% of the value of the
Fund's total assets (excluding the amount borrowed) at the time of such
borrowing. The Fund may not pledge or hypothecate any of its assets,
except in connection with permitted borrowing in amounts not exceeding
15% of the value of its total assets (excluding the amount borrowed) at
the time of such borrowing.
12. The Fund may not buy or continue to hold securities if any officer or
director of the Fund, the Adviser or the Adviser's General Partner own too
many of the same securities. This would happen if any of these
individuals own 1/2 of 1% or more of the securities and all such
individuals who own that much or more own 5% of such securities.
13. The Fund does not engage in the underwriting of securities; however,
if the Fund sells "restricted" securities it may technically be considered
an "underwriter."
14. The Fund may lend its securities provided that not more than 20% of
the value of the Fund's total assets are subject to such loans. The Fund
may not lend money except through the purchase of debt obligations
(including entering into repurchase agreements) in accordance with the
Fund's investment objectives.
State Undertakings and Non-Fundamental Policies. In addition to the
foregoing restrictions, the Fund has voluntarily undertaken with certain
states, for so long as the Fund's shares are sold in such states, not to
invest in oil, gas or other mineral explorations or development programs.
This undertaking and all other non-fundamental policies may be changed
without shareholder approval.
FOREIGN SECURITIES
The Fund may invest in foreign securities without limitation as to
type and country. As a matter of non-fundamental policy, the Fund will
not make such an investment if it would cause more than 5% of the value
of the Fund's net assets to be invested in foreign securities. All the
Fund's investments in foreign securities must be dollar denominated.
Foreign securities will generally be purchased on domestic exchanges but
may also be purchased through domestic brokers on major world
exchanges. The Fund does not intend to emphasize the purchase of
securities related to any particular foreign nation. Foreign investments
involve certain considerations which are not typically associated with
investments in United States entities. An investment in a foreign entity
may be affected by changes in currency rates and in currency exchange
controls. There may be less publicly available information about a foreign
entity than a United States entity. Foreign entities generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to United States entities. Securities of
some foreign entities may be less liquid and more volatile than securities
of comparable United States entities. There is generally less government
regulation of stock exchanges, brokers and listed entities abroad than in
the United States. Additionally, with respect to certain foreign countries,
there is a possibility of expropriation, confiscatory taxation, social
instability or diplomatic developments which could affect investments in
entities in those countries. Foreign economies may differ favorably or
unfavorably from the United States economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments. If it should be necessary, the
Fund would generally encounter greater difficulties in commencing and
prosecuting successfully a lawsuit against a foreign issuer than a United
States issuer. The Sub-Adviser will consider these and other factors
before investing in foreign securities and will not make such investments
unless, in its opinion, the investments will be in accordance with the
Fund's objectives.
WHEN-ISSUED SECURITIES
New issues of fixed income securities of the type in which the Fund
will invest may be offered on a when-issued or delayed delivery basis
(that is, delivery and payment for the securities normally takes place
more than seven and less than 30 days after the date of the transaction).
In such offerings, the Fund's payment obligation and the interest rate the
Fund will receive are each fixed at the time the Fund enters into the
commitment. Offerings on a when-issued basis are not customary with
respect to the types of securities in which the Fund will invest, and it is
expected that the Fund will infrequently encounter offerings on such
basis. The Fund does not, as a matter of non-fundamental policy, commit
to purchase securities on a when-issued basis in an amount exceeding 5%
of the total value of the Fund's assets on the date on which a commitment
is made. Additionally, the Fund will only make commitments to purchase
securities offered on a when-issued basis with the intention of actually
acquiring the securities, but may sell those securities before the
settlement date if it is deemed advisable as a matter of investment
strategy. The Fund will establish at its custodian bank a separate account
consisting of cash or liquid debt securities (or a combination thereof)
equal at any given date to the amount of the Fund's outstanding
commitments, if any, to purchase when-issued securities. For the purpose
of determining the adequacy of the securities in such account, the
deposited securities will be valued at market. If the market values of
those securities decline, additional cash or securities will be placed in
the account on a daily basis so that the market value of the account will
continue to equal the amount of the Fund's outstanding commitments.
When the time comes to pay for when-issued securities, the Fund will
meet its obligations from its then available cash flow, the sale of
securities held in the separate account, the sale of other securities or,
although the Fund would not normally expect to do so, the sale of the
when-issued securities themselves (which may have a market value
greater or less than the Fund's payment obligation). Securities purchased
on a when-issued basis and the securities held in the Fund's portfolio are
subject to changes in market value based upon the public's perception of
the credit worthiness of the issuer and changes in the level of interest
rates. Both types of securities generally respond in a similar manner to
these changes. That is, when interest rates decline, both types generally
appreciate in value, and when interest rates rise, both types generally
depreciate in value.
REPURCHASE AGREEMENTS
The Fund may from time to time enter into repurchase agreements
whereby the Fund buys a U.S. Government Security, bank obligation or
prime commercial paper, subject to the obligation of the seller to
repurchase the instrument and to the Fund's obligation to resell it at a
mutually agreed upon price. The transaction may be viewed as a loan of
money by the Fund to the seller. The resale price is normally in excess of
the purchase price, reflecting an agreed upon interest rate. Repurchase
agreements will have short durations, normally a day and no longer than a
week. The Fund will always receive as collateral securities whose market
value, including accrued interest, will be at least 100% of the dollar
amount invested in the agreement, and the Fund will make payment for
such securities only upon physical delivery or evidence of book entry
transfer to the account from the Fund's custodian bank. The principal risk
involved is that if the seller were to default and the Fund were not able to
sell the collateral securing the agreement for the purchase price the Fund
had paid, the Fund would sustain a loss equal to the difference. In
addition, liquidation of the underlying debt security by the Fund could be
delayed or otherwise adversely affected by a court handling bankruptcy or
reorganization proceedings with respect to the seller, thereby affecting
the Fund's liquidity and possibly affecting the value of the Fund's
portfolio.
LENDING PORTFOLIO SECURITIES
The Fund has never loaned its securities and does not intend to do so
during the ensuing year. However, the Fund is not prohibited from
engaging in such activity. If at any time in the future the Fund engages in
such activity, it would be the Fund's policy not to make any such loan if it
would cause more than 20% of the value of the Fund's total assets to be
subject to such loans.
WRITING COVERED CALL OPTIONS
The Fund has not written covered call options for many years and
does not intend to do so during the ensuing year. However, the Fund is not
prohibited from engaging in such activity. If at any time in the future the
Fund would engage in such activity, it would be the Fund's policy not to
write a covered call option if it would cause more than 20% of the value
of the Fund's total assets to be subject to such calls.
PORTFOLIO TRANSACTIONS
Stamper Capital & Investment Inc., (the "Sub-Adviser") makes
investment decisions and arranges for the placement of buy and sell
orders and the execution of portfolio transactions for the Fund, subject to
review by the Board of Directors. In this regard, the Sub-Adviser will
seek to obtain the most favorable price and execution for the transaction
given the size and risk involved. In placing executions and paying any
brokerage commissions, the Sub-Adviser considers the financial
responsibility and reputation of the broker or dealer, the range and quality
of the services made available to the Fund and the professional services
rendered, including execution, clearance procedures, wire service
quotations and ability to provide supplemental performance, statistical
and other research information for consideration, analysis and evaluation
by the Sub-Adviser. In accordance with this policy, brokerage
transactions, if any, are not executed solely on the basis of the lowest
commission rate available for a particular transaction. Research services
provided to the Sub-Adviser by or through brokers who effect portfolio
transactions for the Fund may be used in servicing other accounts managed
by the Sub-Adviser and, likewise, research services provided by brokers
used for transactions of other accounts may be utilized by the
Sub-Adviser in performing services for the Fund. Subject to the
requirements of best execution, the placement of orders by securities
firms for shares of the Fund may be taken into account as a factor in the
placement of portfolio transactions.
On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interests of the Fund as well as other fiduciary
accounts, the Sub-Adviser may aggregate the securities to be sold or
purchased for the 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 Sub-Adviser
in the manner considered to be most equitable and consistent with its
fiduciary obligations to all such accounts, including the Fund. In some
instances, this procedure could adversely affect the Fund but the Fund
deems that any disadvantage in the procedure is outweighed by the
increased selection available and the increased opportunity to engage in
volume transactions.
The Sub-Adviser believes that research from brokers and dealers is
desirable, although not essential, in carrying out its functions, in that
such outside research supplements the efforts of the Sub-Adviser by
corroborating data and enabling the Sub-Adviser to consider the views,
information and analyses of other research staffs. Such views,
information and analyses include such matters as communicating with
persons having special expertise on certain companies, industries, areas
of the economy and/or securities prices, obtaining written materials on
these or other areas which might affect the economy and/or securities
prices, obtaining quotations on securities prices and obtaining
information on the activities of other institutional investors. The
Sub-Adviser researches, at its own expense, each security included in, or
being considered for inclusion in, the Fund's portfolio. As any particular
research obtained by the Sub-Adviser may be useful to the Fund, the Board
of Directors or its Committee on brokerage, in considering the
reasonableness of the commissions paid by the Fund, will not attempt to
allocate, or require the Sub-Adviser to allocate, the relative costs or
benefits of research.
During the last three fiscal years ended March 31, 1996, 1995 and
1994, the Fund paid brokerage commissions of $854, $7,297 and $1,965,
respectively. Most of the Fund's transactions are made on a principal
basis. The price of such transactions may include profit for the dealer.
DIRECTORS AND OFFICERS
The names , birth dates and addresses of the directors and officers
of the Fund are set forth below, together with their principal business
affiliations and occupations for the last five years. The asterisk
following the names of Martin H. Proyect, Shelby M.C. Davis and Jeremy H.
Biggs indicates that they are considered to be "interested persons" of the
Fund, as defined in the Investment Company Act, by reason of their
affiliation with the Fund's Adviser. As indicated below, certain directors
and officers of the Fund hold similar positions with the following funds
that are also managed by the Manager: Davis New York Venture Fund, Inc.,
Davis Tax-Free High Income Fund, Inc., Davis Series, Inc. and Davis
International Series, Inc. (collectively the "Davis Funds").
Wesley E. Bass, Jr. (8/21/31), 710 Walden Road, Winnetka, IL 60093.
Director of the Fund and each of the Davis Funds except Davis
International Series, Inc.; President, Bass & Associates (Financial
Consulting Firm); formerly, First Deputy City Treasurer, City of Chicago,
and Executive Vice President, Chicago Title and Trust Company.
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.
Marc P. Blum (9/9/42), 233 East Redwood Street, Baltimore, MD 21202.
Director of the Fund and each of the Davis Funds except Davis
International Series, Inc.; Chief Executive Officer, World Total Return
Fund, L.P. (a private investment fund); Member, Gordon, Feinblatt, Rothman,
Hoffberger and Hollander, LLC (attorneys); Director, Mid-Atlantic Realty
Trust.
Shelby M.C. Davis (3/20/37),* P.O. Box 205, Hobe Sound, FL 33455.
Director and President of the Fund and each of the Davis Funds;
Director/Trustee and President of Selected American Shares, Inc.,
Selected Special Shares, Inc. and Selected Capital Preservation Trust;
Director, Chairman and Chief Executive Officer, Venture Advisers, Inc.,
effective August 15, 1995; Employee of Capital Ideas, Inc. (financial
consulting firm); Consultant to Fiduciary Trust Company International;
Director, Shelby Cullom Davis Financial Consultants, Inc.
Eugene M. Feinblatt (10/28/19), 233 East Redwood Street, Baltimore, MD
21202. Director of the Fund and each of the Davis Funds except Davis
International Series, Inc.; of Counsel to Gordon, Feinblatt, Rothman,
Hoffberger and Hollander, LLC (attorneys).
Jerry D. Geist (5/23/34), 931 San Pedro Dr. S.E., Albuquerque, NM 87110.
