DAVIS HIGH INCOME FUND INC, 485BPOS, 1997-08-01

DAVIS HIGH INCOME FUND INC
485BPOS, 1997-08-01

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________

FORM N-1A

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933

REGISTRATION NO. 2-66935

POST-EFFECTIVE AMENDMENT NO. 26

and

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940

REGISTRATION NO. 811-3007

AMENDMENT NO. 25

DAVIS HIGH INCOME FUND, 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)

- or -

Samuel P. Ynzunza
General Counsel
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
(1-505-820-3055)

It is proposed that this filing will become effective:

-----immediately upon filing pursuant to paragraph (b)
X on August 1, 1997 pursuant to paragraph (b)(ix)
-----

<PAGE>

-----60 days after filing pursuant to paragraph (a)
-----on ----------, 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 30, 1997.

FORM N-1A
DAVIS HIGH INCOME FUND, INC.-CLASS A, CLASS B AND CLASS C SHARES

POST-EFFECTIVE AMENDMENT NO. 26 TO REGISTRATION STATEMENT
NO. 2-66935 UNDER THE SECURITIES ACT OF 1933 AND AMENDMENT
NO. 25 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-Advisers and Distributor; Distribution Plans;
Purchase of Shares; Summary; Investment Objectives and
Policies
5A Management's Discussion of Fund Performance (contained in
the 1997 Annual Report)
6 Summary; Shareholder Inquiries; Dividends and Distributions;
Federal Income Taxes; Fund Shares
7 Purchase of Shares; Adviser, Sub-Advisers 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 Directors and Officers

15 Certain Shareholders of the Fund
16 Investment Advisory Services; Custodian; Auditors; Determining
the Price of Shares; Distribution of Fund Shares
17 Portfolio Transactions
18 *
19 Determining the Price of Shares; Reduction of Class A Sales
Charges
20 *
21 *

2
<PAGE>

22 Performance Data Financial Statements are incorporated by
reference from the 1997 Annual Report to Shareholders.

_______________________
* INCLUDED IN PROSPECTUS

FORM N-1A
DAVIS HIGH INCOME FUND, INC.-CLASS Y SHARES
-------------------------------------------

POST-EFFECTIVE AMENDMENT NO. 26 TO REGISTRATION
STATEMENT NO. 2-66935 UNDER THE SECURITIES ACT OF
1933 AND AMENDMENT NO. 25 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-Advisers and Distributor; Purchase of Shares;

Summary; Investment Objectives and Policies
5A Management's Discussion of Fund Performance (contained in
the 1997 Annual Report)
6 Summary; Shareholder Inquiries; Dividends and Distributions;
Federal Income Taxes; Fund Shares

7 Purchase of Shares; Advisers, Sub-Advisers 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 Directors and Officers

15 Certain Shareholders of the Fund

16 Investment Advisory Services; Custodian; Auditors; Determining
the Price of Shares; Distribution of Fund Shares
17 Portfolio Transactions
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
1997 Annual Report to Shareholders

_______________________
*INCLUDED IN PROSPECTUS

<PAGE>
PROSPECTUS AUGUST 1, 1997

CLASS A, CLASS B AND CLASS C

DAVIS HIGH INCOME FUND, INC.
124 EAST MARCY STREET
SANTA FE, NEW MEXICO 87501
1-800-279-0279

<TABLE>
<CAPTION>
MINIMUM INVESTMENT PLANS AVAILABLE
<S> <C>
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
</TABLE>

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 four classes of shares, Class A, B, C and Y, each having
different expense levels and sales charges. These alternatives permit you to
choose the method of purchasing shares that is most beneficial to you, depending
on the amount of the purchase, the length of time you expect to hold the shares
and other circumstances. The Class Y shares, available only to certain qualified
institutional investors, are offered through a separate prospectus. For more
information about the Class Y shares, see "Purchase of Shares--Alternative
Purchase Arrangements."

This Prospectus concisely sets forth information about the Class A, Class B
and Class C shares of the Fund that prospective investors should know before
investing. It should be read carefully and retained for future reference. A
Statement of Additional Information dated August 1, 1997, 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.
<PAGE>
SUMMARY

FUND EXPENSES. The following table is intended to assist you in
understanding the various costs and expenses that an investor in the Class A, B
and C shares of the Fund will bear directly or indirectly. The information is
based on the Fund's fiscal year ended March 31, 1997. 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, Sub-Advisers and Distributor" and
"Purchase of Shares" for more information on transaction and operating expenses
of the Fund.

