DAVIS HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
- --------------------------------------------------------------------------------
Dear Shareholder:
The Davis High Income Fund turned defensive early and, as a result, lagged its
peer group in absolute terms for the year ended March 31, 1997. However, as bond
prices declined sharply in the first quarter of 1997, your Fund's performance
more than doubled that of the average high yield fund, suggesting that the Fund
is properly positioned to outperform in the flat to tough market environment we
expect for 1997.
ABSOLUTE PERFORMANCE VERSUS OTHER HIGH YIELD FUNDS
For the year ended March 31, 1997, Davis High Income Fund generated a total
return of 7.08% (on Class A shares at net asset value) compared to the 11.35%
average annual total return achieved by the 154 High Current
Yield funds tracked by Lipper Analytical Services, Inc. (1)
However, our cautious investment posture began to pay off in the first quarter
of 1997 when your Fund outperformed its peers by a wide margin. For the three
months ended March 31, 1997 the Fund's Class A shares provided a total return of
1.59% (at net asset value); .82% more than the .77% average total return of the
179 funds in the Lipper High Current Yield fund category.
ABSOLUTE PERFORMANCE VIS-A-VIS HIGHER QUALITY FUNDS
One key distinction of the Davis High Income Fund is that the average credit
quality rating of its portfolio-BB+ (for the securities that are rated)-is
considerably higher than the quality rating of most high-yield bond portfolios,
which typically average a B rating.
When the Davis High Income Fund is compared against funds that are more
comparable in credit quality, the Fund's quarterly results look even better. The
1.59% first quarter return on your Fund's Class A shares was 2.41% higher than
the negative total return of -.82% averaged by the 127 funds included in
Lipper's BBB-Rated Bond fund category. Similarly, the 7.08% annual return on the
Fund's Class A shares was 2.06% above the 5.02% average total return generated
by the 105 BBB-Rated Bond funds covered by Lipper for the year ended March 31,
1997.
RISK-ADJUSTED PERFORMANCE
Viewed from a longer term perspective, your Fund is doing what we intend:
building wealth over time with less volatility than its competitors. In
recognition of your Fund's superior risk-adjusted performance, the Value Line
Mutual Fund Survey gave the Fund's Class A shares its top overall ranking of
ONE, on a scale ranging from a high of 1 to a low of 5, for the period ended
March 31, 1997. The overall ranking is based on the performance of 1,077 funds
in the taxable fixed-income category.(2)
One reason for the Fund's lower volatility is that it is more broadly
diversified than the typical high-yield bond fund, with approximately 130
different securities in its portfolio at the end of March, 1997.
Your Fund's Class A shares had the lowest volatility, as measured by standard
deviation, for all corporate high yield funds tracked by Morningstar for the
three- and five-year periods ended March 31, 1997. If the returns of the funds
covered by Morningstar are adjusted for their respective risk levels, Class A
shares of the Davis High Income Fund would have the second highest average
annual total return for the five years and the 10th highest return for the three
years. (3)
<PAGE>
DAVIS HIGH INCOME FUND, INC. P.O. Box 1688, 124 East Marcy Street Santa
Fe, New Mexico 87501
- --------------------------------------------------------------------------------
A HYBRID APPROACH
Our fundamental strategy focuses on providing maximum yield relative to credit
quality, as well as maximum upside potential with maximum downside protection.
Consistent with that strategy, the Davis High Income Fund offers a hybrid
approach between the methods employed by traditional high-yield bond funds and
those used by higher quality, more interest-rate-sensitive BBB funds. We take
more credit risk than BBB funds with the objective of achieving greater rewards
over the long term. Indeed, in the first quarter, when interest rates rose and
bond prices dropped, we significantly outperformed these funds.
We have gained extra yield and extra downside protection by relinquishing some
upside potential, which is why the Fund lagged when the bond market rallied last
year. At the same time, with this extra yield and extra downside protection, the
Fund has the potential to outperform in the flat to declining market we
anticipate for 1997, just as it did in the year's first quarter.
THE HIGH-YIELD BOND MARKET: PAST, PRESENT AND FUTURE
All news was good news. In 1996, the high-yield bond market tended to interpret
all news as good news. In the first quarter of the year when the price of the
U.S. Treasury 30-year long bond dropped by 10.5%, high-yield bonds decided they
were stocks, not bonds, and did not drop. Similarly, in July, when the stock
market declined 7%, high-yield bonds decided they were bonds, not stocks, and
did not decline.
A dichotomy. In addition, there was the dichotomy between the performance of
bond fund categories. While high-yield bonds generally enjoyed a very good year,
all other bond categories had fairly poor years.
High-yield bonds back in line. Now high-yield bonds appear to be performing more
reasonably in line with other markets. When the NASDAQ market (where the stocks
of many companies that issue high-yield bonds are traded) declined earlier this
year, high-yield bonds also dropped in price, just as they dropped when the U.S.
government bond market declined.
Record tight credit quality yield spreads. Furthermore, at the top of the
market, credit quality yield spreads for all types of bonds, from AAA-rated
corporate bonds to high-yield bonds, reached their tightest point in 20 years.
This spread represents the difference in yield between a given category of bonds
and U.S. Treasury securities, the highest quality investment available. When
spreads to U.S. Treasuries are tight in the high yield market, it means
investors are paid little extra reward for taking on the considerable additional
risk typically associated with high-yield bonds.
The impact of widening spreads. In an environment where spreads are tightening
and yields declining, bond prices rise. But history shows tight spreads will not
last forever, and when spreads begin to widen, bond prices drop, as they did in
the 1997 first quarter.
Built-in protection. This pattern provides another reason for our confidence
that your Fund has the potential to outperform this year. The Davis High Income
Fund already offers as much yield as the high-yield bond fund category with a
portfolio of significantly higher credit quality. Spreads on securities in the
Fund's portfolio do
<PAGE>
DAVIS HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
- --------------------------------------------------------------------------------
not have to widen, which means prices of the underlying securities would drop,
because the spreads are already wide. That's the downside protection we have
built into the portfolio.
Capitalizing on unrecognized opportunities. In recent months, through meticulous
research, we have been able to identify some outstanding opportunities for
repositioning certain holdings to strengthen the Fund's defensive posture. In
the first quarter, while higher quality high-yield bonds were trading at
extremely tight spreads, we found "busted" convertible bonds with even better
credit quality profiles and, therefore, less risk, trading at even larger yields
than high quality high-yield bonds.
Busted convertibles are convertibles trading below the price at which the bonds
can be converted into the issuing company's stock. These bonds are not widely
researched and there is little demand for them, which means their prices tend to
be low and their yields high.
SOME EXAMPLES
As an example of this tactic, in December 1996, the Fund purchased newly issued
AK Steel 9 1/8% bonds at par ($1,000 per bond) due on December 15, 2006. AK
Steel is a publicly traded integrated steel producer and the company's bonds
carry a credit rating of Ba2/BB-. In March, the Fund sold these bonds at a
dollar price of $102 3/4 ($1,027.50 per bond), which equated to an 8.63% yield
to the bond's 2004 call date and an 8.70% yield to maturity. These yields
represented spreads to U.S. Treasuries of 276 basis points and 210 basis points,
respectively, and were indicative of the extremely tight spreads at which BB
high-yield bonds were trading at that time.
The sale proceeds from these bonds were invested in several busted convertible
issues with a better credit quality profile, but substantially higher yields,
because the bonds had declined in sympathy with the issuers' stock in the first
quarter NASDAQ market slump. As a result, the Fund was able to purchase busted
convertibles with less credit risk and yields almost double the yield of the AK
Steel bonds.
One of these purchases was the add-on investment your Fund made in the 6 1/2%
convertible bonds, due September 15, 2002, of Spectrum Holobyte, a developer and
publisher of entertainment software. The investment was made at a dollar price
of $69 3/4 ($697.50 per bond), which equates to a 14.44% yield to maturity. This
significant discount from par ($1,000 per bond) provides the Fund with
substantial upside potential before the bond can be called away (i.e. redeemed
prior to maturity) by the issuer.
In addition, the bond's sizable discount offers solid downside protection
because bondholders' claims, in the event of bankruptcy, would be made at par.
Furthermore, 83% of the company's capital is equity, which ranks below bonds in
the company's capital structure. That means bond holders have a claim on company
assets before equity holders.
Another attractive busted convertible investment made in the first quarter was
the Fund's purchase of Emerson Radio 8 1/2% bonds due on August 15, 2002.
Emerson Radio is a publicly traded distributor of consumer products. In this
case, the company's equity represents 80% of its capital structure and is also
below its bonds. Your Fund purchased Emerson Radio bonds at a dollar price of
$56 ($560 per bond) or a yield to maturity of 22%.