Director of the Fund and each of the Davis Funds except Davis
International Series, Inc.; Chairman Santa Fe Center Enterprises; President
and Chief Executive Officer, Howard Energy International Utilities;
Director, CH2M-Hill, Inc.; Retired Chairman and President, Public Service
Company of New Mexico.
D. James Guzy (3/7/36), 508 Tasman Drive, Sunnyvale, CA 94089.
Director of the Fund and each of the Davis Funds except Davis
International Series, Inc.; Chairman, PLX Technology, Inc. (manufacturer of
semi-conductor circuits); Director, Intel Corp. (a manufacturer
semi-conductor circuits), Cirrus Logic Corp. (a manufacturer of
semi-conductor circuits) and Alliance Technology Fund (a mutual fund).
G. Bernard Hamilton, (3/18/37) P.O. Box 1119, Richmond, VA 23218.
Director of the Fund and each of the Davis Funds except Davis
International Series, Inc.; Managing General Partner, Avanti Partners, L.P.
LeRoy E. Hoffberger (6/8/25), The Exchange - Suite 215, 1112 Kenilworth
Drive, Towson, MD 21204. Director of the Fund and each of the Davis
Funds except Davis International Series, Inc.; of Counsel to Gordon,
Feinblatt, Rothman, Hoffberger and Hollander, LLC (attorneys); Chairman,
Mid-Atlantic Realty Trust; Director and President, CPC, Inc. (a real estate
company); Director and Vice President, Merchant Terminal Corporation;
formerly, Director of Equitable Bancorporation, Equitable Bank and
Maryland National Bank, and formerly, Director and President, O-W Fund,
Inc. (a private investment fund).
Laurence W. Levine (4/9/31), c/o Bigham, Englar, Jones & Houston, 14 Wall
Street, 21st, Floor, New York, NY 10005-2140. Director of the Fund and
each of the Davis Funds except Davis International Series, Inc.; Partner,
Bigham, Englar, Jones and Houston (attorneys); United States Counsel to
Aerolineas Argentina; Director, various private companies.
Martin H. Proyect (10/24/32),* P.O. Box 80176, Las Vegas, NV
89180-0176. Director of the Fund and each of the Davis Funds;
Director/Trustee of Selected American Shares, Inc., Selected Special
Shares, Inc. and Selected Capital Preservation Trust; formerly, Chairman
and Treasurer, Venture Advisers, Inc. until August 15, 1995.
Christian R. Sonne (5/6/36), P.O. Box 777, Tuxedo Park, NY 10987.
Director of the Fund and each of the Davis Funds except Davis
International Series, Inc.; General Partner of Tuxedo Park Associates (a
land holding and development firm); President and Chief Executive Officer
of Mulford Securities Corporation (a private investment fund) until 1990;
formerly Vice President of Goldman Sachs & Company (investment
banking).
Edwin R. Werner (4/1/22), 207 Gosling Hill Drive, Manhasset, NY 11030.
Director of the Fund and each of the Davis Funds except Davis
International Series, Inc.; President, The Estate at North Hills New York;
formerly, Chairman and CEO, Empire Blue Cross and Blue Shield of New
York.
Carl R. Luff (4/30/54), 124 East Marcy Street, Santa Fe, NM 87501. Vice
President, Treasurer and Assistant Secretary of the Fund, each of the
Davis Funds and of Selected American Shares, Inc., Selected Special
Shares, Inc. and Selected Capital Preservation Trust; Director,
Co-President and Treasurer, Venture Advisers, Inc., effective August 15,
1995.
Raymond O. Padilla (2/22/51), 124 East Marcy Street, Santa Fe, NM 87501.
Vice President, Secretary and Assistant Treasurer of the Fund and each of
the Davis Funds; Vice President and Secretary of Selected American
Shares, Inc., Selected Special Shares, Inc. and Selected Capital
Preservation Trust; Senior Vice President, Venture Advisers, Inc.
Carolyn H. Spolidoro (11/19/52), 124 East Marcy Street, Santa Fe, NM
87501. Vice President of the Fund and each of the Davis Funds; Vice
President, Venture Advisers, Inc.
Andrew A. Davis (6/25/63), 124 East Marcy Street, Santa Fe, NM 87501.
Vice President of the Fund and each of the Davis Funds; Director and
Co-President, Venture Advisers, Inc. effective August 15, 1995; formerly,
Vice President and head of convertible security research, PaineWebber,
Incorporated.
Christopher C. Davis (7/13/65), 70 Pine Street, 43rd Floor, New York, NY
10270-0108. Vice President of the Fund and each of the Davis Funds
except Davis International, Inc.; Director, Venture Advisers, Inc.
Eileen R. Street (3/11/62), 124 East Marcy Street, Santa Fe, NM 87501.
Assistant Treasurer and Assistant Secretary of the Fund and each of the
Davis Funds, Selected American Shares, Inc., Selected Special Shares, Inc.
and Selected Capital Preservation Trust; Senior Vice President and
Secretary, Venture Advisers, Inc.
Sheldon R. Stein (11/29/28), 30 North LaSalle Street, Suite 2900,
Chicago, IL 60602. Assistant Secretary of the Fund and each of the Davis
Funds, Selected American Shares, Inc., Selected Special Shares, Inc. and
Selected Capital Preservation Trust; Partner, D'Ancona & Pflaum, the
Fund's legal counsel.
Arthur Don (9/24/53), 30 North LaSalle Street, Suite 2900, Chicago, IL
60602. Assistant Secretary of the Fund and each of the Davis Funds,
Selected American Shares, Inc., Selected Special Shares, Inc. and Selected
Capital Preservation Trust; Partner, D'Ancona & Pflaum, the Fund's legal
counsel.
The Fund does not pay salaries to any of its officers. The Adviser
performs certain services on behalf of the Fund and is reimbursed by the
Fund for the costs of providing these services. See "Investment Advisory
Services."
DIRECTORS' COMPENSATION SCHEDULE
During the fiscal year ended March 31, 1996, the compensation paid
to the directors who are not considered to be interested persons of the
Fund was as follows:
Aggregate Company Total
Name Compensation Complex Compensation*
---- ------------ --------------------
Wesley E. Bass $2,250 $24,375
Marc P. Blum 2,100 23,600
Eugene M. Feinblatt 1,800 20,950
Jerry D. Geist 1,750 20,550
D. James Guzy 2,150 23,750
G. Bernard Hamilton 2,050 23,300
LeRoy E. Hoffberger 2,100 23,550
Laurence W. Levine 2,100 23,550
Christian R. Sonne** 2,050 23,350
Edwin R. Werner 2,050 23,300
* Complex compensation is the aggregate compensation paid, for services
as a Director, by all mutual funds with the same investment adviser.
** Mr. Sonne became a director of the Fund as of July 31, 1995. Until that
time, he was a Director only of Davis New York Venture Fund, Inc.
CERTAIN SHAREHOLDERS OF THE FUND
The following table sets forth, as of May 6, 1996, the name and
holdings of each person known by the Fund to be a record owner of more
than 5% of its outstanding Class A shares. As of such date, there were
11,040,323.768 Class A shares outstanding and the directors and officers
of the Fund, as a group, owned 185,539.074 Class A shares, or
approximately 1.681% of the Fund's outstanding Class A shares. As of
such date, there were 1,546,945.272 Class B shares outstanding. The
directors and officers of the Fund do not presently own or intend to own
any Class B shares of the Fund.
Class A shares
Number of Percent of
Name and Address Shares Owned Class Outstanding
- ---------------- ------------ ------------------
National City Bank TTEE 838,662.455 7.60%
FBO McKeesport Hospital TR
P.O. Box 94777
Cleveland OH, 44101-4777
Currie and Co. 671,254.453 6.08%
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
INVESTMENT ADVISORY SERVICES
Davis Selected Advisers, L.P. serves as investment adviser for the
Fund pursuant to an Advisory Agreement adopted in accordance with the
requirements of the Investment Company Act of 1940. Pursuant to the
Advisory Agreement, the Adviser, subject to the general supervision of
the Fund's Board of Directors, provides management 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
are requested by the Board of Directors of the Fund. The Fund bears all
expenses other than those specifically assumed by the Adviser under the
Agreement, including preparation of its tax returns, financial reports to
regulatory authorities, dividend determinations and transaction and
accounting matters related to its custodian bank, transfer agency,
custodial and shareholder services, and qualification of its shares under
federal and state laws.
For the Adviser's services, the Fund pays the Adviser a monthly fee
at the annual rate based on average net assets as follows: 0.70% on the
first $250 million of average net assets; 0.60% on the next $250 million
of average net assets; and 0.55% on average net assets in excess of $500
million. The aggregate advisory fees paid by the Fund to the Adviser
during the fiscal years ended March 31, 1996, 1995 and 1994 were
$458,668, $453,243 and $408,034, respectively.
Under the Advisory Agreement, if expenses borne by the Fund in any
fiscal year (including the advisory fee, but excluding interest, taxes,
brokerage fees and payments made under a Rule 12b-1 Distribution Plan
and, where permitted, extraordinary expenses) exceeds limitations
imposed by applicable state securities laws or regulations, the Adviser
must reimburse the Fund for any such excess at least annually, up to the
amount of its advisory fee. These expense limitations may be raised or
lowered from time to time. California and South Dakota are currently the
only states which have such limitations. California's limitation is 2.5% of
the first $30 million of average net assets, 2.0% of the next $70 million
of average net assets and 1.5% of the remaining average net assets. South
Dakota's limitation is 2.5% of average net assets.
Stamper Capital & Investment, Inc., serves as the Fund's Sub-Adviser
under a Sub-Advisory Agreement with the Adviser. The Fund pays no fees
directly to the Sub-Adviser. The Sub-Adviser manages the day to day
investment operations of the Fund, subject to the Adviser's overall
supervision. For its services, the Sub-Adviser receives a fee from the
Adviser equal to 30% of the fees received by the Adviser from the Fund.
The reimbursable costs for certain accounting and administrative
services for the fiscal years ended March 31, 1996, 1995 and 1994 were
$15,996, $11,004 and $10,668, respectively. The reimbursable costs for
qualifying the Fund's shares for sale with state agencies for such periods
were $12,000, $8,004 and $8,004, respectively, and the reimbursable
costs for providing shareholder services for such periods were $6,987,
$7,749 and $6,946, respectively.
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,
the Advisory Agreement will terminate automatically upon assignment
and is subject to cancellation upon 60 days' written notice by the Fund's
Board of Directors, the vote of the holders of a majority of the Fund's
outstanding shares or the Adviser. The continuance of the Agreement
must be approved at least annually by the Fund's Board of Directors or by
the vote of holders of a majority of the outstanding shares of the Fund. In
addition, any new agreement or the continuation of the existing agreement
must be approved by a majority of directors who are not parties to the
agreement or interested persons of any such party.
The Adviser and the Sub-Adviser have both adopted a Code of Ethics
which regulates the personal securities transactions of the their
investment personnel and other employees and affiliates with access to
information regarding securities transactions of the Fund. Both Codes
require investment personnel to disclose personal securities holdings
upon commencement of employment and all subsequent trading activity to
the Adviser's or Sub-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.
CUSTODIAN
The Custodian of the Fund's assets is State Street Bank and Trust
Company ("State Street"), Atlantic Division, 470 Atlantic Avenue, Boston,
Massachusetts 02210. The Custodian maintains all of the instruments
representing investments of the Fund and all cash. The Custodian delivers
securities against payment upon sale and pays for securities against
delivery upon purchase. The Custodian also remits Fund assets in payment
of Fund expenses pursuant to instructions of officers or resolutions of the
Board of Directors.
AUDITORS
The Fund's auditors are Tait, Weller & Baker, Two Penn Center, Suite
700, Philadelphia, PA 19102-1707. The audit includes examination of
annual financial statements furnished to shareholders and filed with the
Securities and Exchange Commission, consultation on financial accounting
and reporting matters, and meeting with the Audit Committee of the Board
of Directors. In addition, the auditors review federal and state income tax
returns and related forms.