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------- --------- ----------- -----------
<S> <C> <C> <C>
Maximum sales load imposed on purchases.............................................. 4.75% None None
Maximum sales load imposed on reinvested dividends................................... None None None
Deferred sales load (a declining percentage of the
lesser of the net asset value of the shares
redeemed or the total cost of such shares)
Redeemed during first year..................................................... 0.75* 4.00% 1.00%
Redeemed during second or third year........................................... None 3.00% None
Redeemed during fourth or fifth year........................................... None 2.00% None
Redeemed during sixth year..................................................... None 1.00% None
Redeemed after sixth year...................................................... None None None
Exchange Fee....................................................................... None None None
</TABLE>

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees...................................................................... 0.70% 0.70% 0.70%
12b-1 fees**......................................................................... 0.19% 0.99% 1.00%
Transfer Agent Fees.................................................................. 0.12% 0.14% 0.14%
Other expenses....................................................................... 0.47% 0.47% 0.47%
--------- ----------- -----------
Total Fund operating expenses........................................................ 1.48% 2.30% 2.31%
</TABLE>

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

* On certain Class A shares purchased after August 1, 1997 and redeemed
during the first year after purchase, there is a 0.75% deferred sales charge.

** 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 the applicable
rules of the National Association of Securities Dealers, Inc.

2
<PAGE>
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:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Class A...................................................................... $62 $92 $124 $216
Class B...................................................................... $53 $92 $133 N/A
Class B (assuming no redemption at end of period)............................ $23 $72 $123 N/A
Class C...................................................................... $23 $72 $124 $265
Class C (assuming no redemption at end of period)............................ $23 $72 $124 $265
</TABLE>

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 four classes of shares, Class A, B, C and Y. Class
A shares may be purchased at a price equal to their net asset value per share
plus a front-end sales charge imposed at the time of purchase. Purchases of $1
million or more of Class A shares may be purchased at net asset value, but
shares purchased after August 1, 1997 are subject to a 0.75% contingent deferred
sales charge ("CDSC") on redemptions made within one year of purchase. Class B
shares may be purchased at net asset value with no front-end sales charge but
are subject to a CDSC on most redemptions made within six years after purchase.
Class C shares may also be purchased at net asset value but are subject to a
CDSC of 1% on redemptions made within one year after purchase. These
alternatives permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares, and other circumstances. Each class of
shares pays a Rule 12b-1 distribution fee at an annual rate not to exceed (i)
for Class A shares, 0.25% of the Fund's aggregate average daily net assets
attributable to the Class A shares and (ii) for Class B and C shares, 1.00% of
the Fund's aggregate average daily net assets attributable to such class. The
purpose and function of the deferred sales charge and distribution fee with
respect to the Class B and Class C shares is the same as those of the front-end
sales charge and distribution services fee with respect to the Class A shares.
The Class Y shares, available only to certain qualified institutional investors,
are offered through a separate prospectus. For more information about the Class
Y shares, see "Purchase of Shares--Alternative Purchase Arrangements."

Each share of the Fund represents an identical interest in the investment
portfolio of the Fund. However, shares differ by class in important respects.
For example, Class B shares incur higher distribution 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.
Class C shares, like Class B shares, will also have a higher expense ratio and
pay correspondingly lower dividends than Class A shares, as a result of higher
distribution services fees and certain other expenses. Unlike

3
<PAGE>

Class B shares, Class C shares do not have a conversion feature and therefore
will always be subject to higher distribution fees and other expenses than Class
A shares. The per share net asset value of the Class B and Class C shares
generally will be lower than the per share net asset value of the Class A
shares, reflecting the daily expense accruals of additional distribution fees
and certain other expenses applicable to Class B and Class C shares. The 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-ADVISERS AND DISTRIBUTOR. Davis Selected Advisers,
L.P., (the "Adviser") is the investment adviser for the Fund. Davis
Distributors, LLC (the "Distributor") serves as the principal underwriter for
the Fund. Stamper Capital & Investments, Inc., the ("Sub-Adviser") is employed
by the Adviser to provide day to day management of the Fund's portfolio. For
more information, see "Adviser, Sub-Advisers and Distributor." The Adviser has
also entered into a Sub-Advisory Agreement with its wholly-owned subsidiary,
Davis Selected Advisers - NY, Inc. ("DSA-NY"). DSA-NY performs research and
other services for the Fund on behalf of the Adviser.

PURCHASES, EXCHANGES AND REDEMPTIONS. Initial and subsequent minimum
investments in the Class A, B and C shares may be made in amounts equal to
$1,000 and $25, respectively, except that the minimum initial investment for
retirement plans is $250. Shares may be exchanged under certain circumstances at
net asset value for the same class of shares of certain other funds managed by
the Adviser. Accounts with a market value of less than $250 caused by
shareholder redemptions are redeemable by the Fund. See "Purchase of Shares,"
"Exchange of Shares" and "Redemption of Shares." Class A shareholders who are
eligible to purchase Class Y shares may exchange their shares for Class Y shares
of the Fund. There is no charge for this service. See "Purchase of
Shares--Alternative Purchase Arrangements" for Class Y eligibility requirements.

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 State Street Bank & Trust
Co., c/o The Davis Funds, P.O. Box 8406, Boston, MA, 02266-8406. During drastic
market conditions, the Distributor may experience difficulty in accepting
telephone redemptions. If you are unable to contact the Distributor at the above
telephone number, you should call 1-505-820-3000 Monday through Friday between
8:00 a.m. and 4:00 p.m. Mountain Time.