<PAGE>
DAVIS HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
- --------------------------------------------------------------------------------
Good buys in taxable munis. Your Fund also continues to purchase taxable
municipal bonds when it can do so at large yields, even though the credit
quality of these bonds may be significantly higher than its normal investments.
In February, your Fund bought Alaska State Housing Finance 10.55% bonds, due on
January 15, 2018, at a price of $102 1/2. These AAA-rated bonds are backed by
single-family mortgages that are insured by the Federal Housing Administration
or guaranteed by the Veterans Administration, and the bonds themselves are
insured by Financial Security Assurance, Inc. The Fund purchased the bonds at a
10.25% yield to maturity, which is substantially more than the yields available
on the average BB-rated high-yield bond at that time.
The Alaska State Housing bonds have little upside potential and little risk.
Essentially the only risk is that the bonds can be prepaid at par ahead of
schedule as the underlying mortgages are prepaid. Because mortgage prepayments
would likely increase as interest rates drop, the bonds would not rally much in
the event of an interest rate decline. On the other hand, because the bonds
offer a substantial yield relative to their high credit quality, they have a
very high potential to outperform in the flat to downward market that we
foresee.
A FURTHER DIVERSIFICATION MOVE
To broaden its diversification, your Fund also invested in the precious metals
mining industry. As one example, the Fund purchased Royal Oak Mines, Inc. 11%
bonds due on August 15, 2006 at close to par. Royal Oak Mines is a publicly
traded company that explores for and extracts gold. The company's bonds are
rated B3/B-, and the Fund made its investment at just under an 11% yield to
maturity.
Another gold-mining security purchased by the Fund is the Echo Bay Mines Ltd.
11% bonds due April 1, 2027. Echo Bay is a publicly traded gold-mining company
whose bonds are rated B+/BB-. The bonds were offered at a relatively high yield
because the coupon interest payments on the bonds can be deferred for up to 10
periods. However, if the company does not pay the interest coupon, the coupon
must accumulate at 12% instead of 11%.
These precious metals mining investments provide additional protection for the
Fund's portfolio because these bonds are not tied to the corporate credit cycle,
as are most high-yield bonds. The bonds also tend to trade at bargain prices
because many investors have a negative image of the precious metals industry.
PRUDENTLY POSITIONED FOR UNCERTAIN MARKETS
While most of the financial community is worried about inflation, we are more
concerned about the possibility of deflation. As a high-yield bond fund manager,
our primary fear is recession because that would mean weakening credit quality,
which would cause prices of high-yield bonds to drop and their interest rates to
rise.
We became defensive a little early last year because we felt prices of all
financial assets were very high and they did, indeed, begin adjusting in the
first quarter. Looking forward, we think the markets will continue to have a
very bumpy ride in 1997, reinforcing the advantages of a very low volatility
fund.
<PAGE>
DAVIS HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
- --------------------------------------------------------------------------------
Through our prudent management philosophy and defensive strategies, we believe
that your Fund is properly positioned to achieve strong relative and absolute
performance potential over the next year, consistent with our emphasis on
minimizing volatility and maximizing long-term, risk-adjusted returns.
Sincerely,
/s/Shelby M. C. Davis /s/Shelby M. C. Davis
- --------------------- ---------------------
Shelby M.C. Davis B. Clark Stamper
Chief Investment Officer Portfolio Manager
April 30, 1997
(1) Excluding the maximum sales charge of 4.75%. Average annual rates of return
for the Davis High Income Fund's Class A shares, including the maximum front-end
sales charge of 4.75%, for the one, five and 10 years ending March 31, 1997 are
2.02%, 9.17% and 5.16%, respectively.
(2)The Value Line Mutual Fund Survey's overall rank is calculated separately for
each of three broad categories: equity and partial-equity funds, taxable
fixed-income funds, and municipal (tax-free) funds. Overall ranks are not
designed to be compared across these categories. Value Line calculates the
overall ranks on the basis of three critical factors: five- and one-year growth
persistence in fund returns and three-year, risk-adjusted performance, which is
calculated by dividing a fund's three-year total return by its standard
deviation. Value Line's proprietary growth persistence rewards a fund only for
its consistency of outperformance of its peers; the measure does not take into
account the degree of outperformance. Ranks are subject to change whenever they
are calculated for new periods. The top 10% of the funds are ranked 1, the next
20% are ranked 2, the next 40% are ranked 3, the next 20% are ranked 4, and the
lowest 10% are ranked 5.
(3) Total returns and standard deviations were calculated by Morningstar and
published in its Principia for Mutual Funds diskette software (April 1997). For
the five-and three-years periods ended March 31, 1997, there were 64 funds and
99 funds, respectively, in Morningstar's Corporate High Yield Fund category.
<PAGE>
DAVIS HIGH INCOME FUND, INC.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
AN INTERVIEW WITH B. CLARK STAMPER, PORTFOLIO MANAGER OF THE FUND.
Q. How is the Fund positioned currently and why?
A. The Fund continues to be positioned defensively with an average portfolio
credit quality rating of BB+ (for securities that are rated), one of the highest
in the junk bond fund category. Basically we have seen little value in the
market. With credit quality spreads the tightest they have been in 20 years,
there is virtually no room for further improvement. Typically, that means
spreads will turn around and widen out, accompanied by falling prices.
To protect the Fund, we are steering clear of more mainstream investments and
moving into other securities that offer more yield relative to credit quality
and that, therefore, will not be affected as much when yields widen. We saw that
widening start in the first quarter of 1997.
Q. What could cause credit quality spreads to widen?
A. The most likely catalyst would be an unexpected shock to the economy.
Conditions have been rosy for the last couple of years, and that's usually when
something unexpected happens that causes spreads to widen.
About a year and a half ago, I became worried that record levels of personal
debt could lead to a sharp reduction in consumer spending, contributing to an
economic slowdown. Last year, we saw the first signs of economic weakness in the
form of rising delinquencies and defaults on mortgage loans and credit cards. We
believe more signs will appear. A weaker economy would erode business profits,
adversely affecting the ability of many lower quality companies to meet their
debt service obligations and causing the prices of their securities to drop.
That would result in higher yields and widening credit quality spreads.
Furthermore, while many believe that interest rates drop with the onset of
recession, I believe research shows that interest rates often go up early in a
downturn as borrowers try to hold on. Only later, as the downturn continues,
does the demand for credit drop as borrowers throw in the towel, finally causing
interest rates to fall.
Q. What have you done to protect the Fund from deteriorating credit quality
and rising interest rates?
A. Generally, I try to get the highest yield relative to credit quality and the
best upside potential/downside protection characteristics that I can. I do this
in several ways. First, I focus on investment areas that are not closely
followed by the investment community and that, in effect, have no natural
buyers. Examples include taxable municipal bonds, private-label mortgage-backed
securities and busted convertibles.
Furthermore, I do not invest in any bond if I believe the issuer does not have
the staying power to make it through the business cycle. To accomplish this, I
invest in the securities of companies with stronger credit profiles and with
less volatile underlying fundamentals. This is seen in the Fund's high average
credit quality rating.
<PAGE>
DAVIS HIGH INCOME FUND, INC.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
AN INTERVIEW WITH B. CLARK STAMPER, PORTFOLIO MANAGER OF THE FUND - (CONTINUED)
Q. How would you describe your investment style?
A. I am a risk manager and my primary focus is on evaluating the trade-offs
between the risks and rewards of different investments. My aim always is to get
the most reward for the risk taken, and I do this by constantly reviewing the
upside potential and downside protection of each individual investment.
Risk can take various forms. The main risk in the high-yield bond market is
credit risk, or the risk that the issuer/guarantor cannot or will not pay
principal and interest on a timely basis, causing the price of a security to
drop. We devote a great deal of effort to evaluating the underlying credit
quality of junk bond issuers and guarantors.
Another risk is interest rate risk, which is the risk that interest rates will
rise, causing the value of fixed-coupon bonds to drop. Interest rate risk is of
less concern with a high yield portfolio because the large coupon and short
maturity of the typical junk bond usually reduces this risk. However, when
credit quality spreads are tight, as they are now, it is an important factor to
watch. The reward for choosing bonds well is high coupon income and potential
price appreciation resulting from possible improvement in the issuer's credit
quality and/or falling interest rates.
Of course, there are other types of risk and the trade-offs among them can
result in different positive or negative returns depending on the subtleties of
specific credit and bond characteristics (i.e., coupon rate, maturity, stated
call schedule, relative trading levels of different investments, etc.).