DETERMINING THE PRICE OF SHARES
The Fund does not price its shares or accept orders for purchases or
redemptions on days when the New York Stock Exchange is closed. Such
days currently include New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
REDUCTION OF CLASS A SALES CHARGES
There are a number of ways to reduce the sales charge imposed on
the purchase of the Fund's Class A shares, as described below. These
reductions are based upon the fact that there is less sales effort and
expense involved in respect to purchases by affiliated persons and
purchases made in large quantities.
Family or Group Purchases. Certain purchases made by or for more
than one person may be considered to constitute a single purchase,
including (i) purchases for family members, including spouses and children
under 21, (ii) purchases by trust or other fiduciary accounts and purchases
by Individual Retirement Accounts for employees of a single employer 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 funds. For further information on group purchase reductions,
contact the Adviser or your dealer.
Statements of Intention. Another way to reduce the sales charge is
by signing a Statement of Intention. A Statement is included in the
Application Form included in the Prospectus. Please read it carefully
before completing it.
If you enter into a Statement of Intention you (or any "single
purchaser") may state that you intend to invest at least $100,000 in the
Fund's Class A shares over a 13-month period. The amount you say you
intend to invest may include Class A shares which you already own, valued
at the offering price, at the end of the period covered by the Statement. A
Statement may be backdated up to 90 days to include purchases made
during that period, but the total period covered by the Statement may not
exceed 13 months.
Shares having a value of 5% of the amount you state you intend to
invest will be held "in escrow" to make sure that any additional sales
charges are paid. If any of the Fund's shares are in escrow pursuant to a
Statement and such shares are exchanged for shares of another Davis Fund,
the escrow will continue with respect to the acquired shares.
No additional sales charge will be payable if you invest the amount
you have indicated. Each purchase under a Statement will be made as if
you were buying at one time the total amount indicated. For example, if
you indicate that you intend to invest $100,000, you will pay a sales
charge of 3-1/2% on each purchase.
If you buy additional 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.
Rights of Accumulation. Another way to reduce the sales charge is
under a right of accumulation. This means that the larger purchase
entitled to a lower sales charge need not be in dollars invested at one
time. The larger purchases that you (or any "single purchaser") make at
any one time can be determined by adding to the amount of a current
purchase the value of Fund shares (at offering price) already owned by you.
For example, if you owned $100,000 worth (at offering price) of the
Fund's Class A shares and invest $5,000 in additional shares, the sales
charge on that $5,000 investment would be 3-1/2%, not 4-3/4%.
If you claim this right of accumulation, you or your dealer must so
notify the Adviser (or State Street, if the investment is mailed to State
Street) when the purchase is made. Enough information must be given to
verify that you are entitled to such right.
Combined Purchases with other Davis Funds. Your ownership or
purchase of Class A shares of certain other Funds advised and distributed
by the Adviser, including Davis New York Venture Fund, Inc., Davis
Tax-Free High Income Fund, Inc., Davis Series, Inc., and Davis International
Series, Inc. (collectively with the Fund, the "Davis Funds") may also reduce
your sales charges in connection with the purchase of the Fund's Class A
shares. This applies to all three situations for reduction of sales charges
discussed above.
If a "single purchaser" decides to buy the Fund's Class A shares as
well as Class A shares of any of the other Davis Funds (other than shares
of Davis Government Money Market Fund) at the same time, these
purchases will be considered a single purchase for the purpose of
calculating the sales charge. For example, a single purchaser can invest
at the same time $100,000 in the Fund's Class A shares and $150,000 in
the Class A shares of Davis Tax-Free High Income Fund, Inc. and pay a
sales charge of 2-1/2%, not 3-1/2%.
Similarly, a Statement of Intention for the Fund's Class A shares and
for the Class A shares of the other Davis Funds (other than Davis
Government Money Market Fund) may be aggregated. In this connection, the
Fund's Class A shares and the Class A shares of the other Davis Funds
which you already own, valued at the current offering price at the end of
the period covered by your Statement of Intention, may be included in the
amount you have stated you intend to invest pursuant to your Statement.
Lastly, the right of accumulation applies also to the Class A shares
of the other Davis Funds (other than Davis Government Money Market Fund)
which you own. Thus, the amount of current purchases of the Fund's Class
A shares which you make may be added to the value of the Class A shares
of the other Davis Funds (valued at their current offering price) already
owned by you in determining the applicable sales charge. For example, if
you owned $100,000 worth of shares of Class A (valued at the applicable
current offering price) and invest $5,000 in the Fund's shares, the sales
charge on your investment would be 3-1/2%, not 4-3/4%.
In all the above instances where you wish to claim this right of
combining your shares of the Fund with other Davis Fund shares you own,
you or your dealer must notify the Adviser (or State Street, if the
investment is mailed to State Street) of the pertinent facts. Enough
information must be given to permit verification as to whether you are
entitled to a reduction in sales charges.
Issuance of Shares at Net Asset Value. There are many situations
where the sales charge will not apply to the purchase of Class A shares,
as discussed in the Prospectus. In addition, the Fund occasionally may be
provided with an opportunity to purchase substantially all the assets of a
public or private investment company or to merge another such company
into the Fund. This offers the Fund the opportunity to obtain significant
assets. No dealer concession is involved. It is industry practice to effect
such transactions at net asset value as it would adversely affect the
Fund's ability to do such transactions if the Fund had to impose a sales
charge.
DISTRIBUTION OF FUND SHARES
The Adviser acts as principal underwriter of the Fund's shares on a
continuing basis pursuant to a Distributing Agreement. Pursuant to such
Distributing Agreement, the Adviser, in its capacity as distributor, pays
for all expenses in connection with the preparation, printing and
distribution of advertising and sales literature for use in offering the
Fund's shares to the public, including reports to shareholders to the extent
they are used as sales literature. The Adviser also pays for prospectuses
in excess of those which the Fund must file with the Securities and
Exchange Commission and other regulatory authorities or those forwarded
to existing shareholders. The continuance and assignment provisions of
the Distributing Agreement are the same as those of the Advisory
Agreement.
During the Fund's fiscal year ended March 31, 1996, the Adviser, in
its capacity as distributor, received total sales charges of Class A shares
(which the Fund does not pay) on the sale of Fund shares of $163,366. Of
this amount, the Adviser paid concessions to dealers of $140,825. For the
two prior fiscal years ended March 31, 1995 and 1994, the Adviser
received total sales charges on the sale of the Fund shares of $236,817
and $534,288, respectively, and of those amounts paid concessions to
dealers of $199,230 and $452,892, respectively.
In addition, the Fund has adopted distribution plans with respect to
each class of its shares pursuant to Rule 12b-1 under the Investment
Company Act (the "Distribution Plans"). Payments under the Class A
Distribution Plan are limited to an annual rate of 0.25% of the average
daily net asset value of the Class A shares. Payments under the Class B
Distribution Plan are limited to an annual rate of 1.00% of the average
daily net asset value of the Class B shares.
To the extent that any investment advisory fees paid by the Company
may be deemed to be indirectly financing any activity which is primarily
intended to result in the sale of shares of the Company within the meaning
of Rule 12b-1, the payments of such fees are authorized under the Plans.
The Distribution Plans continue annually so long as they are
approved in the manner provided by Rule 12b-1 or unless earlier
terminated by vote of the majority of the Fund's Independent Directors or
a majority of the outstanding shares. The Adviser is required to furnish
quarterly written reports to the Board of Directors detailing the amounts
expended under the Distribution Plans. The Distribution Plans may be
amended provided that all such amendments comply with the applicable
requirements then in effect under Rule 12b-1. Presently, Rule 12b-1
requires, among other procedures, that it be continued only if a majority
of the Independent Directors approve continuation at least annually and
that amendments materially increasing the amount to be spent for
distribution be approved by the Independent Directors and the
shareholders. As long as the Distribution Plans are in effect, the Fund
must commit the selection and nomination of candidates for new
Independent Directors to the sole discretion of the existing Independent
Directors.
The following commissions were paid to the Adviser, in its capacity
as distributor, with respect to the Fund under the Class A Distribution
Plan. During the fiscal year ended March 31, 1996, the Adviser received
$100,703, all of which was reallowed to investment dealers. The
following commissions were paid to the Adviser, in its capacity as
distributor, with respect to the Fund under the Class B Distribution Plan.
During the fiscal year ended March 31, 1996, the Adviser received
$46,899, $143,885 of which was paid to investment dealers.
PERFORMANCE DATA
Yield. Yield is computed in accordance with a standardized method
prescribed by the rules of the Securities and Exchange Commission and is
calculated separately for each class. Yield is a measure of the net
investment income per share (as defined) earned over a specified 30-day
period expressed as a percentage of the maximum offering price of the
Fund's shares at the end of the period. For the 30-day period ended March
31, 1996, the yields for the Fund's Class A and Class B shares were 8.08%
and 7.56%, respectively. Such yield figure was determined by dividing the
net investment income per share earned during the specified 30-day
period by the maximum offering price per share on the last day of the
period, according to the following formula:
Yield = 2 [(a - b + 1) 6 -1]
cd
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period.
c = the average daily number of shares outstanding
during the period that were entitledto receive dividends.
d = the maximum offering price per share on the last
day of the period.
Total Return. 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.
The average annual total return figures for the Fund's Class A shares
during the one, five and ten year periods ended March 31, 1996, were
4.76%, 12.19% and 5.55%, respectively. The average annual total return
figures for the Fund's Class B shares during the year ended March 31, 1996
and the period from December 5, 1994 through March 31, 1996 (life of the
Class) was 5.70% and 7.02%, respectively.
<PAGE>
FORM N-1A
DAVIS HIGH INCOME FUND, INC.
(formerly, VENTURE INCOME (+) PLUS, INC.)
POST-EFFECTIVE AMENDMENT NO. 23 UNDER THE SECURITIES ACT OF
1933
REGISTRATION STATEMENT No. 2-66935
AND
AMENDMENT NO. 22 UNDER THE INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-3007
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
(i) Financial Highlights
Included in Part B by incorporation from the 1996 Annual Report :
(i) Schedule of Investments at March 31, 1996.
(ii) Statement of Assets & Liabilities at March 31, 1996.
(iii) Statement of Operations for the year ended March 31, 1996.
(iv) Statement of Changes in Net Assets for the years ended March 31
1996 and 1995.
(v) Notes to Financial Statements.
(vi) Financial Highlights.
(vii) Report of Independent Certified Public Accountants.
(b) Exhibits:
(1) Articles of Incorporation.
(2) Amended and Restated Bylaws.
(3) Not applicable.
(4) Not applicable.
(5)(a) Investment Advisory Agreement.
(5)(b) Amendment of Investment Advisory Agreement.
(5)(c) Sub-Advisory Agreement between Selected/Venture Advisers,
L.P. and Stamper Capital & Investments, Inc., incorporated by
reference to Exhibit 5(b) to Registrant's Post Effective
Amendment No. 22, File No. 2-66935.
(6) Distributor's Agreement, incorporated by reference to Exhibit
6(b) to Registrant's Post-Effective Amendment No. 17, File
No. 2-66935.
(7) Not applicable.
(8)(a) Custodian Contract incorporated by reference to Exhibit No.
8(a) of Registrant's Post-Effective Amendment No. 16, File
No. 2-66935.
(8)(b) Transfer Agency and Service Agreement incorporated by
reference to Exhibit 8 (b) of Registrant's Post-Effective
Amendment No. 16, File No. 2-66935.
(9) Not applicable.
(10) Opinion and Consent of Counsel, incorporated by reference to
Exhibit (10) to Registrant's Post-Effective Amendment No. 12,
File No. 2-66935.
(11) Consent of Auditors.
(12) Financial Statements, included in Statement of Additional
Information.
(13) Not applicable.