4
<PAGE>
FINANCIAL HIGHLIGHTS

The following table provides you with information about the financial
history of the Fund's Class A and B 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, 1997 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,
1997, have been audited by the Fund's independent certified public accountants,
whose opinion thereon is contained in the Annual Report. No information is
presented for the Class C shares because no shares were outstanding as of March
31, 1997.

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------------------------
CLASS A 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 4.84 $ 4.86 $ 5.14 $ 5.18 $ 4.92 $ 4.75 $ 6.07 $ 8.09 $ 8.59 $ 10.29
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment
Income............... 0.39 0.43 0.46 0.50 0.61 0.53 0.56 0.79 1.20 1.05
Net Gains or Losses on
Securities (both
realized and
unrealized).......... (0.06) 0.03 (0.24) 0.06 0.25 0.43 (0.85) (1.63) (0.59) (1.37)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations......... 0.33 0.46 0.22 0.56 0.86 0.96 (0.29) (0.84) 0.61 (0.32)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net
investment income.... (0.39) (0.43) (0.46) (0.50) (0.60) (0.53) (0.56) (0.88) (1.11) (1.05)
Distributions in excess
of realized gains.... - - - (0.10) - - - - - -
Returns of Capital..... (0.07) (0.05) (0.04) - - (0.26) (0.47) (0.30) - (0.33)(1)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
Distributions...... (0.46) (0.48) (0.50) (0.60) (0.60) (0.79) (1.03) (1.18) (1.11) (1.38)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period.................. $ 4.71 $ 4.84 $ 4.86 $ 5.14 $ 5.18 $ 4.92 $ 4.75 $ 6.07 $ 8.09 $ 8.59
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------

TOTAL RETURN(2).......... 7.08% 9.93% 4.69% 11.29% 18.81% 22.45% (5.32)% (11.69)% 7.24% (3.16)%
Ratios/Supplemental Data
Net Assets, End of
Period (000
omitted)............. $ 47,890 $ 53,816 $ 56,405 $ 64,663 $ 38,305 $ 24,986 $ 19,386 $ 29,909 $ 53,670 $ 67,397
Ratio of Expenses to
Average Net Assets... 1.48%(3) 1.51% 1.53% 1.48% 1.81% 1.93% 2.09% 1.52% 1.26% 1.19%
Ratio of Net Income to
Average Net Assets... 8.13% 8.92% 9.49% 9.31% 11.91% 11.01% 10.43% 10.64% 14.18% 11.09%
Portfolio Turnover
Rate................. 66.10% 118.34% 98.94% 98.31% 84.93% 93.78% 76.92% 39.91% 85.91% 107.52%
</TABLE>

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

1 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.

2 Sales charges are not reflected in calculation.

3 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.47% for 1997. Prior to 1997, such
reductions were reflected in the expense ratios.

5
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 5, 1994
YEAR ENDED (COMMENCEMENT)
MARCH 31, OF OPERATIONS)
------------------ THROUGH MARCH 31,
CLASS B 1997 1996 1995
-------- -------- -----------------

<S> <C> <C> <C>
Net Asset Value,
Beginning of Period................... $ 4.81 $ 4.85 $ 4.80
-------- -------- -----------------
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
-------- -------- -----------------
Total From Investment Operations.... 0.29 0.40 0.16
-------- -------- -----------------
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
-------- -------- -----------------
-------- -------- -----------------

TOTAL RETURN(1)......................... 6.26% 8.68% 4.28%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000
OMITTED)............................ $ 10,217 $ 6,599 $ 1,900
Ratio of Expenses to Average Net
Assets.............................. 2.30%(2) 2.32% 2.36%*
Ratio of Net Income to Average Net
Assets.............................. 7.28% 8.11% 8.66%*
Portfolio Turnover Rate............... 66.10% 118.34% 98.94%
</TABLE>

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

1 Sales charges are not reflected in calculation.

2 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.29% for 1997. Prior to 1997, such
reductions were reflected in the expense ratios.

* Annualized

6
<PAGE>
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. 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. 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.

7
<PAGE>
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.

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

8
<PAGE>

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 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. 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 under
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

9
<PAGE>

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 shareholders against loss.

PORTFOLIO COMPOSITION. The table below reflects the Fund's portfolio
composition by quality rating for the year ended March 31, 1997, calculated on
the basis of the average weighted ratings of all bonds held at year end. 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.