Q. How do you make your investment decisions?
A. My primary tool is bottom-up credit research. My major concern is that the
credit quality of our investments does not deteriorate and that we are paid back
principal and interest on schedule. Purchasing high yield bonds is like making a
loan. There are numerous variables that I look at to make sure we are going to
be paid back. Then I evaluate the potential return of the investment relative to
its credit quality and the risk that something could go wrong. I also apply this
upside/downside analysis to interest rate risk and call risk.
In addition, I employ top-down management techniques where I review the
characteristics of the portfolio as a whole. I use these techniques to monitor
the proportion of our stake in positions of similar type or strategy, and to
make sure we are properly diversified.
<PAGE>
DAVIS HIGH INCOME FUND, INC.
COMPARISON OF CLASS A SHARES OF DAVIS HIGH INCOME FUND, INC. AND SALOMON
BROTHERS LONG-TERM HIGH-YIELD INDEX
- --------------------------------------------------------------------------------
Average Annual Total Return for the Periods ended March 31, 1997. CLASS A SHARES
(This calculation includes an initial sales charge of 4 3/4%.)
One Year.................................. 2.02%
Five Years................................ 9.17%
Ten Years................................. 5.16%
CLASS Y SHARES
Life of Class (March 20, 1997 through
March 31, 1997)........................... (0.42)%
$10,000 invested over ten years. Let's say you invested $10,000 in Davis High
Income Fund, Inc., Class A ("DHIF-A") shares on March 31, 1987 and paid a 4 3/4%
sales charge. As the chart shows, by March 31, 1997 the value of your investment
would have grown to $16,549 - a 65.49% increase on your initial investment. For
comparison, the Salomon Brothers Long-Term High Yield Index ("Salomon") is also
presented on the chart below.
<TABLE>
Graph omitted. Details of graph are as follows:
<CAPTION>
Measurement period Salomon Davis High
Brothers Income Fund-A
- ------------------------- ------------------- ---------------
<S> <C> <C>
3/31/87 $ 10,000 $ 9,525
FYE 3/31/88 10,505 9,227
FYE 3/31/89 11,657 9,894
FYE 3/31/90 10,666 8,736
FYE 3/31/91 12,566 8,271
FYE 3/31/92 15,884 10,156
FYE 3/31/93 18,731 12,066
FYE 3/31/94 20,340 13,428
FYE 3/31/95 21,883 14,059
FYE 3/31/96 26,027 15,454
FYE 3/31/97 28,296 16,549
</TABLE>
Salomon Brothers Long-Term High-Yield Index is an unmanaged index and has no
specific investment objective. The index used includes net interest reinvested,
but does not take into account any sales charge.
The performance data for Davis High Income Fund, Inc. contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost when
redeemed.
<PAGE>
DAVIS HIGH INCOME FUND, INC.
COMPARISON OF CLASS B SHARES OF DAVIS HIGH INCOME FUND, INC. AND SALOMON
BROTHERS LONG-TERM HIGH-YIELD INDEX
- --------------------------------------------------------------------------------
Average Annual Total Return for the Periods ended March 31, 1997.
CLASS B SHARES (This calculation includes any applicable contingent deferred
sales charge.)
One Year.................................. 3.34%
Life of Class (December 5, 1994 through
March 31, 1997)........................... 6.79%
$10,000 invested over ten years. Let's say you invested $10,000 in Davis High
Income Fund, Inc., Class B ("DHIF-B") shares on December 5, 1994 (inception of
Class). As the chart shows, by March 31, 1997 the value of your investment (less
applicable contingent deferred sales charges) would have grown to $11,648 - a
16.48% increase on your initial investment. For comparison, the Salomon Brothers
Long-Term High Yield Index ("Salomon") is also presented on the chart below.
<TABLE>
Graph omitted. Details of graph are as follows:
<CAPTION>
Measurement period Salomon Davis High
Brothers Income Fund-B
- ------------------------- ------------------------- -------------------
<S> <C> <C>
12/5/94 $ 10,000 $ 10,000
FYE 3/31/95 10,945 10,339
FYE 3/31/96 13,018 11,237
FYE 3/31/97 14,153 11,648
</TABLE>
Salomon Brothers Long-Term High-Yield Index is an unmanaged index and has no
specific investment objective. The index used includes net interest reinvested,
but does not take into account any sales charge.
The performance data for Davis High Income Fund, Inc. contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost when
redeemed.
<PAGE>
DAVIS HIGH INCOME FUND, INC.
PORTFOLIO HOLDINGS AS OF MARCH 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
Chart omitted. Details of chart are as follows:
<CAPTION>
Sector Weightings % of Portfolio
- ---------------------- ------------------
<S> <C>
Technology 5.3%
Metals 5.0%
Mortgage Backed 4.7%
Taxable Muni 10.9%
Equipment Leasing 3.7%
Communications 14.0%
Entertainment/Leisure 5.7%
Retail 6.1%
Diversified Financial Services 3.0%
Energy 11.6%
Consumer Products 7.4%
Manufacturing 4.9%
Pharmaceuticals 7.4%
Other 10.3%
</TABLE>
<TABLE>
<CAPTION>
Top 10 Holdings % of Fund Assets
- ----------------------------------------------------------------------------------------------------------
<S> <C>
American Medical International, N.V., Euro Deb., Zero Cpn., 08/12/97............................. 3.25%
JTS Corporation, Conv. Sub. Deb., 5.25%, 04/29/02................................................ 2.20%
K & F Industries Inc., Sr. Secured Notes, 11.875%, 12/01/03...................................... 1.97%
Gerrity Oil & Gas Corp., Sr. Sub. Notes, 11.75%, 07/15/04........................................ 1.87%
PM Holdings Corp., Sub. Disc. Deb., Series B, 0%/11.50%, 09/01/05................................ 1.86%
Crown Resources Corp., Conv. Sub. Deb., 5.75%, 08/27/01.......................................... 1.83%
Underwater World Mall of America, Sr. Rev. Bds., 13.75%, 03/01/02................................ 1.80%
Alps 96-1 D Asset Backed Lease, Aircraft Lease CL D, 12.75%, 06/15/06............................ 1.74%
Central Transport Rental Finance Corp., Secured Notes, 9.50%, 04/30/03........................... 1.70%
</TABLE>
<PAGE>
DAVIS HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
At March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
- --------- --------
CORPORATE BONDS AND NOTES - (76.09%)
<S> <C> <C>
AEROSPACE/AVIATION - (2.86%)
$1,085,000 K & F Industries Inc., Sr. Secured Notes, 11.875%, 12/01/03 ............. $ 1,144,675
500,000 Simula Inc., Sr. Conv. Sub. Notes, Series C, 10.00%, 09/15/99 <F6> ...... 515,000
-----------
1,659,675
BROADCASTING - (2.00%)
500,000 Pegasus Media & Communications, Sr. Sub. Notes, Series B,
12.50%, 07/01/05 ........................................................ 536,250
500,000 SFX Broadcasting Inc., Sr. Sub. Notes, Series B, 10.75%, 05/15/06 <F5> .. 521,250
100,000 Spanish Broadcasting Systems Inc., Sr. Notes, 7.50%, 06/15/02 ........... 107,750
-----------
1,165,250
CABLE - (4.91%)
500,000 Adelphia Communications Corp., Sr. Notes, 9.875%, 03/01/07 <F5> ......... 463,125
500,000 Continental Cablevision Inc., Sr. Sub. Notes, 10.625%, 06/15/02 ......... 530,465
150,000 Fundy Cable Ltd., Sr. Secured 2nd Priority Notes, 11.00%, 11/15/05 ...... 155,250
500,000 Jones Intercable, Inc., Sr. Notes, 8.875%, 04/01/07 ..................... 489,375