(14)(a) Prototype Money Purchase Pension and Profit Sharing Plan,
Prototype Defined Contribution Trust and Adoption Agreements,
incorporated by reference to Exhibits (9) (b) and (9) (c) to
Registrant's Post-Effective Amendment No. 12, File No.
2-66935.
(14)(b) Prototype Profit Sharing/401(k) Plan, Prototype Profit
Sharing/401(k) Trust and Adoption Agreements, incorporated by
reference to Exhibits (9) (b) and (9) (c) to Registrant's
Post-Effective Amendment No. 12, File No. 2-66935.
(14)(c) 403(b) (7) Retirement Plan Custodial Account, incorporated by
reference to Exhibits (9) (b) and (9) (c) to Registrant's
Post-Effective Amendment No. 12, File No. 2-66935.
(15)(a) Distribution Plan for Class A shares.
(15)(b) Distribution Plan for Class B shares.
(16) Sample computation of yield and average annual total return,
incorporated by reference to Exhibit (16) of Registrant's
Post-Effective Amendment No. 13, File No. 2-66935.
(17)(a) Powers of Attorney, incorporated by reference to Exhibit (17)
and (17)(b) to Registrant's Post-Effective Amendment Nos. 21
and 22, respectively File No. 2-66935.
(17)(b) Registrant's Power of Attorney, incorporated by reference to
Registrant's Post-Effective Amendment No. 22, File No.
2-66935.
(18) Plan pursuant to Rule 18f-3, incorporated by reference to
Exhibit (18) to Registrant's Post-Effective Amendment No. 21
File No. 2-66935.
Item 25. Persons Controlled by or Under Common Control With Registrant
-------------------------------------------------------------
Not applicable
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class as of May 6, 1996
-------------- -----------------
Common StocK
Davis High Income Fund, Inc., Class A 3,242
Davis High Income Fund, Inc., Class B 323
Item 27. Indemnification
---------------
Registrant's Articles of Incorporation indemnifies its directors,
officers and employees to the full extent permitted by Section 2-418 of
the Maryland General Corporation Law, subject only to the provisions of
the Investment Company Act of 1940. The indemnification provisions of
the Maryland General Corporation Law (the "Law") permit, among other
things, corporations to indemnify directors and officers unless it is
proved that the individual (1) acted in bad faith or with active and
deliberate dishonesty, (2) actually received an improper personal benefit
in money, property or services, or (3) in the case of a criminal proceeding,
had reasonable cause to believe that his act or omission was unlawful.
The Law was also amended to permit corporations to indemnify directors
and officers for amounts paid in settlement of stockholders' derivative
suits.
In addition, the Registrant's directors and officers are covered
under a policy to indemnify them for loss (subject to certain deductibles)
including costs of defense incurred by reason of alleged errors or
omissions, neglect or breach of duty. The policy has a number of
exclusions including alleged acts, errors, or omissions which are finally
adjudicated or established to be deliberate, dishonest, malicious or
fraudulent or to constitute willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties in respect to any
registered investment company. This coverage is incidental to a general
policy carried by the Registrant's adviser.
In addition to the foregoing indemnification, Registrant's Articles
of Incorporation exculpate directors and officers with respect to monetary
damages except to the extent that an individual actually received an
improper benefit in money property or services or to the extent that a
final adjudication finds that the individual acted with active and
deliberate dishonesty.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
The Investment Adviser of the Registrant, Davis Selected Adviser,
L.P. (formerly, Selected/Venture Advisers, L.P.), is also the investment
adviser for Davis New York Venture Fund, Inc. (formerly, New York Venture
Fund, Inc.), Davis Tax-Free High Income Fund, Inc. (formerly, Venture Muni
(+) Plus, Inc.), Davis Series, Inc. (formerly, Retirement Planning Funds of
America, Inc.), Davis International Series, Inc. (formerly, Venture Series,
Inc.), Selected American Shares, Inc., Selected Special Shares, Inc. and
Selected Capital Preservation Trust. It also may engage as an investment
adviser for accounts other than mutual funds.
Shelby M.C. Davis is a Director, Chairman, Chief Executive Officer
and principal owner of Venture Advisers, Inc. (the "General Partner") and
is a Director of Shelby Cullom Davis Financial Consultants, Inc., 70 Pine
Street, New York, New York 10270. Carl R. Luff is a Director,
Co-President and Treasurer of the General Partner.
Item 29. Principal Underwriters
----------------------
(a) Davis Selected Advisers, L.P., is the principal underwriter for
the Registrant and also acts as principal underwriter for Davis New York
Venture Fund, Inc., Davis Tax-Free High Income Fund, Inc., Davis Series,
Inc., Davis International Series, Inc., Selected American Shares, Inc.,
Selected Special Shares, Inc. and Selected Capital Preservation Trust.
(b) Management of the General Partner of the Principal Underwriters
<TABLE>
<CAPTION>
Positions and Offices Positions and
Name and Principal with General Partner Offices with
Business Address of Underwriter Registrant
- ---------------- -------------- ----------
<S> <C> <C>
Shelby M.C. Davis Director, Chairman Director
P.O. Box 205 and Chief Executive
Hobe Sound, FL 33455 Officer
Carl R. Luff Director, Co- President and Vice President,
124 East Marcy Street Treasurer Treasurer and Assistant
Santa Fe, NM 87501Secretary
Raymond O. Padilla Senior Vice President Vice President, Secretary
124 East Marcy Street & Assistant Treasurer
Santa Fe, NM 87501
Andrew A. Davis Co- President Vice President
124 East Marcy Street
Santa Fe, NM 87501
Eileen R. Street Senior Vice President Assistant Treasurer and
124 East Marcy Street and Secretary Assistant Secretary
Santa Fe, NM 87501
Carolyn H. Spolidoro Vice President Vice President
124 East Marcy Street
Santa Fe, NM 87501
Christopher C. Davis Employee of Vice President
70 Pine Street, 43rd Floor Davis Selected
New York, NY 10270-0108 Advisers, L.P.
</TABLE>
(c) Not applicable
Item 30. Location of Accounts and Records
--------------------------------
Accounts and records are maintained at the offices of Davis
Selected Advisers, L.P., 124 East Marcy Street, Santa Fe, New Mexico
87501, and the Registrant's custodian, State Street Bank and Trust
Company, One Heritage Drive, North Quincy, MA 02171; and the
Registrant's transfer agent, State Street Bank and Trust Company, c/o
Service Agent, BFDS, Two Heritage Drive, 7th Floor, North Quincy, MA
02171.
Item 31. Management Services
-------------------
Not applicable
Item 32. 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.
<PAGE>
DAVIS HIGH INCOME FUND, 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 31st day of May, 1996.
DAVIS HIGH INCOME FUND, INC.
*By: /s/ Sheldon R. Stein
-----------------------
Sheldon R. Stein,
Attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Shelby M.C. Davis* President May 31, 1996
- ----------------- (Chief Executive
Shelby M.C. Davis Officer) and
Director
Carl R. Luff* Vice President, May 31, 1996
- ------------ Treasurer and
Carl R. Luff Assistant Secretary
*By: /s/ Sheldon R. Stein
--------------------
Sheldon R. Stein,
Attorney-in-Fact
*Sheldon R. Stein signs this document on behalf of (i) the Registrant
pursuant to the powers of attorney filed as Exhibit (17)(b) to
Post-Effective Amendment 22, and (ii) the foregoing officers pursuant to
the powers of attorney filed on Exhibit (17) and (17)(b), to Post-Effective
Amendment Nos. 21 and 22, respectively, to Registrant's Registration
Statement.
DAVIS HIGH INCOME FUND, INC.
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed on May 31, 1996 by the
following persons in the capacities indicated.
Signature Title
--------- ----
Wesley E. Bass, Jr.* Director
- ---------------------------------
Wesley E. Bass, Jr.
Jeremy H. Biggs* Director
- ---------------------------------
Jeremy H. Biggs
Marc P. Blum* Director
- ---------------------------------
Marc P. Blum
Eugene M. Feinblatt* Director
- ---------------------------------
Eugene M. Feinblatt
Jerry D. Geist* Director
- ---------------------------------
Jerry D. Geist
D. James Guzy* Director
- ---------------------------------
D. James Guzy
G. Bernard Hamilton* Director
- ---------------------------------
G. Bernard Hamilton
LeRoy E. Hoffberger* Director
- ---------------------------------
LeRoy E. Hoffberger
Laurence W. Levine* Director
- ---------------------------------
Laurence W. Levine
Martin H. Proyect* Director
- ---------------------------------
Martin H. Proyect
Christian R. Sonne* Director
- ---------------------------------
Christian R. Sonne
Edwin R. Werner* Director
- ---------------------------------
Edwin R. Werner
*Sheldon R. Stein signs this document on behalf of each of the
foregoing persons pursuant to the powers of attorney filed as Exhibit 17
and 17(b) to Post-Effective Amendment Nos. 21 and 22, respectively, to
Registrant's Registration Statement.
/s/Sheldon R. Stein
-------------------------------
Sheldon R. Stein,
Attorney-in-Fact
EXHIBIT 1
UNOFFICIAL FORM
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DAVIS HIGH INCOME FUND, INC.
(EFFECTIVE AS OF OCTOBER 1, 1995)
Davis High Income Fund, Inc., a Maryland corporation (hereinafter
called the "Corporation"), having its principal office in Baltimore City,
Maryland hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Incorporators: The original incorporators were Gerald A.
Eppner, Hugh D. Camitta and Warren J. Nimetz.
SECOND: Name. The name of the Corporation (hereinafter called the
"Corporation") is Davis High Income Fund, Inc.
THIRD: Purpose. The purpose for which the Corporation is formed is
to engage in, conduct, operate and carry on the business of an open-end
management investment company under the Investment Company Act of
1940 (including any amendment thereof or other applicable Act of
Congress hereafter enacted) (hereinafter called the "1940 Act"), and to do
any and all acts or things as are necessary, convenient, appropriate,
incidental or customary in connection therewith.
FOURTH: Principal Office and Resident Agent. The post office
address of the place at which the principal office of the Corporation in the
State of Maryland will be located at 32 South Street, Baltimore, Maryland
21202.
The Corporation's registered agent is The Corporation Trust
Incorporated whose post office address is 32 South Street, Baltimore,
Maryland 21202. Said registered agent is a corporation of the State of
Maryland.
FIFTH: Capitalization. (a) The total number of shares of capital
stock which the Corpora-tion shall have authority to issue is
1,000,000,000 shares of capital stock of the par value of $.05 per share,
having an aggregate par value of $50,000,000. Without limiting the power
of the Board of Directors as set forth in paragraph (b) of this Article
FIFTH, 350,000,000 shares are classified as Class A Common Stock,
350,000,000 shares are classified as Class B Common Stock, and
100,000,000 shares are classified as Class C Common Stock.
The Class A Common Stock, Class B Common Stock and Class C
Common Stock shall represent investment in the same pool of assets and
shall have the same preferenc-es, conversion and other rights, voting
powers, restrictions, limita-tions as to dividends, qualifi-cations, and
terms and condi-tions 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 expenses shall be appropriately reflected (in the manner determined
by the Board of Directors) in the net asset value, dividends, distribution
and liquidation rights of the shares of such Class;
(ii) The Class A Common Stock may be subject to a front-end load
and a Rule 12b-1 service and distribution fee as determined by the Board
of Directors from time to time prior to issuance of such stock;
(iii) The Class B Common Stock may be subject to a
contingent deferred sales charge and a Rule 12b-1 service and distribution
fee as determined by the Board of Directors from time to time prior to
issuance of such stock and shall be converted to Class A Common Shares
at the end of eight (8) years after purchase or such earlier period as
determined by the Board of Directors giving effect to reciprocal exchange
privileges;
(iv) The Class C Common Stock may be sold without a
front-end sales load or contingent sales charge and may be subject to a
Rule 12b-1 service and distribution fee as determined by the Board of
Directors from time to time prior to issuance of such stock.