COMPOSITION OF THE FUND'S PORTFOLIO BY QUALITY RATING AS A PERCENTAGE OF
TOTAL NET ASSETS AT MARCH 31, 1997

<TABLE>
<CAPTION>
FUND'S ASSESSMENT OF
MOODY'S/S&P RATING CATEGORY PERCENTAGE NON-RATED SECURITIES GENERAL DEFINITION OF BOND QUALITY
- --------------------------------------- ------------ --------------------- ---------------------------------------
<S> <C> <C> <C>
Aaa/AAA................................ 8.16% 0.00% Highest quality
Aa/AA.................................. 2.91% 0.00% High quality
A/A.................................... 0.47% 0.00% Upper medium grade
Baa/BBB................................ 9.29% 0.00% Medium grade
Ba/BB.................................. 17.55% 8.61% Some speculative elements
B/B.................................... 29.15% 7.93% Speculative
Caa/CCC................................ 2.72% 0.00% More speculative
Ca, C/CC, C, D......................... 4.03% 0.16% Very speculative, may be in default
Not Rated.............................. 16.70% 0.00% Not rated by Moody's or S&P
Common and Preferred Stock............. 2.77% 0.00%
Short-term Investments................. 6.25% 0.00%
------ -----
100.00% 16.70%
</TABLE>

10
<PAGE>
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 3
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

11
<PAGE>
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 and Sub-Advisers are 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 Adviser or Sub-Advisers
believe such security will no longer continue to provide a relatively high
current yield or involves undue risk, or when the Adviser or Sub-Advisers deem
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. The Adviser and Sub-Advisers are authorized to place
portfolio transactions with Shelby Cullom Davis & Co., a member of the New York
Stock Exchange, which may be deemed to be an affiliate of the Adviser, if the
commissions are fair and reasonable and comparable to commissions charged by
non-affiliated qualified brokerage firms for similar services. 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.

12
<PAGE>
ADVISER, SUB-ADVISERS AND DISTRIBUTOR

Davis Selected Advisers, L.P. (the "Adviser") whose principal office is at
124 East Marcy Street, Santa Fe, New Mexico 87501, serves as the investment
adviser of the Fund. Venture Advisers, Inc. is the Adviser's sole general
partner. Shelby M.C. Davis is the controlling shareholder of the general
partner. Subject to the direction and supervision of the Board of Directors, the
Adviser manages the business operations of the Fund. Davis Distributors, LLC
(the "Distributor"), a subsidiary of the Adviser, serves as the distributor or
principal underwriter of the Fund's shares. As discussed below, the Adviser has
hired Stamper Capital & Investments, Inc. as sub-adviser for the Fund. Davis
Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of the Adviser,
performs research and other services for the Fund on behalf of the Adviser under
a Sub-Advisory Agreement with the Adviser. This Agreement does not affect the
services provided by Stamper Capital & Investments. The Adviser also acts as
investment adviser 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 Distributor also acts as the principal
underwriter for the Davis and 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. Under the Sub-Advisory Agreement with
DSA-NY, the Adviser pays all of DSA-NY's direct and indirect costs of
operations. All the fees paid to DSA-NY are paid by the Adviser and not the
Fund.

Stamper Capital & Investments, Inc. (the "Sub-Adviser"), is a 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
are paid by the Adviser and not the Fund. The Sub-Adviser receives 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 Davis Tax-Free
High Income Fund, Inc., employee benefit plans, institutions, trusts 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.

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.

13
<PAGE>

The Distributor is reimbursed by the Fund for some of its distribution
expenses through Distribution Plans which have been adopted with respect to the
Class A, Class B and Class C shares and approved by the Fund's Board of
Directors in accordance with Rule 12b-1 under the Investment Company Act of
1940. 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, Class B and Class C shares pursuant
to Rule 12b-1 under the Investment Company Act of 1940. This rule regulates the
manner in which a mutual fund may assume costs of distributing and promoting the
sale of its shares.

Payments under the Class A Distribution Plan are limited to an annual rate
of 0.25% of the average daily net asset value of the Class A shares. Such
payments are made to reimburse the Distributor for the fees it pays to its
salespersons and other firms for selling Fund shares, servicing shareholders and
maintaining shareholder accounts. Where a commission is paid for purchases of $1
million or more of Class A shares and as long as the limits of the distribution
plan have not been reached, such payment is also made from 12b-1 distribution
fees received from the Fund. Normally, such fees are at the annual rate of 0.25%
of the average net asset value of the accounts serviced and maintained on the
books of the Fund. Payments under the Class A Distribution Plan may also be used
to reimburse the Distributor for other distribution costs (excluding overhead)
not covered in any year by any portion of the sales charges the Distributor
retains. 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
Distributor a 4% commission on new sales of Class B Shares. Most or all of such
commissions are reallowed to the Distributor's salespersons and to firms
responsible for such sales. No commissions are paid by the Fund with respect to
sales by the Distributor to officers, directors and full-time employees of the
Fund, the Distributor, the Adviser or the Adviser's General Partner. Up to 0.25%
of average net assets is used to reimburse the Distributor for the payment of
service and maintenance fees to its salespersons and other firms for shareholder
servicing and maintenance of shareholder accounts.