1,000,000 Marcus Cable Holding Co., L.P., Sr. Secured Notes, Zero Cpn., 12/15/05 .. 705,000
500,000 Rifkin Acquisition Partners, L.P., Sr. Sub. Notes, 11.125%, 01/15/06 <F5> 513,750
-----------
2,856,965
CHEMICALS - (1.00%)
500,000 Pioneer Americas Acquisition Corp., 1st Mtg. Notes, 13.375%, 04/01/05 ... 583,750
-----------
COMPUTER PRODUCTS AND SERVICES - (3.57%)
2,100,000 JTS Corporation, Conv. Sub. Deb., 5.25%, 04/29/02 ....................... 1,281,000
279,200 San Jacinto Holdings Inc., Sr. Notes, 10.75%, 12/31/02 <F6> ............. 203,309
250,000 Sapiens International N.V., Euro Conv. Notes, 5.00%, 09/20/03 ........... 95,000
500,000 Triad Systems Corp., Sr. Notes, 12.25%, 08/01/99 ........................ 497,500
-----------
2,076,809
CONSUMER PRODUCTS & MERCHANDISE - (1.61%)
1,000,000 International Semi-Tech Microelectronics Inc., Sr. Notes, 11.50%,
08/15/03 ................................................................ 557,500
210,000 L.A. Gear, Inc., Conv. Sub. Deb., 7.75%, 11/30/02 ....................... 94,500
281,000 MacAndrews & Forbes Holdings, Inc., Sub. Deb., 13.00%, 03/01/99 ......... 282,756
-----------
934,756
DIVERSIFIED SERVICES - (1.30%)
735,904 Emcor Group Inc., Sr. Notes, Series C, 11.00%, 12/15/01 ................. 754,302
-----------
ECOLOGICAL/ENVIRONMENTAL - (2.21%)
735,000 Envirotest System Corp., Sr. Notes, 9.125%, 03/15/01 .................... 681,712
67,000 Molten Metal Technology Inc., Sub. Notes, 5.50%, 05/01/06 ............... 41,875
500,000 Norcal Waste Systems Inc., Sr. Notes, Series B, 12.50% Incr. rate,
11/15/05 <F5> ........................................................... 557,500
-----------
1,281,087
<PAGE>
DAVIS HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
- --------- --------
CORPORATE BONDS AND NOTES - CONTINUED
EDUCATION - (0.40%)
$ 250,000 La Petite Holdings Corp., Sr. Secured Notes, 9.625%, 08/01/97..............$ 232,813
-----------
ELECTRONICS - (1.16%)
43,000 Andersen Group, Inc., Conv. Sub. Deb., 10.50%, 10/15/02.................... 36,604
360,000 Broadband Technologies Inc., Conv. Sub. Notes, 5.00%, 05/15/01............. 261,900
600,000 Comptronix Corp., Conv. Sub. Deb., 6.75%, 03/01/02<F2>..................... 27,000
690,498 Porta Systems Corp., Sr. Conv. Sub. Notes, Zero Cpn., 01/02/98<F2>......... 351,291
-----------
676,795
EQUIPMENT LEASING - (3.56%)
944,784 Alps 96-1 D Asset Backed Lease, Aircraft Lease CL D, 12.75%, 06/15/06...... 1,010,919
1,065,174 Central Transport Rental Finance Corp., Secured Notes, 9.50%, 04/30/03..... 990,612
670,700 Technical Equipment Leasing Corp., Jr. Sub. Deb., Series A, 18.375%,
04/01/96<F2><F6>......................................................... 67,070
-----------
2,068,601
FINANCIAL SERVICES AND INSURANCE - (2.72%)
50,000 CII Financial, Inc., Conv. Sub. Deb., 7.50%, 09/15/01...................... 46,750
500,000 Dollar Financial Group Inc., Sr. Notes, 10.875%, 11/15/06 <F5>............. 511,250
500,000 GPA Delaware Inc., Gtd. Notes, 8.75%, 12/15/98............................. 505,000
500,000 PennCorp Financial Group, Inc., Sr. Sub. Notes, 9.25%, 12/23/03............ 516,250
-----------
1,579,250
FOOD SERVICE - (4.97%)
500,000 Darling International Inc., 1st Priority Sr. Sub. Notes, 11.00%, 07/15/00.. 497,500
750,000 Envirodyne Industries, Inc., 1st Priority Sr. Secured Notes, 12.00%,
06/15/00................................................................. 810,000
500,000 Fresh Del Monte Produce N.V., Sr. Notes, Series B, 10.00%, 05/01/03 <F5>... 498,750
1,500,000 PM Holdings Corp., Sub. Disc. Deb., Series B, 0%/11.50%, 09/01/05.......... 1,083,750
-----------
2,890,000
GAS DISTRIBUTORS - (2.95%)
100,000 Amerigas Partners L.P., Sr. Notes, Series B, 10.125%, 04/15/07............ 105,750
630,000 Empire Gas Corp., Sr. Secured Notes, 7.00%/12.875%, 07/15/04............... 552,825
500,000 Statia Terminals International CDA Inc., 1st Mtg. Notes, 11.75%, 11/15/03.. 516,250
500,000 Trident NGL Holdings, Inc., Sub. Notes, 10.25%, 04/15/03................... 540,000
-----------
1,714,825
GROCERY - (4.67%)
690,000 Kroger Co., Lease Cert., 6.00%, 04/01/03................................... 651,294
675,000 Kroger Co., Lease Cert., 12.95%, 02/01/09.................................. 763,175
793,000 New Almacs Inc., Sr. Sub. Notes, 11.50%, 11/18/04<F2> ..................... 41,632
500,000 Safeway Inc., Sr. Secured Deb., 9.30%, 02/01/07............................ 549,735
1,000,000 Southland Corporation, Deb., 4.00%, 06/15/04............................... 707,500
-----------
2,713,336
<PAGE>
DAVIS HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
- ---------- --------
CORPORATE BONDS AND NOTES - CONTINUED
HEALTHCARE AND PHARMACEUTICAL - (6.67%)
$2,660,000 American Medical International, N.V., Euro Deb., Zero Cpn., 08/12/97 ... $ 2,581,862
863,000 Glycomed Inc., Conv. Sub. Deb., 7.50%, 01/01/03 ........................ 771,306
346,000 National Patent Developement Corp., Conv. Bds., 5.00%, 08/31/99 ........ 252,580
250,000 Regency Health Services, Inc., Sub. Notes, 12.25%, 07/15/03 <F5> ....... 268,750
-----------
3,874,498
HOTELS, LODGING & GAMING - (0.89%)
500,000 Courtyard By Marriott II, L.P., Sr. Secured Notes, 10.75%, 02/01/08 <F5> 514,375
-----------
LEISURE, ENTERTAINMENT & FITNESS - (4.25%)
500,000 Act III Theaters Inc., Sr. Sub. Notes, 11.875%, 02/01/03 ............... 538,750
250,000 Bally's Health & Tennis Corp., Sr. Sub. Notes, 13.00%, 01/15/03 ........ 242,500
250,000 Cinemark USA, Inc., Sr. Sub. Notes, 9.625%, 08/01/08 ................... 250,625
500,000 Spectrum Holobyte Inc., Conv. Sub. Notes, 6.50%, 09/15/02 <F5> ......... 393,750
1,050,000 Underwater World Mall of America, Sr. Rev. Bds., 13.75%, 03/01/02 <F5> . 1,047,375
-----------
2,473,000
METALS - (0.90%)
500,000 Florida Steel Corp., Deb., 11.50%, 12/15/00 ............................ 522,500
-----------
MOBILE & WIRELESS TELECOMMUNICATIONS - (2.35%)
500,000 Millicom International Cellular S.A., Sr. Sub. Disc. Notes, 0%/13.50%,
06/01/06 ............................................................... 327,500
750,000 Nextel Communications, Inc., Sr. Disc. Notes, 0%/9.75%, 08/15/04 ....... 510,000
556,000 Pronet, Inc., Sr. Sub. Notes, 11.875%, 06/15/05 ........................ 526,810
-----------
1,364,310
OIL & GASOLINE - (5.95%)
500,000 Clark Oil & Refining Corp., Sr. Notes, 10.50%, 12/01/01 ................ 515,000
1,000,000 Clark R & M Holdings Inc., Sr. Secured Notes, Series A, Zero Cpn.,
02/15/00 ............................................................... 732,500
500,000 Deeptech International, Inc., Sr. Secured Notes, 12.00%, 12/15/00 ...... 528,750
1,000,000 Gerrity Oil & Gas Corp., Sr. Sub. Notes, 11.75%, 07/15/04 .............. 1,085,000
500,000 HS Resources Inc., Sr. Sub. Notes, 9.875%, 12/01/03 .................... 506,250
100,000 Moran Energy Inc., Conv. Sub. Deb., 8.75%, 01/15/08 .................... 89,750
-----------
3,457,250
PAPER PRODUCTS - (1.52%)
2,000,000 Crown Packaging Enterprises, Ltd., Sr. Secured Disc. Notes, 0%/14%,
08/01/06 ............................................................... 350,000
500,000 Grupo Industrial Durango S.A. DE C.V., Notes, 12.00%, 07/15/01 ......... 533,125
-----------
883,125
PRECIOUS METALS - (3.59%)