(v) Each class shall vote separately on matters
pertaining only to that class, as the Board of Directors shall from time to
time determine.
(vi) Nothing herein shall prohibit the imposition of a redemption fee
or exchange fee upon any Class.
(b) For purposes of establishing classes or subclasses of stock with
different investment objectives, types of investments or distribution
methods, costs or charges, the Board of Directors may classify or
reclassify any unissued stock from time to time by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or conditions of
redemption of the stock. Without limiting the generality of the foregoing,
the Board of Directors may, from time to time, (i) classify or reclassify
any unissued shares of stock into classes having "assets belonging to"
such class, as described in Paragraph (c)(i) of this Article, (ii) divide any
class having "assets belonging to" such class into subclasses with
different distribution methods, costs or charges and classify or reclassify
any unissued shares of such subclass, and (iii) name and change the name
of any class or subclass of outstand-ing or unissued stock.
(c) Subject to the authority granted to the Board of Directors of the
Corporation in subparagraph (b) of this Article FIFTH, each class of stock
of the Corporation now outstanding and each class of stock hereafter
designated by the Directors as a class which shall have assets belonging
to such class shall have the following described powers, preferences and
rights and the qualifications, limita-tions and restrictions thereof shall
be as follows:
(i) All consideration received by the Corporation for the issue or
sale of shares of a particular class, together with all income, earnings,
profits and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation thereof, and any assets derived from any
reinvest-ment of such proceeds, in whatever form the same may be, are
herein referred to as "assets belonging to" such class.
(ii) The assets belonging to a particular class of stock shall be
charged with the liabilities (including, in the discretion of the Board of
Directors or its delegate, accrued expenses and reserves) incurred in
respect of such class, and such class shall also be charged with its share
of any general liabilities of the Corporation not incurred in respect of any
particular class, such general liabilities to be allocated in proportion to
the net asset value of the respective classes. The allocation of such
liabilities to any subclass shall be determined by the Board of Directors
or its delegate. The determination of the Board of Directors or its
delegate shall be final and conclusive as to the amount of assets and
liabilities, including accrued expenses and reserves, which are to be
allocated to one or more particular classes or subclasses. The power to
make such determinations may be delegated by the Board of Directors
from time to time to one or more of the directors and officers of the
Corporation, or to an agent of the corporation appointed for such purpose.
(iii) In the event of the liquidation or dissolution of the
Corporation (for whatever reason),
shareholders of each class shall be entitled to receive as a class, out of
the assets of the Corporation available for distri-bution to shareholders
the assets belonging to such class; and the assets so distributable to the
shareholders of any class shall be distributed among such shareholders in
proportion to the relative aggregate net asset values of the shares held by
such shareholders. In the event that there are any general assets
available for distribution not belonging to any particular class, any
distribution thereof shall be made to the holders of all such classes in
proportion to the net asset value of the respective classes.
(iv) The voting rights of the shares of each class shall be as set
forth in subparagraph (d) of this Article FIFTH.
(v) The relative rights of the shares of each class to be redeemed or
repurchased shall be as set forth in Article SEVENTH.
(vi) The relative rights of the shares of each class to receive
dividends shall be as set forth in Article NINTH.
(d) Subject to the requirements of the Investment Company Act of
1940, at any meeting of the shareholders, each shareholder shall have one
vote for each dollar of net asset value per share for each share held
irrespective of the class or subclass thereof. On any matter submitted to
a vote of sharehold-ers, all shares of the Corporation then issued and
outstanding and entitled to vote shall be voted in the aggregate and not by
class or subclass except to the extent class or subclass voting is required
as to any matter by the laws of the State of Maryland, the Investment
Company Act of 1940 or any Regulation thereunder or by the Board of
Directors.
(e) Fractional shares shall carry proportionately all the rights of a
whole share.
SIXTH: Preemptive Rights. No holder of any of the stock of the
Corporation shall as such holder have any preemptive or other right to
purchase or subscribe for any stock which the Corporation may issue or
sell, whether or not exchangeable for any other stock of the Corporation,
and whether out of the number of shares authorized by the Articles of
Incorporation as originally filed or by any amendment thereof or out of
shares of the stock of the Corporation acquired by it after the issue
thereof, other than such, if any, as the Board of Directors in its discretion
may from time to time determine to offer, or authorize to be offered, for
subscription to stockholders of the Corporation, and then only at such
price or prices and upon such terms as the Board of Directors from time to
time, in its discretion, may determine.
SEVENTH: Redemption. (a) Each holder of the stock of the
Corporation shall be entitled at any time to require the Corporation, to the
extent that the Corporation shall have any surplus available for such
purpose and out of such surplus, to purchase all or any part of the shares
of the stock standing in the name of such holder on the books of the
Corporation at the net asset value of such shares; provided, however, that
the Corporation may suspend such right of redemption or postpone
payment for such shares pursuant to the 1940 Act or any rule, regulation
or order thereunder. The procedures and requirements for redemption
shall be determined by the Corporation or its duly authorized agent.
(b) Any redemptions or purchases of shares by the Corporation of
any class of the Corporation's stock shall be made solely from assets
belonging to such class.
(c) The Corporation, without the vote or consent of the stockholders
of the Corporation, may redeem all shares of stock in any stockholder's
account in which the value of such shares is less than $250, or such other
minimum amount as the Board of Directors may from time to time
establish, in its discretion; provided, that any such redemption is at a
price determined in accordance with the Corporation's then current
prospectus.
EIGHTH: Number of Directors. The number of directors of the
corporation shall be thirteen. However, the By-Laws of the Corporation
may from time to time fix the number of directors at a number other than
thirteen and may authorize the Board of Directors, by vote of a majority of
the entire Board of Directors, to increase or decrease the number of
directors fixed by these Articles or by the By-Laws. The By-Laws of the
corporation may divide the Directors of the Corporation into classes and
prescribe the tenure of office of the several classes, but no class shall be
elected for a period shorter than that from the time of the election
following the division into classes until the next annual meeting and
thereafter for a period shorter than the interval between annual meetings
or for a period longer than five years, and the term of office of at least
one class shall expire each year.
NINTH: Board of Directors. The following powers are expressly and
exclusively vested in the Board of Directors of the Corporation and may be
exercised without the approval of the stockholders of the Corporation.
(a) To make, alter, amend and repeal the By-Laws of the
Corporation.
(b)To declare and provide for the distribution of dividends and to
determine the amount, source, method and time thereof, except that
distributions from assets belonging to a particular class of stock shall be
distributed only to the holders of shares of such class.
(c) To authorize and provide for the issuance and sale of shares of
the stock of the Corporation;
(d) To authorize the purchase by the Corporation, either directly or
through an agent, of shares of its stock, in the open market or otherwise,
at prices not in excess of the net asset value of such shares.
TENTH: Net Asset Value, Other Determinations. The net asset value
of shares of capital stock of the Corporation shall be determined by or
pursuant to the direction of the Board of Directors of the Corporation. Any
determination made in good faith by or on behalf of the Board of Directors
or pursuant to its delegation or direction, as to the amount of the assets,
debts, obligations or liabilities of the Corporation, as to the net asset
value, bid price or asked price of the shares of the Corporation, as to the
value of any asset or assets of the Corporation, or as to any other matter
relating to the issue, sale, redemption, purchase, acquisition or
disposition of the shares of the Corporation, shall be final and conclusive
and shall be binding upon the Corporation and all holders of shares issued
by it, and the shares of the Corporation shall be issued and sold on the
condition and understanding that any and all such determinations shall be
binding as aforesaid.
ELEVENTH: Indemnification. Subject to the provisions of the
Investment Company Act of 1940, as amended, the Corporation shall
indemnify and advance expenses to a director or officer of the Corporation
in connection with any proceeding to the fullest extent permitted by and
in accordance with Section 2-418 of the Maryland General Corporation
Law, as amended from time to time (the "Indemnification Section").
Subject to the provisions of the Investment Company Act of 1940, as
amended, with respect to an employee or agent, other than a director or
officer of the Corporation, the Corporation may, as determined by and in
the discretion of the Board of Directors of the Corporation, indemnify and
advance expenses to such employee or agent in connection with a
proceeding to the extent permitted by and in accordance with the
Indemnification Section. As used in this Article Eleventh, any word or
words that are defined in the Indemnification Section shall have the same
meaning as provided in the Indemnification Section. The indemnification
and advancement of expenses provided or authorized by these Articles
shall not be deemed exclusive of any other rights to which a director,
officer, employee or agent of the Corporation may be entitled.
TWELFTH. Exculpation. Subject to the provisions of the Investment
Company Act of 1940, as amended, no director or officer of the
Corporation shall be liable to the Corporation or its stockholders for
money damages, except (i) to the extent that it is proved that such
director or officer actually received an improper benefit or profit in
money, property or services, for the amount of the benefit or profit in
money, property or services actually received, or (ii) to the extent that a
judgment or other final adjudication adverse to such director or officer is
entered in a proceeding based on a finding in the proceeding that such
director's or officer's action, or failure to act, was the result of active
and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding.
THIRTEENTH. Majority Vote. Notwithstanding any provision of the
General Corporation Law of the State of Maryland requiring that any action
be taken or authorized by the affirmative vote of the holders of a
designated proportion greater than a majority of votes entitled to be cast,
such action shall be effective and valid if taken or authorized by the
affirmative vote of the holders of a majority of the total number of votes
entitled to vote thereon. When shares are voted by individual class or
subclass, any such action shall be effective and valid if taken or
authorized by the affirmative vote of the holders of a majority of the
total number of votes entitled to vote thereon.
FOURTEENTH: Amendments The Corporation reserves the right from
time to time to amend, alter, change, add to, or repeal any provision
contained in these Restated and Amended Articles of Incorporation in the
manner now or hereafter prescribed or permitted by statute, including any
amendment which alters the contract rights, as expressly set forth in
these Restated and Amended Articles of Incorporation, of any outstanding
stock, and all rights conferred on stockholders and others herein are
granted subject to this reservation.
FIFTEENTH: Titles. The titles contained in these Restated and
Amended Articles of Incorporation are for convenience only and shall not
affect the interpretation of any of the provisions hereof.
IN WITNESS WHEREOF, DAVIS HIGH INCOME FUND, INC., has caused
these presents to be signed in its name and on its behalf by its Chairman
of the Board of Directors and attested by its Secretary this 1st day of
April, 1993.
Attest: DAVIS HIGH INCOME FUND, INC.
/S/ RAYMOND O. PADILLA /S/ MARTIN H. PROYECT
Raymond O. Padilla, Secretary Martin H. Proyect, Chairman of the
Board
EXHIBIT 2
============================================================================
AMENDED AND RESTATED BYLAWS
OCTOBER 17, 1994
VENTURE INCOME (+) PLUS, INC.
============================================================================
IN EFFECT AS OF
October 17, 1994
AMENDED AND RESTATED BYLAWS OF
VENTURE INCOME (+) PLUS, INC.
ARTICLE I
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STOCKHOLDERS
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SECTION 1. Place of Meeting. All meetings of the stockholders shall
----------------
be held at the principal office of the Corporation in the State of Maryland
or at such other place within or without the State of Maryland as may
from time to time be designated by the Board of Directors and stated in
the notice of meeting.
SECTION 2. Annual Meetings. An annual meeting of stockholders
---------------
shall be held in July, 1990. Thereafter annual meetings shall be held in any
year in which the election of Directors is required to be acted upon under
the Investment Company Act of 1940. An annual meeting shall be held in
accordance with the Investment Company Act of 1940 in the event that
less than a majority of the Directors then in office were elected by the
vote of stockholders. Any annual meeting may be called (i) by the Board of
Directors, or (ii) if required by the Investment Company Act of 1940, by
the Chief Executive Officer solely for the purposes of electing Directors
and considering the ratification of the independent public accountant
selected by the Board of Directors to audit the financial statements of the
Corporation. Annual meetings called by the Chief Executive Officer may
consider other business which is proposed by the Chief Executive Officer
and properly brought before such meetings; provided, however, that
specific matters other than election of Directors and ratification of
selection of accountants may be placed on the agenda of the meeting
solely with the approval of a majority of the entire Board of Directors.