If, due to the foregoing payment limitations, the Fund is unable to pay the
Distributor the 4% commission on new sales of Class B shares, the Distributor
intends, but is not obligated, to accept new orders for shares and pay
commissions in excess of the payments it receives from the Fund. The Distributor
intends to seek full payment from the Fund of any excess amounts with interest
at 1% over the prime rate at such future date when and to the extent such
payments on new sales would not be in excess of the limitations. The Fund is not
obligated to make such payments; the amount (if any), timing and condition of
any such payments are solely within the discretion of the directors of the Fund
who are not interested persons of the Distributor or the Fund and have no direct
or indirect financial interest in the Class B Distribution Plan (the
"Independent Directors"). If the Class B Distribution Plan is terminated, the
Distributor will ask the Independent Directors to take whatever action they deem
appropriate with regard to the payment of any excess amounts. As of March 31,
1997, the Distributor paid $231,916 in commissions for which the Distributor had
not yet received reimbursement.

14
<PAGE>

Payments under the Class C Distribution Plan are also limited to an annual
rate of 1% of the average daily net asset value of the Class C shares, and are
subject to the same 6.25% and 1% limitations applicable to the Class B
Distribution Plan. The entire amount of payments may be used to reimburse the
Distributor for the payments of an initial commission and service and
maintenance fees to its salespersons and other firms for selling new Class C
shares, shareholder servicing and maintenance of shareholder accounts.

In addition, to the extent that any investment advisory fees paid by the
Fund may be deemed to be indirectly financing any activity which is primarily
intended to result in the sale of Fund shares within the meaning of Rule 12b-1,
the Plans authorize the payment of such fees.

Each of the Distribution Plans may be terminated at any time by vote of the
Independent Directors or by vote of 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 Distributor 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 Distributor from the fees it
receives under the Class A, Class B and Class C Distribution Plans.

In addition, the Distributor may, from time to time, pay additional cash
compensation or other promotional incentives to authorized dealers or agents
that sell shares of the Fund. In some instances, such cash compensation or other
incentives may be offered only to certain dealers or agents who employ
registered representatives who have sold or may sell significant amounts of
shares of the Fund and/or the other Davis Funds managed by the Adviser during a
specified period of time.

Shares of the Fund may also be sold through banks or bank-affiliated
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, Class B or Class C shares of the Fund
from any dealer or other person having a sales agreement with the Distributor.

There are three ways to make an initial investment in the Fund. One way is
to fill out the Application Form included in this Prospectus and mail it to
State Street Bank and Trust Company ("State Street") at the address on the Form.
The dealer must also sign the Form. Your dealer or sales representative will
help you fill out the Form. All purchases made by check should be in U.S.
dollars (minimum $1,000, except $250 for retirement plans) and made payable to
THE DAVIS FUNDS, or in the case of a retirement account, the custodian or
trustee. THIRD PARTY CHECKS WILL NOT BE ACCEPTED. When purchases are made by
check, redemptions will not be allowed until the investment being redeemed has
been in the account for 15 calendar days.

Another way to make an initial investment is to have your dealer order and
pay for the shares. In this case, you must pay your dealer. The dealer can order
the shares from the Distributor by telephone or wire. You can also use this
method for additional investments of at least $1,000.

15
<PAGE>

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 Distributors, LLC at
1-800-279-0279 to advise them of the investment and class of shares and to
obtain an account number and instructions. A completed Plan Adoption Agreement
or Application Form should be mailed to State Street after the initial wire
purchase. To assure proper credit, the wire instructions should be made as
follows:

State Street Bank and Trust Company
Boston, MA 02210
Attn.: Mutual Fund Services
DAVIS 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 "The Davis Funds" to State Street Bank
and Trust Company, c/o The Davis Funds, P.O. Box 8406, Boston, MA 02266-8406.
The check should be accompanied by a form which State Street will provide after
each purchase. If you do not have a form, you should tell State Street that you
want to invest the check in shares of the Fund. If you know your account number,
you should also give it to State Street.

The Fund does not issue certificates for Class A shares unless you request a
certificate each time you make a purchase. Certificates are not issued for Class
B or Class C shares or for accounts using the Automatic Withdrawal Plan.
Instead, shares purchased are automatically credited to an account maintained
for you on the books of the Fund by State Street. Each time you add to or
withdraw from your account, you will receive a statement showing the details of
the transaction and any other transactions you had during the current year.

ALTERNATIVE PURCHASE ARRANGEMENTS. The Fund offers four classes of shares.
With certain exceptions described below, Class A shares are sold with a
front-end sales charge at the time of purchase and are not subject to a sales
charge when they are redeemed. Class B shares are sold without a sales charge at
the time of purchase, but are subject to a deferred sales charge if they are
redeemed within six years after purchase. Class B shares will automatically
convert to Class A shares at the end of eight years after the end of the
calendar month in which the shareholder's order to purchase was accepted. Class
C shares are purchased at their net asset value per share without the imposition
of a front-end sales charge but are subject to a 1% deferred sales charge if
redeemed within one year after purchase and do not have a conversion feature.
Class Y shares are offered through a separate prospectus to (i) trust companies,
bank trusts, pension plans, endowments or foundations acting on behalf of their
own account or one or more clients for which such institution acts in a
fiduciary capacity and investing at least $5,000,000 at any one time
("Institutions"); (ii) any state, county, city, department, authority or similar
agency which invests at least $5,000,000 at any one time ("Governmental
Entities"); and (iii) any investor with an account established under a "wrap
account" or other similar fee-based program sponsored and maintained by a
registered broker-dealer approved by the Distributor ("Wrap Program Investors").
Class Y shares are sold

16
<PAGE>

at net asset value without the imposition of Rule 12b-1 charges. For more
information about the Class Y shares, call the Fund at 1-800-279-0279.