1,170,000 Crown Resources Corp., Conv. Sub. Deb., 5.75%, 08/27/01 ................ 1,064,700
500,000 Echo Bay Mines Ltd., Capital Securities, 11.00%, 04/01/27 .............. 507,500
<PAGE>
DAVIS HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
- --------- ---------
CORPORATE BONDS AND NOTES - CONTINUED
PRECIOUS METALS - CONTINUED
$ 500,000 Royal Oak Mines Inc., Sr. Sub. Notes, Series B, 11.00%, 08/15/06 ...... $ 513,750
-----------
2,085,950
PROTECTION SERVICES - (0.26%)
150,000 Loomis Fargo and Company, Sr. Sub. Notes, 10.00%, 01/15/04 <F5> ....... 152,437
-----------
RESTAURANT - (0.39%)
250,000 TPI Enterprises Inc., Conv. Sub. Deb., 8.25%, 07/15/02 ................ 224,375
-----------
RETAIL - (0.51%)
300,000 Braun's Fashions Corp., Sr. Notes, 12.00%, 01/01/05 ................... 225,750
125,000 Emerson Radio Corp., Sr. Conv. Sub. Deb., 8.50%, 08/15/02 ............. 73,125
-----------
298,875
TELECOMMUNICATIONS - (5.23%)
400,000 American Communication Services, Inc., Sr. Disc. Notes, 0%/12.75%,
04/01/06 .............................................................. 223,000
500,000 EchoStar Communications Corp., Sr. Secured Disc. Notes, Zero Cpn.,
06/01/04 .............................................................. 430,000
1,000,000 ICG Holdings (Canada), Inc., Sr. Disc. Notes, 12.50%, 05/01/03 ........ 630,000
250,000 Nextlink Communications LLC, Sr. Notes, 12.50%, 04/15/06 <F5> ......... 253,125
500,000 UTS Hyperion Telecommunications, Sr. Disc. Notes, Series B, 7%/13.00%,
04/15/03 <F5> ......................................................... 278,750
1,000,000 Viatel Inc., Sr. Disc. Notes, 0%/15.00%, 01/15/05 ..................... 660,000
325,000 Winstar Communications Inc., Sr. Sub. Disc. Notes, Zero Cpn., 10/15/05 195,000
650,000 Winstar Communications, Inc., Sr. Disc. Notes, 0%/14.00%, 10/15/05 .... 367,250
-----------
3,037,125
TRANSPORTATION/SHIPPING - (2.13%)
250,000 Moran Transportation Co., 1st Preferred Shipping Mtg. Notes, Series B,
11.75%, 07/15/04 <F5> ................................................. 273,125
100,000 Piedmont Aviation Inc., Equip. Trust Certificates, Series `88 I, 9.55%,
05/08/98 .............................................................. 100,375
444,000 Preston Corp., Conv. Sub. Deb., 7.00%, 05/01/11 ....................... 294,150
500,000 TNT Transport (Europe) PLC/TNT (USA) Inc., Sr. Notes, 11.50%,
04/15/04 .............................................................. 571,875
-----------
1,239,525
UTILITIES - (1.56%)
750,000 Consolidated Hydro Inc., Sr. Disc. Notes, Zero Cpn., 07/15/03 ......... 307,500
500,000 Midland Funding Corporation II, Sub. Secured Lease, 13.25%, 07/23/06 .. 596,250
-----------
903,750
TOTAL CORPORATE BONDS AND NOTES (identified
cost $44,237,372) ..................................................... 44,219,309
-----------
<PAGE>
DAVIS HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
- --------- ----------
MORTGAGE BACKED BONDS - (4.19%)
$ 270,029 Capstead Securities Corp., IV, CMO, Series '92-7, CL Z-1, 8.75%, 05/25/23 $ 259,903
427,304 Chase Mortgage Finance Corp., Series '93-G-A1, REMIC, 7.00%, 04/25/01 ... 424,582
264,875 Citicorp Mtg. Securities, Inc., Series '89-16, 6.43%, 04/01/19 .......... 253,949
293,852 Federal Home Loan Mortgage Corporation, CMO, Series '94, CL 1628 F,
7.40%, 02/15/14 ......................................................... 303,561
100,000 Federal Home Loan Mortgage Corporation, CMO, Series '93, CL 1630 E,
6.00%, 09/15/23 ......................................................... 84,003
243,343 Federal Home Loan Mortgage Corporation, REMIC, Series '93, CL 1567 A,
5.837%, 08/15/23 ........................................................ 215,055
300,299 First Nationwide Trust, Series '89-AR4-1, 9.50%, 09/25/19 ............... 299,498
90,113 Household Finance Corp., Equity Loan Asset Backed Certificates,
Series `92, CL A-3, 5.80%, 04/20/07 ..................................... 89,324
184,193 Manufacturers Hanover Mortgage Corporation, Series A, 11.50%, 04/20/15 .. 190,409
179,000 The Prudential Mortgage Securities Company, Mtg. Pass-Through
Certificates, Series '92-038, CL A-8, Fixed Rate, 6.95%, 11/25/22 ....... 157,384
126,983 Resolution Trust Corporation, American Res. Mtg. Corp., Service Mtg .....
Pass-Through Certificates, Series '92-7, CL A-1, 6.825%, 03/25/22 ....... 109,840
10,529 Resolution Trust Corporation, REMIC, Series `92 M-3, CL A-2, 8.625%,
07/25/30 ................................................................ 10,069
39,000 Ryland Acceptance Corporation Four, CMO, Series '85, CL D, 9.25%,
04/01/12 ................................................................ 39,105
-----------
TOTAL MORTGAGE BACKED BONDS (identified cost $2,380,057) ................ 2,436,682
-----------
TAXABLE MUNICIPAL BONDS - (9.77%)
497,933 Adams Cnty., CO, IDR Series A Pool Gtd. - Executive Life, 9.00%,
11/01/96<F1> ............................................................ 41,875
540,000 Alaska St. HFC, 1st Mtg. Bds, Series G, 10.55%, 01/15/18 ................ 535,351
300,000 Commerce Refuse to Energy Auth., Taxable Ref. Rev. Bds., '90 Series,
10.50%, 07/01/00 ........................................................ 306,315
52,623 El Paso Hsg. Fin. Corp., Multi-Fam. Res. Loan Program, Securitized Mult-
Fam. Hsg. Rev. Bds., Series '86A, 8.88%, 10/15/96<F1> ................... 12,188
100,000 Galveston Cnty., TX, Wtr. Auth., Canal Sys. Contract Wtr. Rev. Bds.,
AMBAC Insured, 9.60%, 07/01/99 .......................................... 103,948
170,000 Galveston Cnty., TX, Wtr. Auth., Canal Sys. Contract Wtr. Rev. Bds.,
AMBAC Insured, 9.80%, 07/01/01 .......................................... 177,120
424,000 Illinois HFA Rev. Bds., Series C, MBIA, 10.30%, 08/15/03 ................ 433,264
200,000 Lancaster, TX, Combined Tax & Golf Course Park Rev. Bds., Series B,
Certificates of Obligation, MBIA Insured, 9.375%, 08/01/02 .............. 207,198
46,973 Louisiana HFA Multi Fam. Mtg. Rev. Bds., Gtd. Executive Life, 8.61%,
08/01/96<F1> ............................................................ 6,250
<PAGE>
DAVIS HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL/SHARES/UNITS (NOTE 1)
- ---------------------- ----------
TAXABLE MUNICIPAL BONDS - CONTINUED
$ 53,911 Louisiana St. Agriculture Fin. Auth., Security Agriculture Rev. Bds.,
Series A, Gtd. Executive Life, 8.80%, 10/01/96<F1> ........................$ 6,250
1,825,000 Massachusetts St. HFA Res., Series C, 10.90%, 08/01/20 .................... 1,890,298
265,000 Mayor and City Council of Baltimore, Econ. Dev. Taxable Lease Rev. Bds ....
(Arcade Ltd. Partnership Prj.) Series '92, 8.50%, 08/01/02 ................ 275,507
313,216 Memphis, TN Hlth. Educ. & Hsg. Fac. Brd., Multi Fam. Hsg. Rev .............
Securitized, Series '86A, 8.68%, 09/15/96<F1> ............................. 42,697
115,000 Missouri St., Hsg. Dev. Cmnty., Multi Fam. Hsg. Rev. Bds., FHA Insured
Mtg. Loans, 9.25%, 12/01/30 ............................................... 120,663
5,897 Nebraska Invst. Fin. Auth., Agriculture Rev. Bds., Series A, Gtd. Executive
Life, 8.34%, 11/01/93<F1> ................................................. 1,250
440,000 New York St. HFA Rev. Multi Fam. Mtg. Series B, Sonyma Prg ................