SECTION 3. Special Meetings. Special meeting of stockholders
----------------
may be called by the Chief Executive Officer or the Board of Directors, and
shall be called upon the written request of stockholders holding at least
ten percent 10% of the outstanding shares of stock. A request by
stockholders for a meeting shall state the purpose of the meeting and the
matters proposed to be acted upon. Unless requested by stockholders
entitled to cast a majority of all the votes entitled to be cast at the
meeting, a special meeting need not be called to consider any matter
which is substantially the same as a matter voted on at any special
meeting of the stockholders held during the preceding 12 months.
Whenever ten or more stockholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate shares constituting at least one percent (1%) of the outstanding
shares of stock, shall apply to the Directors in writing, stating that they
wish to communicate with other stockholders with a view to obtaining
signatures to a request for a meeting to consider removal of a director
and accompanied by a form of the communication and request that they
wish to transmit, the Directors shall, within five business days after
receipt of such application, inform such applicants as to the approximate
cost of mailing to the stockholders of record the proposed communication
and form of request. Upon the written request of such applicants,
accompanied by a tender of the material to be mailed and of the
reasonable expenses of mailing, as determined by the Directors, the
Directors shall, with reasonable promptness, mail such material to all
stockholders of record at their addresses as recorded on the books of the
Corporation. Notwithstanding the foregoing, the Directors may refuse to
mail such material on the basis and in accordance with the procedures for
refusing to mail such material set forth in the last two paragraphs of
Section 16 (c) of the Investment Company Act of 1940, or any substitute
or replacement provision therefor.
SECTION 4. Notice of Meetings of Stockholders. Not less than ten
----------------------------------
days' and not more than ninety days' written or printed notice of every
meeting of stockholders, stating the time and place thereof (and the
general nature of the business proposed to be transacted at any special or
extraordinary meeting), shall be given to each stockholder entitled to vote
thereat and each other stockholder entitled to notice of the meeting by
leaving the same with him or at his residence or usual place of business
or by mailing it, postage prepaid, and addressed to him or at his address
as it appears upon the books of the Corporation.
No notice of the time, place or purpose of any meeting of
stockholders need be given to any stockholder who attends in person or by
proxy or to any stockholder who, in writing executed and filed with
records of the meeting, either before or after the holding thereof, waives
such notice.
SECTION 5. Closing of Transfer Books and Record Dates. The Board of
------------------------------------------
Directors may fix the time, not exceeding twenty days preceding the date
of any meeting of stockholders, any vote at a meeting, any dividend
payment date or any date for the allotment of rights, during which the
books of the Corporation shall be closed against transfers of stock. If such
books are closed for the purpose of determining stockholders entitled to
notice of or to vote at a meeting of stockholders, such books shall be
closed for at least ten days immediately preceding such meeting. In lieu of
providing for the closing of the books against transfers of stock as
aforesaid, the Board of Directors may fix, in advance, a date, not
exceeding sixty days and not less than ten days preceding the date of any
meeting of stockholders, and not exceeding sixty days preceding any
dividend payment date or any date for the allotment of rights, as a record
date for the determination of the stockholders entitled to notice of or to
vote at such meeting, or entitled to receive such dividends or rights, as
the case may be; and only stockholders of record on such date shall be
entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be.
SECTION 6. Quorum, Adjournment of Meetings. The presence in
-------------------------------
person or by proxy of the holders of record of a majority of the votes
entitled to be cast shall constitute a quorum at all meetings of the
stockholders. If at any meeting of the stockholders there shall be less
than a quorum present, the stockholders present at such meeting may,
without further notice, adjourn the same from time to time until a quorum
shall attend, but no business shall be transacted at any such adjourned
meeting except such as might have been lawfully transacted had the
meeting not been adjourned.
SECTION 7. Voting and Inspectors. At all meetings of stockholders
---------------------
every stockholder of record entitled to vote shall be entitled to one vote
for each dollar of net asset value per share standing in the stockholder's
name on the books of the Corporation (and such stockholders of record
holding fractional shares, if any, shall have proportionate voting rights).
All elections shall be had and all questions decided by a majority of
the votes cast at a duly constituted meeting, except as otherwise provided
in the Articles of Incorporation or in these Bylaws or by specific
statutory provision superseding the restrictions and limitations contained
in the Articles of Incorporation or in these Bylaws.
At any election of Directors, the Board of Directors prior thereto
may, or if they have not so acted, the Chairman of the meeting may, and
upon the request of the holders of ten percent (10%) of the votes entitled
to be cast at such election shall, appoint at least one inspector of election
who shall first subscribe an oath or affirmation to execute faithfully the
duties of inspector at such election with strict impartiality and according
to the best of their ability, and shall after the election make a certificate
of the result of the vote taken. No candidate for the office of Director
shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken
upon any election or matter, and such vote shall be taken upon the request
of the holders of ten percent (10%) of the votes entitled to be cast on such
election or such matter.
SECTION 8. Conduct of Stockholders' Meetings. The meetings of the
---------------------------------
stockholders shall be presided over by the President or, if he shall not be
present, by a Vice-President or, if neither the President nor any
Vice-President is present, by a chairman to be elected at the meeting. The
Secretary of the Corporation, if present, shall act as Secretary of such
meetings or, if he is not present, an Assistant Secretary shall so act; if
neither the Secretary nor an Assistant Secretary is present, then the
meeting shall elect its secretary.
SECTION 9. Concerning Validity of Proxies, Ballots, Etc. At every
--------------------------------------------
meeting of the stockholders, all proxies shall be received and taken in
charge of and all ballots shall be received and canvassed by the secretary
of the meeting, who shall decide all questions touching the qualification
of voters, the validity of the proxies, and the acceptance or rejection of
votes, unless inspectors of election shall have been appointed as provided
in Section 7, in which event such inspectors of election shall decide all
such questions.
SECTION 10. Consents. Whenever stockholders are required or
--------
permitted to take any action by vote, such action may be taken without a
meeting if the following are filed with the records of stockholders
meetings: (a) an unanimous written consent which sets forth the action
and is signed by each stockholder entitled to vote on the matter, and (b) a
written waiver of any right to dissent signed by each stockholder entitled
to notice of the meeting but not entitled to vote at it.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Number, Vacancies and Tenure. The Directors may, at any
----------------------------
time when the stockholders are not assembled in meeting, establish,
increase or decrease the number of seats on the Board of Directors by
majority vote of the entire Board of Directors; provided, that the number
of Directors shall never be less than three (3) nor more than fifteen (15).
The number of Directors may not be decreased so as to affect the term of
any incumbent Director. Except as hereinafter provided, (i) if the number
of Directors is increased, the additional Directors to fill the vacancies
thus created may be elected by majority vote of the entire Board of
Directors, and (ii) any vacancy occurring for any other cause may be filled
by a majority of the remaining Directors, even if such majority is less
than a quorum. No vacancy may be filled for any cause whatsoever unless
immediately after the filling of such vacancy, at least two-thirds (2/3) of
the entire Board of Directors shall have been elected by the stockholders
of the Corporation. A Director shall hold office until the next annual
meeting of stockholders and until his successor is elected and qualified,
or until such Director's earlier death, resignation, retirement or removal;
provided, however, that if a Director was not elected to office by a vote of
stockholders, the term of such Director shall, in any event, end as of the
date of the next annual meeting of stockholders which is required to be
held pursuant to Article I, Section 2 of these Bylaws following such
Director's election to office. Such a Director may be a candidate for
election to office at such annual meeting and, if elected at such meeting,
shall serve for the indefinite term specified above.
SECTION 2. Mandatory Retirement of Directors. A Director shall
---------------------------------
retire from the Board of Directors and cease being a Director at the close
of business on the last day of the calendar year in which the Director
attains age seventy-two (72), except that any person who was a Director
on July 1, 1994, and on that date was at least sixty-nine (69) years of age
shall continue to serve as a director at the discretion of the Nominating
Committee of the Board of Directors.
SECTION 3. Removal. At any meeting of stockholders, duly
-------
called and at which a quorum is present, the stockholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be
cast thereon, remove any director or directors from office and may elect a
successor or successors to fill any resulting vacancies for the unexpired
terms of removed directors.
SECTION 4. Place of Meeting. The Directors may hold their meetings,
----------------
have one or more offices, and keep the books of the Corporation outside
the State of Maryland, at any office or offices of the Corporation or at any
other place as they may from time to time by resolution determine, or in
the case of meetings, as they may from time to time by resolution
determine or as shall be specified or fixed in the respective notices or
waivers of notice thereof.
SECTION 5. Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held at such time and on such notice, if any, as the
Directors may from time to time determine.
The annual meeting of the Board of Directors shall be held as soon as
practicable after the annual meeting of the stockholders for the election
of Directors.
SECTION 6. Special Meetings. Special meetings of the Board of
----------------
Directors may be held from time to time upon call of the President or
two or more of the Directors, by oral or telegraphic or written notice duly
served on or sent or mailed to each Director not less than one day before
such meeting. No notice need be given to any Director who attends in
person or to any director who, in writing executed and filed with the
records of the meeting either before or after the holding thereof, waives
such notice. Such notice or waiver of notice need not state the purpose or
purposes of such meeting.
SECTION 7. Quorum. One-third of the Directors then in office shall
------
constitute a quorum for the transaction of business, provided that a
quorum shall in no case be less than two Directors. If at any meeting of
the Board there shall be less than a quorum present, a majority of those
present may adjourn the meeting from time to time until a quorum shall
have been obtained. The act of the
majority of the Directors present at any meeting at which there is a
quorum shall be the act of the Directors, except as may be otherwise
specifically provided by statute, by the Articles of Incorporation or by
these Bylaws.
SECTION 8. Executive Committee. The Board of Directors may, by the
-------------------
affirmative vote of a majority of the entire Board, elect from the
Directors an Executive Committee to consist of such number of Directors,
but not less than two, as the Board may from time to time determine. The
Board of Directors by such affirmative vote shall have power at any time
to change the members of such Committee and may fill vacancies in the
Committee by election from the Directors. When the Board of Directors is
not in session, the Executive Committee shall have and may exercise any
or all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation (including the power to authorize
the seal of the Corporation to be affixed to all papers which may require
it) except as provided by law and except the power to increase or decrease
the size of, or fill vacancies on, the Board, to remove or appoint executive
officers or to dissolve or change the permanent membership of the
Executive Committee, and the power to make or amend the Bylaws of the
Corporation. The Executive Committee may fix its own rules of procedure,
and may meet, when and as provided by such rules or by resolution of the
Board of Directors, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the
Executive Committee, the members thereof present at any meeting,
whether or not they constitute a quorum may appoint a member of the
Board of Directors to act in the place of such absent member.
SECTION 9. Other Committees. The Board of Directors, by the
----------------
affirmative vote of a majority of the entire Board, may appoint other
committees which shall in each case consist of such number of members,
but not less than two, and shall have and may exercise such powers as the
Board may determine in the resolution appointing them. A majority of all
members of any such committee may determine its action, and fix the
time and place of its meetings, unless the Board of Directors shall
otherwise provide. The Board of Directors shall have power at any time to
change the members and powers of any such committee, to fill vacancies,
and to discharge any such committee.
SECTION 10. Informal Action by Directors and Committees. Any
-------------------------------------------
action required or permitted to be taken at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting of a
written consent to such action is signed by all members of the Board, or
of such committee, as the case may be, and if such consent is filed with
the minutes of proceedings of the Board, or of such committee, as the case
may be.