Depending on the amount of the purchase and the anticipated length of time
of investment, investors may choose to purchase one class of shares rather than
another. Investors who would rather pay the entire cost of distribution at the
time of investment, rather than spreading such cost over time, might consider
Class A shares. Other investors might consider Class B or Class C shares, in
which case 100% of the purchase price is invested immediately. The Fund will not
accept any purchase of Class B shares in the amount of $250,000 or more per
investor. Such purchase must be made in Class A shares. Class C shares may be
more appropriate for the short-term investor. The Fund will not accept any
purchase of Class C shares when Class A shares may be purchased at net asset
value. See also "Distribution Plans" for more information.

Wrap Program Investors should be aware that both Class A and Class Y shares
are made available by the Fund at net asset value to sponsors of wrap programs.
However, Class A shares are subject to additional expenses under the Fund's Rule
12b-1 Plan and sponsors of wrap programs utilizing Class A shares are generally
entitled to payments under the Plan. If the sponsor has selected Class A shares,
investors should discuss these charges with their program's sponsor and weigh
the benefits of any services to be provided by the sponsor against the higher
expenses paid by Class A shareholders.

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

<TABLE>
<CAPTION>
CUSTOMARY
SALES CHARGE CHARGE AS CONCESSION TO
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%*
</TABLE>

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

* On purchases of $1 million or more, the investor pays no front-end sales
charge but a contingent deferred sales charge of 0.75% may be imposed if
shares purchased after August 1, 1997 are redeemed within the first year after
purchase. The Distributor may pay the financial service firm a commission
during the first year after such purchase at an annual rate as follows:

<TABLE>
<CAPTION>
PURCHASE AMOUNT COMMISSION
- ---------------------------------------------------------------------------- -------------
<S> <C>
First $3,000,000............................................................ .75%
Next $2,000,000............................................................. .50%
Over $5,000,000............................................................. .25%
</TABLE>

17
<PAGE>

Where a commission is paid for purchases of $1 million or more, such payment
will be made from 12b-1 distribution fees received from the 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 Distributor 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 acts as
investment adviser or officers and employees of the Adviser, Sub-Advisers or
Distributor including former directors and officers and any spouse, child,
parent, grandparent, brother or sister ("immediate family members") of all of
the foregoing, and any employee benefit or payroll deduction plan established by
or for such persons; (3) Class A shares purchased by any registered
representatives, principals and employees (and any immediate family member) of
securities dealers having a sales agreement with the Distributor; (4) initial
purchases of Class A shares totaling at least $250,000 but less than $5,000,000,
made at any one time by banks, trust companies and other financial institutions
on behalf of one or more clients for which such institution acts in a fiduciary
capacity; (5) Class A shares purchased by any single account covering a minimum
of 250 participants (this 250 participant minimum may be waived for certain fee
based mutual

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<PAGE>

fund marketplace programs) and representing a defined benefit plan, defined
contribution plan, cash or deferred plan qualified under 401(a) or 401(k) of the
Internal Revenue Code or a plan established under section 403(b), 457 or
501(c)(9) of such Code or "rabbi trusts"; (6) Class A shares purchased by
persons participating in a "wrap account" or similar fee-based program sponsored
and maintained by a registered broker-dealer approved by the Fund's Distributor
or by investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of such investment
advisers or financial planners who place trades for their own accounts if the
accounts are linked to the master account of such investment adviser or
financial planner on the books of the broker or agent; and (7) Class A shares
amounting to less than $5,000,000 purchased by any state, county, city,
department, authority or similar agency. The Fund may also issue Class A shares
at net asset value incident to a merger with or acquisition of assets of an
investment company.

CLASS B SHARES. Class B shares are offered at net asset value, without a
front-end sales charge. With certain exceptions described below, the Fund
imposes a deferred sales charge of 4% on shares redeemed during the first year
after purchase, 3% on shares redeemed during the second or third year after
purchase, 2% on shares redeemed during the fourth or fifth year after purchase
and 1% on shares redeemed during the sixth year after purchase. 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.
The Fund will not accept any purchase of Class B shares in the amount of
$250,000 or more per investor.

Class B shares that have been outstanding for eight years will automatically
convert to Class A shares without imposition of a front-end sales charge. The
Class B shares so converted will no longer be subject to the higher expenses
borne by Class B shares. Because the net asset value per share of the Class A
shares may be higher or lower than that of the Class B shares at the time of
conversion, although the dollar value will be the same, a shareholder may
receive more or less Class A shares than the number of Class B shares converted.
Under 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. In addition certain Class B shares held by certain defined
contribution plans automatically convert to Class A shares based on increases of
plan assets as described in the Statement of Additional Information.