Insurance, 8.875%, 08/15/14 ............................................... 451,999
820,995 Polk Cnty., FL, HFA REMIC Collateralized Mtg. Bds., Series 1, CL 2-A,
9.55%, 01/15/11 ........................................................... 833,474
402,646 The Southeast TX Hsg. Fin. Corp. Securitized Multi Fam. Hsg. Rev. Bds .....
Series '86A, 8.60%, 09/01/96<F1> .......................................... 50,438
25,000 Utah St. Hsg. Fin. Agy. Sngl. Fam. Mtg., Series A, 9.40%, 07/01/99 ........ 26,032
2,460,000 Wagner College, NY, G.O. Capital Apprecation Bds., Zero Cpn., 10/01/22 .... 157,661
-----------
TOTAL TAXABLE MUNICIPAL BONDS - (identified
cost $6,627,118).................................................... 5,679,778
-----------
PREFERRED STOCKS - (0.07%)
6,200 Westmoreland Coal Co., Dep. Shares Conv. Pfd., Series A, 8.50%<F2>
(identified cost $80,910) ................................................. 40,300
-----------
COMMON STOCKS - (2.51%)
16,920 Advanced Medical, Inc<F3> ................................................. 71,910
135,951 Canyon Resources Corporation<F3> .......................................... 407,853
260,000 Crown Packaging Enterprises Ltd.<F3> ...................................... 2,600
2,707 Pegasus Media & Communications, Class A<F3><F5> ........................... 29,946
17,460 Porta Systems Corporation<F3> ............................................. 34,920
852,880 Sunshine Mining & Refining Co.<F3> ........................................ 746,270
24,066 Viatel Inc.<F3><F5> ....................................................... 162,446
-----------
TOTAL COMMON STOCKS (identified cost $1,998,582) .......................... 1,455,945
-----------
WARRANTS - (0.20%)
500 Chattem Inc., expire 6/17/99 .............................................. 1,000
869 Empire Gas Corp., expire 07/15/04 ......................................... 43,450
<PAGE>
DAVIS HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997
- --------------------------------------------------------------------------------
VALUE
UNITS/PRINCIPAL (NOTE 1)
- ---------------- ----------
WARRANTS - CONTINUED
100 Spanish Broadcasting Systems, Inc., expire 06/30/99........................$ 2,000
21,825 Sunshine Mining & Refining Co., expire 03/09/99............................ 7,843
500 UTS Hyperion Telecommunicatoins, expire 04/01/01<F5>....................... 15,000
205 Wright Medical Technology, Inc., expire 06/30/03<F5>....................... 24,600
-----------
TOTAL WARRANTS (identified cost $18,291).................... 113,893
-----------
SHORT TERM - (6.25%)
$3,635,000 State Street Bank and Trust Company Repurchase Agreement, 5.75%,
04/01/97, dated 03/31/97, repurchase value of $3,635,581 (collateralized
by $3,725,000 par value U.S. Treasury Notes, 4.75%, 10/31/98, market
value $3,708,590) - (identified cost $3,635,000) ....................... 3,635,000
-----------
TOTAL INVESTMENTS (identified cost $58,977,330) -
(99.08%)<F4> .............................................. 57,580,907
OTHER ASSETS LESS LIABILITIES - (0.92%) ..................... 533,161
-----------
NET ASSETS - 100% .........................................$58,114,068
===========
<FN>
<F1>
These securities are in default but have made partial payments.
<F2>
These securities are in default and are not currently paying interest or
dividends.
<F3>
Non-income producing security.
<F4>
Aggregate cost for Federal income tax purposes is $58,977,330.
<F5>
These securities are subject to Rule 144A. The Board of Directors of the
Fund has determined that there is sufficient liquidity in these securities
to realize current valuations.
<F6>
Non-marketable securities valued in good faith by the Board of Directors.
</FN>
At March 31, 1997, unrealized appreciation (depreciation) of securities for
Federal income tax purposes was as follows:
Unrealized appreciation.................................................$ 2,697,149
Unrealized depreciation................................................. (4,093,572)
-----------
Net unrealized depreciation.......................................$(1,396,423)
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DAVIS HIGH INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
At March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value (identified cost $ 58,977,330) (Note 1)............. $ 57,580,907
Cash ................................................................................... 14,752
Receivables:
Interest............................................................................ 1,022,056
Capital stock sold.................................................................. 167,757
Investments sold.................................................................... 41,605
--------------
Total assets................................................................... 58,827,077
---------------
LIABILITIES:
Payables:
Capital stock reacquired............................................................ 91,291
Investments purchased............................................................... 541,486
Accrued expenses........................................................................ 80,232
--------------
Total liabilities.............................................................. 713,009
--------------
NET ASSETS (NOTE 5).......................................................................... $ 58,114,068
==============
CLASS A SHARES
Net assets.............................................................................. $ 47,890,262
Shares outstanding...................................................................... 10,157,891
Net asset value and redemption price per share (net assets/shares outstanding).......... $ 4.71
========
Maximum offering price per share (100/95.25 of $4.71)<F1>............................... $ 4.94
========
CLASS B SHARES
Net assets.............................................................................. $ 10,216,830
Shares outstanding...................................................................... 2,183,880
Net asset value, offering and redemption price per share (net assets/shares outstanding) $ 4.68
========
CLASS Y SHARES
Net assets.............................................................................. $ 6,976
Shares outstanding...................................................................... 1,477
Net asset value, offering and redemption price per share (net assets/shares outstanding) $ 4.72
========
NET ASSETS CONSIST OF:
Unrealized depreciation of investments.................................................. $ (1,396,423)
Accumulated net realized loss on investments............................................ (22,352,829)
Paid-in capital......................................................................... 81,863,320
--------------
Net assets.......................................................................... $ 58,114,068
==============
<FN>
<F1> On purchases of $100,000 or more, the offering price is reduced.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DAVIS HIGH INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the year ended March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest............................................................................ $ 5,717,232
---------------
Expenses:
Management fees (Note 3)............................................... 419,844
Custodian fees......................................................... 91,007
Transfer agent fees
Class A........................................................... 67,711
Class B........................................................... 10,681
Class Y........................................................... 3
Audit fees............................................................. 29,483
Legal fees............................................................ 17,255
Accounting fees (Note 3)............................................... 14,663
Reports to shareholders................................................ 31,282
Directors' fees and expenses........................................... 24,178
Registration and filing fees (Note 3).................................. 47,360
Miscellaneous.......................................................... 10,924
Commissions paid under distribution plan (Note 4):
Class A.......................................................... 98,840
Class B........................................................... 86,015
----------
Total expenses............................................................. 949,246
Fee reduction (Note 7) .................................................... (3,901)
--------------
Net expenses............................................................... 945,345
--------------
Net investment income...................................................... 4,771,887
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from investment transactions......................................... (452,398)
Net increase in unrealized depreciation of investments during the period................ (260,076)
--------------
Net realized and unrealized loss on investments................................ (712,474)
--------------
Net increase in net assets resulting from operations........................... $ 4,059,413
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DAVIS HIGH INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED MARCH 31,
OPERATIONS: 1997 1996
---- ----
<S> <C> <C>
Net investment income............................................. $ 4,771,887 $ 5,417,365
Net realized loss from investment transactions................... (452,398) (80,868)
Net (increase) decrease in unrealized depreciation of investments. (260,076) 383,278
--------------- ---------------
Net increase in net assets resulting from operations..... 4,059,413 5,719,775
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ($0.39 and $0.43 per share, respectively)............. (4,139,503) (5,039,427)
Class B ($0.36 and $0.40 per share, respectively)............. (632,384) (377,939)
Paid-in capital
Class A ($0.07 and $0.05 per share, respectively)............. (752,105) (525,379)
Class B ($0.06 and $0.04 per share, respectively)............. (114,589) (46,649)
CAPITAL SHARE TRANSACTIONS (Note 5)................................... (721,597) 2,379,133
--------------- ---------------
Total increase (decrease) in net assets.................. (2,300,765) 2,109,514
NET ASSETS:
Beginning of year................................................. 60,414,833 58,305,319
--------------- ---------------
End of year....................................................... $ 58,114,068 $ 60,414,833
=============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DAVIS HIGH INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended March 31, 1997
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The Company is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company. Its primary objective
is to achieve a high level of current income. The Company also seeks capital
growth so long as such objective is consistent with its primary objective. The
Company invests primarily in high yield, high risk, low rated and unrated bonds
commonly referred to as "junk bonds." Such securities are speculative and
subject to greater market fluctuations and risk of loss of income and principal
than higher rated bonds. On December 1, 1994, the Company commenced the offering
of shares in two classes, Class A and Class B. The Class A shares are sold with
a front-end sales charge and the Class B shares are sold at net asset value and
may be subject to a contingent deferred sales charge upon redemption. On
September 1, 1996, the Company commenced the offering of Class Y shares which
are sold at net asset value with no initial or contingent deferred sales charge.