SECTION 11. Compensation of Directors. No Director shall receive
-------------------------
any stated salary or fees from the Corporation for his services as such
Director if such Director is, otherwise than by reason of being such
Director, affiliated (as such term is defined by the Investment Company
Act of 1940) with the Corporation or with any investment adviser or
principal underwriter of the Corporation. Except as provided in the
preceding sentence, Directors shall be entitled to receive such
compensation from the Corporation for their services as may from time to
time be voted by the Board of Directors.
ARTICLE III
OFFICERS
SECTION 1. Executive Officers. The executive officers of the
------------------
Corporation shall be chosen by the Board of Directors as soon as may be
practicable after the annual meeting of the stockholders. If an annual
meeting is not required to be held, such officers shall be chosen by the
Board of Directors as soon as may be practicable after the close of the
fiscal year of the Corporation, or at any other time as the Chairman shall
determine. These shall include a President, one or more Vice-Presidents
(the number thereof to be determined by the Board of Directors), a
Secretary and a Treasurer. The Board of Directors or the Executive
Committee may also in its discretion appoint a Chairman of the Board of
Directors, Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform
such duties as the Board or the Executive Committee may determine. The
Board of Directors may fill any vacancy which may occur in any office.
Two or more offices, except those of President and Vice-President, may
be held by the same person, but no officer shall execute, acknowledge or
verify any instrument in more than one capacity, if such instrument is
required by law or these Bylaws to be executed, acknowledged or verified
by two or more officers.
SECTION 2. Term of Office. The term of office of all officers shall
--------------
be one year and until their respective successors are chosen and qualify,
subject, however, to the provision for removal contained in the Articles of
Incorporation. Any officer may be removed from office at any time with or
without cause by the vote of a majority of the entire Board of Directors,
if the Board of Directors in its judgment finds that the best interests of
the Corporation are served thereby.
SECTION 3. Powers and Duties. The officers of the Corporation shall
-----------------
have such powers and duties as generally pertain to their respective
offices, as well as such powers and duties as may from time to time be
conferred by the Board of Directors or the Executive Committee.
ARTICLE IV
CAPITAL STOCK
SECTION 1. Certificate of Shares. A stockholder of Class A Shares of
---------------------
any series shall upon request be entitled to a certificate for full shares of
stock in such form not inconsistent with law as the Board of Directors
shall determine. No certificates will be issued to evidence ownership of
any other Class of shares.
SECTION 2. Transfer of Shares. Shares of the Corporation shall be
------------------
transferable on the books of the Corporation by the holder thereof in
person or by his duly authorized attorney or legal representative, upon
surrender and cancellation of certificates for the same number of shares,
duly endorsed or accompanied by proper instruments of assignment and
transfer, with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require.
SECTION 3. Stock Ledgers. The stock ledgers of the Corporation,
-------------
containing the names and addresses of the stockholders and the number of
shares held by them respectively, shall be kept at the principal offices of
the Corporation or, if the Corporation employs a transfer agent, at the
offices of the Transfer Agent of the Corporation.
SECTION 4. Lost, Stolen or Destroyed Certificates. The Board of
--------------------------------------
Directors or the Executive Committee may determine the conditions upon
which a new certificate of stock of the Corporation of any class may be
issued in place of a certificate which is alleged to have been lost, stolen
or destroyed; and may, in their discretion, require the owner of such
certificate or his legal representative to give bond, with sufficient surety
to the Corporation and each Transfer Agent, if any, to indemnify it and
each Transfer Agent against any and all loss or claims which may arise by
reason of the issue of a new certificate in the place of the one so lost,
stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors shall provide a suitable corporate seal, in
such form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VII
INDEMNIFICATION
Each director and officer (and his heirs, executors and
administrators) shall be indemnified by the Corporation to the extent set
forth in the Articles of Incorporation.
ARTICLE VIII
AMENDMENT OF BYLAWS
The Bylaws of the Corporation may be altered, amended, added to or
repealed by the stockholders or by majority vote of the entire Board of
Directors; but any such alteration, amendment, addition or repeal of the
Bylaws by action of the Board of Directors may be altered or repealed by
the stockholders.
EXHIBIT (5)(a)
VENTURE INCOME (+) PLUS, INC.
INVESTMENT ADVISORY AGREEMENT
April 15,1993
Venture Advisers, L.P.
124 East Marcy Street
Santa Fe, NM 87501
Dear Sirs:
We herewith confirm our agreement with you as follows:
1. We desire to employ the capital of Venture Income (+) Plus, Inc.
(the "Company") by investing and reinvesting the same in securit-ies of
the type and in accordance with the limitations specified in the
registration statement under the Securities Act of 1933 and the
Investment Company Act of 1940, of which we enclose a copy, and in such
manner and to such extent as may from time to time be approved by our
Board of Directors. We desire to employ you to supervise and assist in the
management of this business for us. You shall for all purposes herein be
deemed an independent contractor, and shall, unless otherwise expressly
provided for or authorized, have no authority to act or represent us.
2. In this connection it is understood that you will from time to time
employ or associate with yourselves such person or persons as you may
believe to be particularly fitted to assist you in the execution of this
Agreement, it being understood that the compensation of such person or
persons shall be paid by you and that no obligation may be incurred on our
behalf in any such respect. This does not apply to such individuals as we
may in due course elect as officers of our corporation, except that no
officer, director, stockholder or employee of your firm shall receive
compensation from us for acting as director, officer or employee of our
corporation, and you agree to pay the compensa-tion of all such persons.
We understand that, during the con-tinuance of this agreement, officers of
your firm will, if elected, serve as directors of our corporation and as its
prin-cipal officers.
3. You are to have complete and exclusive authority to develop and
handle for us any business of the type above men-tioned which you may
consider advantageous for us, subject to the direction and control of our
officers and directors. You will furnish us with such statistical
information with respect to the securities which we may hold or
contemplate purchasing as we may request. We wish to be kept in touch
with important developments affecting our Company and shall expect you
on your own initiative to furnish us from time to time with such
information as you may believe appropriate for this purpose, whether
concerning the individual companies whose securities are included in our
portfo-lio or the industries in which they are engaged. We shall also
expect you of your own motion to advise us whenever in your opinion
conditions are such as to make it desirable that a specific security be
eliminated from our portfolio.
4. We shall expect of you your best judgment in rendering these
services to us, and we agree as an inducement to your undertaking the
same that you shall not be liable hereunder for any mistake of judgment or
in any other event whatsoever, except for lack of good faith, provided that
nothing herein shall be deemed to protect or purport to protect you against
any liability to us or to our security holders to which you would otherwise
be subject by reason of willful misfeasance, bad faith, or gross negligence
in the performance of your duties hereunder, or by reason of your reckless
disregard of your obligations and duties hereunder.
5. Except as otherwise provided below in this paragraph, you will
attend to, or arrange for the performance, at your expense, of such
clerical and accounting work related to the investment and reinvestment
of our capital for us as we may specify. We shall, however, bear all costs
and expenses of or attendant upon: (i) preparation of our federal, state and
local tax returns; (ii) preparation of certain documents we must file with
the Securities and Exchange Commission; (iii) determination of the status
and payment of dividends; (iv) reconciling and reviewing output of our
custodian bank, determining the adequacy of various accruals, approving
our expenses, authorizing our bank to receive and disburse money and
securities and verifica-tions related thereto, and interfacing with our
auditors; (v) verifica-tion of our security ledger and preparation and
main-tenance of other corporate books and records; (vi) brokerage fees
and commissions; (vii) stockholders' and Directors' meetings; (viii)
corporate reports and proxy materials, including their prepara-tion,
printing and distribution; (ix) fees of disinter-ested Directors; (x) taxes
and interest expenses; (xi) reports to government authorities including all
expenses and costs relating to such reports and to state securities law
compliance; (xii) custodian and transfer agent fees; (xiii) association
membership dues; (xiv) premiums on all insurance and bonds maintained
for us or on our behalf; (xv) retention of the transfer agent and registrar
for our shares and the disbursing agent for our stock-holders, including
costs and expenses attendant upon repurchase and redemption of our
shares; (xvi) our counsel; and (xvii) our independent auditors. We may
arrange for you to provide some or all of the services relating to items (i)
to (xvii) above, and any other services not directly relating to investment
and reinvest-ment of our capital, upon such terms and conditions as we
may agree and subject to the approval and review of our Board of
Directors.
6. In consideration of such services, we shall pay you a monthly fee
as of the last day of each month in each year based upon the average daily
value of net assets during a month for which the monthly fee is
calculated, as follows:
VALUE OF AVERAGE DAILY NET ASSETS
MONTHLY RATE OF THE FUND DURING THE MONTH
- ------------ ----------------------------
1/12 of .75% of............................ First $250 Million
1/12 of .65% of............................ Next $250 Million
1/12 of .55% of............................ Amounts in excess of $500 Million
provided, however, that such fee for any period which shall not be a full
monthly period shall be prorated according to the proportion which such
period bears to the full month. For this purpose, the value of our net
assets shall be computed in the same manner as the value of such net
assets are computed in connection with the determination of the net asset
value of our shares.
7.(a) You are authorized to place purchase and sale orders for our
portfolio transactions with brokers and/or dealers which, in your best
judgment are able to achieve "best execution" of such orders. "Best
execution" shall mean prompt and reliable execution at the most favorable
security price obtainable, taking into account research and other services
available and the reasonableness of commission charges. Purchases and
sales of securities not listed or traded on a securities exchange shall
ordinarily be executed with primary market makers, acting as principal,
except where, in your judgment, better prices and execution may
otherwise be obtained.
(b) You are authorized to allocate brokerage and principal
business to members of securities exchanges, brokers and dealers (such
members, brokers and dealers being hereinafter referred to as "brokers")
who have provided brokerage and re-search services, as such services are
defined in Section 28 (e) of the Securities Exchange Act of 1934 (the
"1934 Act") for us and/or other accounts, if any, for which you exercise
investment discre-tion (as defined in Section 3 (a) (35) of the 1934 Act)
and to cause us to pay a commission for effecting a securities transaction
in excess of the amount another broker would have charged for effecting
that transaction if you determine in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and
research services provided by such broker, viewed in terms of either that
particular transaction or your overall responsibilities with respect to us
and the other accounts, if any, as to which you exercise investment
discretion.
In reaching such determination, you will not be re-quired to
place or attempt to place a specific dollar value on the research or
execution services of a broker or on the portion of any commission
reflecting either of said services. In demon-strat-ing that such
determinations were made in good faith, you shall be prepared to show
that all commissions were allocated and paid in accordance with this
agreement, that commissions were not allocated or paid for products or
services which were readily and customarily available and offered to the
public on a commercial basis and that the commissions were within a
reasonable range shall be based on any available information as to the
level of commissions known to be charged by qualified brokers on
com-parable transactions, but taking into account (i) the provisions of
this agreement relating to obtaining the most favorable securities price,
since it is recognized by our Board of Direc-tors and shareholders that it
usually is more beneficial to us to obtain a favorable price than to pay the
lowest commission; and (ii) that research from brokers is useful to you in
performing your advisory activities under this Agreement.
(c) Portfolio transactions may be allocated to any broker or
dealer taking into account the sale by such broker or dealer of our shares.
Any such allocation shall be made in accordance with the provisions of
this agreement relating to obtaining "best execution".
(d) In selecting brokers for our portfolio transac-tions, you
shall make use of a list of a number of brokers which you and we believe,
based on past and current experience, are qualified to execute our
portfolio transactions. The brokers on the list will ordinarily be used for
our portfolio transactions, but other brokers may be used in accordance
with the principles of this agreement. The brokers on the list may be
changed from time to time and will include members of the major and
regional securities exchanges and certain non-member brokers.
8. You may act as investment adviser for any other person, firm or
corporation. We recognize that you have given us the right to use the name
"Venture" in our corporate title. If for any reason you no longer act as our
investment adviser, we shall remove the name "Venture" from our
corporate title upon demand made by you.