CLASS C SHARES. Class C shares are offered at net asset value without a
sales charge at the time of purchase. Class C shares redeemed within one year of
purchase will be subject to a 1% charge upon redemption. Class C shares do not
have a conversion feature. The Fund will not accept any purchases of Class C
shares when Class A shares may be purchased at net asset value.

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<PAGE>

The Distributor will pay a commission to the firm responsible for the sale
of Class C shares. No other fees will be paid by the Distributor during the
one-year period following purchase. The Distributor will be reimbursed for the
commission paid from 12b-1 fees paid by the Fund during the one-year period. If
Class C shares are redeemed within the one-year period after purchase, the 1%
redemption charge will be paid to the Distributor. After Class C shares have
been outstanding for more than one year, the Distributor will make quarterly
payments to the firm responsible for the sale of the shares in amounts equal to
0.75% of the annual average daily net asset value of such shares for sales fees
and 0.25% of the annual average daily net asset value of such shares for service
and maintenance fees.

CONTINGENT DEFERRED SALES CHARGES. Any contingent deferred sales charge
imposed upon the redemption of Class A, Class B or Class C shares is a
percentage of the lesser of (i) the net asset value of the shares redeemed or
(ii) the original cost of such shares. No 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 (CDSC) on Class A, B, and C Shares that
are subject to a CDSC will be waived if the redemption relates to the following:
(a) in the event of the total disability (as evidenced by a determination by the
federal Social Security Administration) of the shareholder (including registered
joint owner) occurring after the purchase of the shares being redeemed; (b) in
the event of the death of the shareholder (including a registered joint owner);
(c) for redemptions made pursuant to an automatic withdrawal plan in an amount,
on an annual basis, up to 12% of the value of the account at the time the
shareholder elects to participate in the automatic withdrawal plan; (d) for
redemptions from a qualified retirement plan or IRA that constitute a tax-free
return of contributions to avoid tax penalty; (e) on redemptions of shares sold
to directors, officers and employees of any fund for which the Adviser acts as
investment adviser or officers and employees of the Adviser, Sub-Advisers or
Distributor including former directors and officers and immediate family members
of all of the foregoing, and any employee benefit or payroll deduction plan
established by or for such persons; (f) on redemptions pursuant to the right of
the Fund to liquidate a shareholder's account if the aggregate net asset value
of the shares held in such account falls below an established minimum amount;
(g) certain other exceptions related to defined contribution plans as described
in the Statement of Additional Information.

PROTOTYPE RETIREMENT PLANS. The Distributor and certain qualified dealers
have available prototype retirement plans (e.g. 401(k), profit sharing, money
purchase, Simplified Employee Pension ("SEP") plans, model 403(b) and 457 plans
for charitable, educational and governmental entities) sponsored by the Fund for
corporations and self-employed individuals and prototype Individual Retirement
Account ("IRA") plans and SIMPLE IRA plans for both individuals and employers.
These plans utilize the shares of the Fund and other Davis Funds as their
investment vehicle. State Street acts as custodian or trustee for the plans and
charges the participant $10 to establish each account and an annual maintenance
fee of $10 per account (up to a maximum of $20 per social security number). Such
fees will be redeemed automatically at year end from your account, unless you
elect to pay the fee directly.

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<PAGE>
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 except that Class A shareholders who are
eligible to purchase Class Y shares may exchange their shares for Class Y shares
of the Fund. All of the Davis Funds offer Class A, Class B and Class C shares.
The shares to be received upon exchange must be legally available for

21
<PAGE>

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.

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 or Class C
shares are subject at the time of exchange will continue to apply to any shares
acquired upon exchange.

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

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 Davis Fund's applicable
offering price. If you would like to participate in this program, you may use
the appropriate designation on the Application Form.

An exchange involves both a redemption and a purchase, and normally both are
done on the same day. However, in certain instances such as where a large
redemption is involved, the investment of redemption proceeds into shares of
other Davis Funds may take up to seven days. For federal income tax purposes,
exchanges between funds are treated as a sale and purchase. Therefore, there
will usually be a recognizable capital gain or loss due to an exchange. An
exchange between different classes of the same fund is not a taxable event.

The number of times a shareholder may exchange shares among the Davis Funds
within a specified period of time may be limited at the discretion of the
Distributor. Currently, more than four exchanges out of a fund during a twelve
month period are not permitted without the prior written approval of the
Distributor. The 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.

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<PAGE>

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 correspond to
the account from which the shares are being redeemed.

Sometimes State Street needs more documents to verify authority to make a
redemption. This usually happens when the owner is a corporation, partnership or
fiduciary (such as a trustee or the executor of an estate) or if the person
making the request is not the registered owner of the shares.

If shares to be redeemed are represented by a certificate, the certificate,
signed by the owner or owners, must be sent to State Street with the request.