All classes have identical rights with respect to voting (exclusive of each
Class' distribution arrangement), liquidation and distributions. The following
is a summary of significant accounting policies followed by the Company in the
preparation of its financial statements.
SECURITY VALUATION.
Fixed income securities may be valued on the basis of prices provided by a
pricing agent when such prices are believed to reflect the fair market value of
such securities. (Pricing agents generally take into account institutional size
trading in similar groups of securities). Securities not priced in this manner
will be priced at the last published sales price if traded on that day and, if
not traded, at the mean between the most recent quoted bid and asked prices
provided by investment dealers. The pricing service and valuation procedures are
reviewed and subject to approval by the Board of Directors. If no quotations are
available, securities will be valued at fair value as determined in good faith
by the Board of Directors. Short-term obligations are valued at amortized cost,
which approximates value.
FEDERAL INCOME TAXES.
It is the Company's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders. Therefore, no provision
for federal income tax is required. At March 31, 1997, the Fund had
approximately $22,353,000 of capital loss carryovers available to offset future
capital gains, if any, of which $4,918,000, $7,606,000, $4,382,000, $1,409,000,
$3,505,000, $81,000 and $452,000 expire in 1998, 1999, 2000, 2001, 2003, 2004
and 2005, respectively.
SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME.
Securities transactions are accounted for on the trade date (date the order to
buy or sell is executed) with gain or loss on the sale of securities being
determined based upon identified cost. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Discounts
and premiums on debt securities are amortized in accordance with the
requirements of the Internal Revenue Code.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS.
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
<PAGE>
DAVIS HIGH INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended March 31, 1997
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
USE OF ESTIMATES IN FINANCIAL STATEMENTS.
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements, as well as the reported amounts of income and expenses during the
reporting period. Actual results may differ from these estimates.
NOTE 2 - PURCHASES AND SALES OF SECURITIES.
Purchases and sales of investment securities (excluding short term securities)
during the year ended March 31, 1997, were $36,129,104 and $35,524,210,
respectively.
NOTE 3 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
The Company pays advisory fees for investment management and advisory services
under a management agreement with Davis Selected Advisers, L.P. (the "Adviser").
Effective May 1, 1996, the management agreement was amended and the monthly fee
was changed to .0583 of 1% (equivalent to .70 of 1% per annum) of the first $250
million of average daily net assets of the Company. Prior to May 1, 1996, the
monthly fee was .0625 of 1% (equivalent to .75 of 1% per annum) of the first
$250 million of average daily net assets of the Company. Davis Selected
Advisers, L.P. is paid for registering Company shares for sale in various
states. The fee for the year ended March 31, 1997 amounted to $12,000. Davis
Selected Advisers, L.P. is paid for certain transfer agent services. The fee for
the year ended March 31, 1997 amounted to $6,713. Davis Selected Advisers, L.P.
is also paid for certain accounting services. The fee for the year ended March
31, 1997 amounted to $14,663. Certain directors and officers of the Company are
also directors and officers of the general partner of Davis Selected Advisers,
L.P.
NOTE 4 - DISTRIBUTION AND UNDERWRITING FEES
CLASS A SHARES
Class A shares of the Company are sold at net asset value plus a sales
charge and are redeemed at net asset value (without a contingent deferred sales
charge).
During the year ended March 31, 1997, the Company's Underwriter, Davis
Selected Advisers, L.P., received $123,695 from commissions earned on sales of
Class A shares of the Fund of which $18,983 was retained by the Underwriter and
the remaining $104,712 was reallowed to investment dealers. Davis Selected
Advisers, L.P. paid the costs of prospectuses in excess of those required to be
filed as part of the Company's registration statement, sales literature and
other expenses assumed or incurred by it in connection with such sales.
The Underwriter is reimbursed for amounts paid to dealers as a
maintenance fee with respect to Class A shares sold by dealers and remaining
outstanding during the period. The maintenance fee is paid at the annual rate of
1/4 of 1% of the average net assets maintained by the responsible dealers. The
Underwriter is not reimbursed for accounts in which the Underwriter pays no
service fees to other firms. The maintenance fee for Class A shares of the
Company for the year ended March 31, 1997 was $98,840.
<PAGE>
DAVIS HIGH INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended March 31, 1997
- --------------------------------------------------------------------------------
NOTE 4 - DISTRIBUTION AND UNDERWRITING FEES - (CONTINUED)
CLASS B SHARES
Class B shares of the Company are sold at net asset value and are
redeemed at net asset value less a contingent deferred sales charge if redeemed
within six years of purchase.
The Company pays the Distributor a 4% commission on the proceeds from the
sale of the Company's Class B shares and the Distributor reallows 4% to the
qualified dealer responsible for the sale of the shares. A rule implemented by
the National Association of Securities Dealers, Inc., ("NASD") limits the
percentage of the Company's annual average net assets attributable to Class B
shares which may be used to reimburse the Distributor. The limit is 1%, of which
0.75% may be used to pay distribution expenses and 0.25% may be used to pay
shareholder service fees. The NASD rule also limits the aggregate amount the
Company may pay for distribution to 6.25% of gross sales since inception of the
Rule 12b-1 plan plus interest at 1% over the prime rate on unpaid amounts. The
Distributor intends to seek full payment (plus interest at prime plus 1%) of
distribution charges that exceed the 1% annual limit in some future period or
periods when the plan limits have not been reached.
For the year ended March 31, 1997, Class B shares of the Company made
distribution plan payments which included commissions of $65,176 and maintenance
fees of $20,839.
Commissions earned by the Distributor for the year ended March 31, 1997
on the sale of Class B shares of the Company amounted to $162,171 of which
$157,210 was reallowed to qualified selling dealers.
The Distributor intends to seek payment from Class B shares of the
Company in the amount of $231,916, representing the cumulative commissions
earned by the Distributor on the sale of the Company's Class B shares reduced by
cumulative commissions paid by the Company and cumulative contingent deferred
sales charge paid by redeeming shareholders. The Company has no contractual
obligation to pay any such distribution charges and the amount, if any, timing
and condition of such payment are solely within the discretion of the Directors
who are not interested persons of the Company or the Distributor.
A contingent deferred sales charge is imposed upon redemption of certain
Class B shares of the Company within six years of the original purchase. The
charge is a declining percentage starting at 4% of the lesser of net asset value
of the shares redeemed or the total cost of such shares. For the year ended
March 31, 1997 the Distributor received contingent deferred sales charges of
$18,454 from redemptions of Class B shares of the Company.