9. All of our expenses shall be paid by us except for those you
specifically agree to assume under this Agreement. If the total expense
payable by us for any fiscal year (inclusive of all fees payable under this
agreement but exclusive of interest, taxes, brokerage fees and payments
under any Rule 12b-1 distribu-tion plan) shall exceed the most restrictive
applicable expense limitation prescribed by any statute or regulatory
authority of any jurisdiction in which our shares are qualified for offer
and sale, you will pay or refund to us the amount by which such expenses
exceed the amount so computed.
10. This Agreement shall become effective for an initial period of
not more than two years from its effective date, and shall continue in full
force and effect continuously there-after, if its continuance is approved
at least annually as required by the Investment Company Act of 1940. The
effective date of this Agreement shall be the later of (i) April 15, 1993,
or (ii) the date this Agreement has been approved as required by the
Invest-ment Company Act of 1940. As of such effective date, this
Agreement shall supersede all prior investment advisory agree-ments
between the parties. This Agree-ment may be terminated at any time,
without the payment of any penal-ty, by our Board of Directors or by vote
of a majority of our out-standing voting securities (as defined in the 1940
Act) on 60 days' written notice to you, or by you on 60 days' written
notice to us, and it shall be automatically terminated in the event of its
assignment (as defined in said Act).
11. As of the date of this Agreement, the Company has only one
series of shares ("Fund"). In the event that the Company shall create any
additional Funds, this Agreement shall apply to and be effective as to each
such Fund, provided that the Agreement is approved as required by the
Investment Company Act of 1940. The effective date of the Agreement as
to each such Fund shall be the date that it is so approved or any later date
as shall be agreed to by the parties.
If the foregoing is in accordance with your understanding, will you
so kindly indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
VENTURE INCOME (+) PLUS, INC.
By: /s/ Martin H. Proyect
----------------------------
Its: Chairman
----------------------------
Accepted as of the day and year first above written.
VENTURE ADVISERS, L.P.
By: VENTURE ADVISERS, INC., General Partner
By: Raymond O. Padilla
--------------------------------------
Its: Senior Vice President
--------------------------------------
EXHIBIT (5)(b)
May 1. 1996
Davis High Income Fund, Inc.
Amendment of Investment Advisory Agreement
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, NM 87501
Dear Sirs:
We herewith confirm that, as of the above date, paragraph 6 of our
Investment Advisory Agreement of April 15, 1993 is amended in its
entirety to read as follows:
6. In consideration of such services, we shall pay you a monthly fee as
of the last day of each month in each year based upon the average daily value
of net assets during a month for which the monthly fee is calculated, as
follows:
VALUE OF AVERAGE DAILY NET ASSETS
MONTHLY RATE OF THE FUND DURING THE MONTH
- ------------ ----------------------------
1/12 of 0.70% of........................ First $250,000,000
1/12 of 0.60% of........................ Next $250,000,000
1/12 of 0.55% of........................ Amount in excess of $500,000,000
provided, however, that such fee for any period which shall not be a full
monthly period shall be prorated according to the proportion which such
period bears to the full month. For this purpose, the value of our net
assets shall be computed in the same manner as the value of such net
assets are computed in connection with the determination of the net asset
value of our shares.
In all other respects, the Investment Advisory Agreement of April 15,
1993 remains in full force and effect.
If the foregoing is in accordance with your understanding, please indicate
by signing and returning to us the enclosed copy hereof.
Very truly yours,
Davis High Income Fund, Inc.
(f/k/a Venture Income (+) Plus, Inc.)
By:---------------------------------
Its:---------------------------------
Accepted as of the day and year first above written.
Davis Selected Advisers, L.P.
By: Venture Advisers, Inc., General Partner
By:-----------------------------------
Its:----------------------------------
Exhibit 11
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 26, 1996 accompanying the
financial statements of Davis High Income Fund, Inc. which are incorporated
by reference in Part B of the Post-Effective Amendment to this Registration
Statement and Prospectus. We consent to the use of the aforementioned
report in this Registration Statement and Prospectus.
/s/ TAIT, WELLER & BAKER
-----------------------------
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
May 29, 1996
EXHIBIT (15)(a)
VENTURE FUNDS
MASTER RULE 12b-1 DISTRIBUTION PLAN
FOR CLASS A SHARES
The Plan:
- --------
1. Purpose. The Company shall finance the distribution of its Class
A shares pursuant to Rule 12b-1 under the Investment Company Act of
1940 ("Act") according to the terms of this Distribution Plan (the "Plan").
2. Fees. Amounts, not exceeding in the aggregate a maximum annual
amount equal to 0.25% of the averages of the daily net asset values of the
Class A shares of the Company during each fiscal year of the Company,
may be paid quarterly by the Company to the Distributor out of the assets
attributable to such shares at any time after the effective date of the
Plan to: (i) reimburse the Distributor for fees paid to its salespersons and
to other firms which offer and sell the Company's shares at such intervals
as the Distributor may determine, for the sale of the Company's shares and
the continuing servicing of shareholders of the Company towards
augmentation of Company shares in accounts of shareholders of the
Company and (ii) reimburse the Distributor its other distribution
expenses, after application of the Distributor's portion of sales charges
incurred in connection with the distribution of Company shares, excluding
overhead expense and including expenses of promotion, sales seminars,
wholesaling, advertising, and sales literature. For this purpose sales
literature shall not include reports sent to shareholders regulatory bodies
which are paid for by the Company.
To the extent that any investment advisory fees paid by the
Company may be deemed to be indirectly financing any activity which is
primarily intended to result in the sale of shares of the Company within
the meaning of Rule 12b-1, the payments of such fees are authorized under
this Plan.
3. Required Approvals and Term. Subject to paragraph 8, the Plan
shall not take effect until it has been approved by the vote of at least a
majority (as defined in the Act) of the outstanding Class A shares of the
Company. In addition, the Plan shall not take effect until it has been
approved, together with any related agreements, by votes of the majority
of both (i) the Board of Directors of the Company and (ii) those directors
of the Company who are not "interested persons" of the Company as
defined in the Act and who have no direct or indirect financial interest in
the operation of the Plan or any agreements related to it ("Independent
Directors"), cast in person at a meeting called or the purpose of voting on
the Plan or such Agreements. Unless sooner terminated pursuant to the
terms hereof, the Plan shall continue in effect for a period of one year
from its effective date, and thereafter shall continue in effect so long as
such continuance is specifically approved at least annually in the manner
provided for by Rule 12b-1 under the Act.
4. Periodic Reports. Any person authorized to direct the disposition
of monies paid or payable by the Company pursuant to the Plan or any
related agreement shall provide to the Company's Board of Directors, and
the Board of Directors shall review at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures
were made.
5. Termination. Subject to paragraph 8, the Plan may be terminated
at any time by a vote of a majority of the Independent Directors, or by
vote of a majority vote of the outstanding Class A shares.
6. Related Agreements. Any agreement related to the Plan shall be
in writing, and shall provide:
(i) That such agreement may be terminated at any time, without
payment of penalty, by vote of a majority of the Independent Directors or
by a majority vote of the Class A shares on not more than 60 days written
notice to any other party to the agreement; and
(ii) That such agreement shall terminate automatically in the event
of its assignment.
7. Amendments. The Plan may not be amended to increase
materially the amount of distribution expenses provided for in paragraph 2
unless such amendment is approved in the manner provided in paragraph 3,
and no material amendment to the Plan shall be made unless approved by
the Board of Directors and the Independent Directors.
8. Special Procedures For Series Company. If the Company is or
becomes a series company (as defined in Rule 18f-2 under the Act), then
the Plan shall not take effect as to the Class A shares of any series and no
amendment may be effected to increase materially the amount of
distribution expenses as to the Class A shares of any series until it has
been approved as to the Class A shares of such series by the Board of
Directors, the Independent Directors and the Class A shareholders of such
series in the manner provided in paragraph 3; and no material amendment
to the Plan in respect to such shares shall be made unless approved as to
such shares by the Board of Directors and Independent Directors. The Plan
may be terminated as to any series at any time by vote of a majority of
the Independent Directors by majority vote of the Class A shareholders of
the series.
EXHIBIT (15)(b)
VENTURE FUNDS
MASTER RULE 12b-1 DISTRIBUTION PLAN
FOR CLASS B SHARES
The Plan:
1. Purpose. The Company shall finance the distribution of its Class
B shares pursuant to Rule 12b-1 under the Investment Company Act of
1940 ("Act") according to the terms of this Distribution Plan (the "Plan").
2. Fees. Amounts, not exceeding in the aggregate a maximum
amount equal to the lesser of (a) .3125% of the averages of the daily net
asset values of the Company or (b) the maximum amount provided by an
applicable rule or regulation of the National Association of Securities
Dealers, Inc. during each fiscal quarter of the Company elapsed after the
inception of the Plan may be paid by the Company to the Distributor at any
time after the inception of the Plan in order: (i) to pay the Distributor
commissions in respect of shares of the Company previously sold at any
time after the inception of the Plan, all or any part of which may be or
may have been reallowed or otherwise paid to others by the Distributor in
respect of or in furtherance of sales of shares of the Company after the
inception of the Plan; and (ii) to enable the Distributor to pay or to have
paid to others who sell the Company's shares a maintenance or service
fees, at such intervals as the Distributor may determine, in respect of
that Company's shares previously sold by any such others at any time after
the inception of the Plan and remaining outstanding during the period in
respect of which such fee is or has been paid.
To the extent that any investment advisory fees paid by the Company
may be deemed to be indirectly financing any activity which is primarily
intended to result in the sale of shares of the Company within the meaning
of rule 12b-1, the payments of such fees are authorized under this Plan.
3. Required Approvals and Term. Subject to paragraph 8, the Plan
shall not take effect as to the Company until it has been approved by a
vote of at least a majority (as defined in the Act) of the outstanding Class
B shares of the Company. In addition, the Plan shall not take effect until
it has been approved, together with any related agreements, by votes of
the majority of both (i) the Board of Directors of the Company and (ii)
those directors of the Company who are not "interested persons" of the
Company as defined in the Act and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it (the
"Independent Directors"), cast in person at a meeting called for the
purpose of voting on the Plan or such agreements. Unless sooner
terminated pursuant to the terms hereof, the Plan shall continue in effect
for a period of one year from its effective date, and thereafter shall
continue in effect so long as such continuance is specifically approved at
least annually in the manner provided for by Rule 12b-1 under the Act.
4. Periodic Reports. Any person authorized to direct the disposition
of monies paid or payable by the Company pursuant to the Plan or any
related agreement shall provide to the Company's Board of Directors, and
the Board of Directors shall review at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures
were made.
5. Termination. Subject to paragraph 8, the Plan may be terminated
at any time by a vote of a majority of the Independent Directors, or by a
majority vote of the Company's outstanding Class B shares.
6. Related Agreements. Any agreement related to the Plan shall be
in writing, and shall provide:
(i) That such agreement may be terminated at any time, without
payment of penalty, by vote of a majority of the Independent Directors or
by a majority vote of the Company's outstanding Class B shares on not
more than 60 days written notice to any other party to the agreement; and
(ii) That such agreement shall terminate automatically in the event
of its assignment.
7. Amendments. The Plan may not be amended to increase
materially the amount of distribution expenses provided for in paragraph 2
unless such amendment is approved in the manner proved in paragraph 3,
and no material amendment to the Plan shall be made unless approved by
the Board of Directors and the Independent Directors.
8. Special Procedures For Series Company. If the Company is or
becomes a series company (as defined in Rule 18f-2 under the Act), then
the Plan shall not take effect as to the Class B shares of any series and no
amendment may be effected to increase materially the amount of
distribution expenses as to the Class B shares of any series until it has
been approved as to the Class B shares of such series by the Board of
Directors, the Independent Directors and the Class B shareholders of such
series in the manner provided in paragraph 3; and no material amendment
to the Plan in respect to such shares shall be made unless approved as to
such shares by the Board of Directors and Independent Directors. The Plan
may be terminated as to any series at any time by vote of a majority of
the Independent Directors or by majority vote of the Class B shareholders
of the series.