<PAGE>
DAVIS HIGH INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended March 31, 1997
- --------------------------------------------------------------------------------
NOTE 5 - CAPITAL STOCK
At March 31, 1997, there were 1,000,000,000 shares of capital stock ($0.05 par
value per share) authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
CLASS A FOR THE YEAR ENDED
MARCH 31, 1997
---------------------
SHARES AMOUNT
-------- -------
<S> <C> <C>
Shares subscribed............................................................. 1,237,463 $ 5,873,114
Shares issued to shareholders in connection with reinvestment of distributions 647,205 3,066,164
------------ ------------
1,884,668 8,939,278
Shares reacquired............................................................. (2,841,857) (13,495,219)
------------ ------------
Net decrease.......................................................... (957,189) $ (4,555,941)
============ ============
FOR THE YEAR ENDED
MARCH 31, 1996
--------------------
SHARES AMOUNT
------ ------
Shares subscribed............................................................. 2,023,310 $ 9,816,406
Shares issued to shareholders in connection with reinvestment of distributions 704,353 3,408,315
------------ ------------
2,727,663 13,224,721
Shares reacquired............................................................. (3,213,613) (15,601,779)
------------ ------------
Net decrease.......................................................... (485,950) $ (2,377,058)
============ ============
CLASS B FOR THE YEAR ENDED
MARCH 31, 1997
----------------------
SHARES AMOUNT
--------- --------
Shares subscribed............................................................. 1,230,183 $ 5,801,708
Shares issued to shareholders in connection with reinvestment of distributions 76,289 358,617
------------ ------------
1,306,472 6,160,325
Shares reacquired............................................................. (495,300) (2,332,982)
------------ ------------
Net increase.......................................................... 811,172 $ 3,827,343
============ ============
FOR THE YEAR ENDED
MARCH 31, 1996
---------------------
SHARES AMOUNT
------ ------
Shares subscribed............................................................. 1,288,020 $ 6,239,050
Shares issued to shareholders in connection with reinvestment of distributions 33,677 162,136
------------ ------------
1,321,697 6,401,186
Shares reacquired............................................................. (340,802) (1,644,995)
------------ ------------
Net increase.......................................................... 980,895 $ 4,756,191
============ ============
<PAGE>
DAVIS HIGH INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended March 31, 1997
- --------------------------------------------------------------------------------
NOTE 5 - CAPITAL STOCK - (CONTINUED)
CLASS Y FOR THE YEAR ENDED
MARCH 31, 1997
--------------------
SHARES AMOUNT
------ ------
Shares subscribed............................................................. 1,477 $ 7001
Shares issued to shareholders in connection with reinvestment of distributions - -
----------- ------------
1,477 7,001
Shares reacquired............................................................. - -
----------- ------------
Net increase.......................................................... 1,477 $ 7,001
============= ============
</TABLE>
NOTE 6 - MATTERS SUBMITTED TO A VOTE OF SHAREHOLDERS
An annual meeting of shareholders was held on March 25, 1997. Matters
submitted for approval included consideration of a Sub-Advisory Agreement
between Davis Selected Advisers, L.P., the Investment Adviser of the Company,
and Davis Selected Advisers-NY, Inc., an affiliate of the Adviser and election
of Christian R. Sonne, LeRoy E. Hoffberger and Jeremy H. Biggs as directors of
the Company. With respect to consideration of the Sub-Advisory Agreement,
6,986,732 votes were cast in favor, 92,149 votes were cast against and 475,570
votes abstained. With respect to the election of Mr. Sonne, 7,230,963 votes were
cast in favor and 323,488 votes were withheld. With respect to the election of
Mr. Hoffberger, 7,246,548 votes were cast in favor and 307,903 votes were
withheld. With respect to the election of Mr. Biggs, 7,230,963 votes were cast
in favor and 323,488 votes were withheld. The terms of office of Wesley E. Bass,
Jr., Marc P. Blum, Shelby M.C. Davis, Eugene M. Feinblatt, Jerry D. Geist, D.
James Guzy, G. Bernard Hamilton, Laurence W. Levine and Edwin R. Werner also
continued after the meeting.
NOTE 7 - CUSTODY FEES
Under an agreement with the custodian bank, custody fees are reduced by
credits for cash balances. Such reductions amounted to $3,901 during the year
ended March 31, 1997.
<PAGE>
DAVIS HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following represents selected data for a share of capital stock outstanding
throughout each period.
<TABLE>
CLASS A
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.............. $4.84 $4.86 $5.14 $5.18 $4.92
----- ----- ----- ----- -----
Income From Investment Operations
- ---------------------------------
Net Investment Income........... 0.39 0.43 0.46 0.50 0.61
Net Gains or Losses on
Securities (both realized
and unrealized)................ (0.06) 0.03 (0.24) 0.06 0.25
----- ----- ----- ----- -----
Total From Investment
Operations................ 0.33 0.46 0.22 0.56 0.86
----- ----- ----- ----- -----
Less Distributions
- ------------------
Dividends (from net
investment income)............. (0.39) (0.43) (0.46) (0.50) (0.60)
Returns of Capital............... (0.07) (0.05) (0.04) - -
Distribution in Excess of
Realized Gains................. - - - (0.10) -
----- ----- ----- ----- -----
Total Distributions.......... (0.46) (0.48) (0.50) (0.60) (0.60)
Net Asset Value,
End of Period.................... $4.71 $4.84 $4.86 $5.14 $5.18
===== ===== ===== ===== =====
Total Return <F1>................... 7.08% 9.93% 4.69% 11.29% 18.81%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000 omitted).................. $47,890 $53,816 $56,405 $64,663 $38,305
Ratio of Expenses to
Average Net Assets............. 1.48% 1.51% 1.53% 1.48% 1.81%
Ratio of Net Income to <F2>
Average Net Assets............. 8.13% 8.92% 9.49% 9.31% 11.91%
Portfolio Turnover Rate.......... 66.10% 118.34% 98.94% 98.31% 84.93%
<FN>
<F1>Sales charges are not reflected in calculation.
<F2>
Ratio of expenses to average net assets after the reduction of custodian fees
under a custodian agreement was 1.47% for 1996. Prior to 1996, such reductions
were reflected in the expense ratios.
</FN>
</TABLE>
<PAGE>
DAVIS HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following represents selected data for a share of capital stock outstanding
throughout each period.
<TABLE>
<CAPTION>
--------CLASS B -------------- -----CLASS Y-----
DECEMBER 5, 1994 MARCH 20, 1997
(COMMENCEMENT (COMMENCEMENT
YEAR OF OPERATIONS) OF OPERATIONS)
ENDED THROUGH THROUGH
MARCH 31, MARCH 31, MARCH 31,
1997 1996 1995 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................ $4.81 $4.85 $4.80 $4.74
----- ----- ----- -----
Income From Investment Operations
- ---------------------------------
Net Investment Income............. 0.36 0.40 0.11 -
Net Gains or Losses on
Securities (both realized
and unrealized).................. (0.07) - 0.05 (0.02)
----- ----- ----- -----
Total From Investment
Operations.................. 0.29 0.40 0.16 (0.02)
----- ----- ----- -----
Less Distributions
- ------------------
Dividends (from net -
investment income)............... (0.36) (0.40) (0.11)
Returns of Capital................. (0.06) (0.04) - -
----- ---- ----- -----
Total Distributions............ (0.42) (0.44) (0.11) -
Net Asset Value,
End of Period...................... $4.68 $4.81 $4.85 $4.72
===== ===== ===== =====
Total Return <F1>........................ 6.26% 8.68% 4.28% (0.42)%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000 omitted).................... $10,217 $6,599 $1,900 $7
Ratio of Expenses to
Average Net Assets............... 2.30% 2.32% 2.36%<F3> 1.21%<F2><F3>
Ratio of Net Income to <F2>
Average Net Assets............... 7.28% 8.11% 8.66%<F3> 8.89%<F3>
Portfolio Turnover Rate............ 66.10% 118.34% 98.94% 66.10%
<FN>
<F1>
Sales charges are not reflected in calculation.
<F2>
Ratios of expenses to average net assets after the reduction of custodian fees
under a custodian agreement were 2.29% and 1.20% for Class B and Class Y,
respectively for 1996. Prior to 1996, such reductions were reflected in the
expense ratios.
<F3>
Annualized
</FN>
</TABLE>
<PAGE>
DAVIS HIGH INCOME FUND, INC.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF DAVIS HIGH INCOME FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Davis High Income Fund, Inc., including the schedule of investments, as of March
31, 1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Davis High Income Fund, Inc. as of March 31, 1997, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
May 2, 1997
DAVIS HIGH
INCOME FUND, INC.
124 East Marcy Street, Santa Fe, New Mexico 87501
DIRECTORS OFFICERS
Jeremy H. Biggs Jeremy H. Biggs
Wesley E. Bass, Jr. Chairman
Marc P. Blum Shelby M.C. Davis
Shelby M.C. Davis President
Eugene M. Feinblatt Eileen R. Street
Jerry D. Geist Vice President, Treasurer
D. James Guzy & Assistant Secretary
G. Bernard Hamilton Samuel P. Ynzunza
LeRoy E. Hoffberger Vice President & Secretary
Laurence W. Levine Andrew A. Davis
Christian R. Sonne Vice President
Edwin R. Werner Christopher C. Davis
Vice President
Carolyn H. Spolidoro
Vice President
Sharra L. Reed
Assistant Treasurer
& Assistant Secretary
INVESTMENT ADVISER & DISTRIBUTOR
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
TRANSFER AGENT & CUSTODIAN
State Street Bank & Trust Company
c/o The Davis Funds
P. O. Box 8406
Boston, MA 02266-8406
AUDITORS
Tait, Weller & Baker
Two Penn Center Plaza Suite 700
Philadelphia, PA 19102-1707
COUNSEL
D'Ancona & Pflaum
30 North LaSalle Street
Chicago, Illinois 60602
FOR MORE INFORMATION ABOUT DAVIS HIGH INCOME FUND, INCLUDING MANAGEMENT FEE,
CHARGES AND EXPENSES, SEE THE CURRENT PROSPECTUS WHICH MUST PRECEDE OR ACCOMPANY
THIS REPORT.
9605-15 DHIF80