For the protection of all shareholders, the Fund also requires that
signatures appearing on a share certificate, stock power or redemption request
where the proceeds would be more than $50,000, must be guaranteed by a bank,
credit union, savings association, securities exchange, broker, dealer or other
guarantor institution. A signature guarantee is also required in the event that
any modification to the Fund's application is made after the account is
established, including the selection of the Expedited Redemption Privilege. In
some situations such as where corporations, trusts or estates are involved,
additional documents may be necessary to effect the redemption. The transfer
agent may reject a request from any of the foregoing eligible guarantors, if
such guarantor does not satisfy the transfer agent's written standards or
procedures or if such guarantor is not a member or participant of a signature
guarantee program. This provision also applies to exchanges when there is also a
redemption for cash. A signature guarantee on redemption requests where the
proceeds would be $50,000 or less is not required, provided that such proceeds
are being sent to the address of record and, in order to ensure authenticity of
an address change, such address of record has not been changed within the last
30 days. All notifications of address changes must be in writing.

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.

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<PAGE>

Your shares may also be redeemed through participating brokers or dealers.
The Distributor may repurchase shares from your dealer, if your dealer is a
member of the Distributor's selling group. Your dealer may, but is not required
to, use this method in selling back your shares and may place any repurchase
request by telephone or wire. Any broker dealer may charge you a service fee or
commission. No charge is payable if you redeem your own shares through State
Street rather than having a dealer arrange for a repurchase.

EXPEDITED REDEMPTION PRIVILEGE. Investors with accounts other than
prototype retirement plans and IRAs may designate on the Expedited Redemption
Privilege Form (included in this prospectus) an account with any commercial bank
and have the cash proceeds from 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 Distributors, LLC (1-800-279-0279), or (c) by
facsimile 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 Distributor, in its discretion, may limit the amount that may be
redeemed by a shareholder in any day under the Expedited Redemption Privilege to
$25,000. There is a $5 charge by State Street for wire service, and receiving
banks may also charge for this service. Payment by ACH will usually arrive at
your bank two banking days after 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 Fund at any
time. See "Telephone Privilege."

The name of the registered shareholder and corresponding Fund account number
must be supplied. The Expedited Redemption Privilege Form provides for the
appropriate information concerning the commercial bank and account number.
Changes in ownership, account number (including the identity of your bank) or
authorized signatories of the pre-designated account may be made by written
notice to State Street with your signature and those of new owners or signers on
the account guaranteed by a commercial bank or trust company. Additional
documentation may be required to change the designated account 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.

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<PAGE>

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
or Class C shares, any applicable contingent deferred sales charges will be
imposed on such shares redeemed. Purchase of additional shares concurrent with
withdrawals may be disadvantageous to you because of 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 for
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 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 or Class C shares
will be returned to the account. Class B or Class C shares will be deemed to
have been purchased on the original purchase date for purposes of calculating
the CDSC and conversion period. This can be done by sending the Fund or the
Distributor a letter, together with a check for the reinstatement amount. The
letter must be received, together with the payment, within 30 days after the
redemption or repurchase. You can only use this privilege once. See "Federal
Income Tax."

DETERMINING THE PRICE OF SHARES

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. 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 or at
the direction of the Board of Directors.

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<PAGE>

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 Distributor. Note that in the case of redemptions and repurchases
of shares owned by corporations, trusts or estates, or of shares represented by
outstanding certificates, State Street may require additional documents to
effect the redemption and the applicable price will be determined as of the
close of the next computation following the receipt of the required
documentation or outstanding certificates. See "Redemption of Shares."

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 is 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 and Class C shares
incur higher distribution services fees and bear certain other expenses, such
shares will have higher expense ratios and will pay correspondingly lower
dividends than Class A shares. For tax purposes, information concerning
distributions will be mailed annually to shareholders.

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.

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<PAGE>
FEDERAL INCOME TAXES

This section is not intended to be a full discussion of all the aspects of
the federal income tax law and its effects on the Fund and its shareholders.
Shareholders may be subject to state and local taxes on distributions. Each
investor should consult his or her own tax adviser regarding the effect of
federal, state and local taxes on 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 four classes, Class A,
Class B, Class C and Class Y shares. The Board of Directors may offer additional
classes in the future and may at any time discontinue the offering of any class
of shares. Each share, when issued and paid for in accordance with the terms of
the offering, is fully paid and non-assessable. Shares have no preemptive or
subscription rights and are freely transferable. Each 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. Due to the
differing expenses of the classes, dividends of Class B and Class C shares are
likely to be lower than for Class A shares, and are likely to be higher for
Class Y shares than for any other class of

27
<PAGE>

shares. For more information about the Class Y shares, call the Fund at
1-800-279-0279 to obtain the Class Y prospectus.

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. Such information may consist of its "yield," "distribution rate,"
"average annual total return" 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.

"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.

"Average annual total return" refers to the Fund's average annual compounded
rate of return over a stated period that would equate an initial amount invested
at the beginning of the period to the ending redeemable value of the investment.

"Total return" refers to the Fund's compounded rate of return over a stated
period that would equate an initial amount invested at the beginning of the
period to the ending redeemable value of the investment. Total return is not
annualized. In the event the Fund advertises its total return or average annual
total return, the stated periods will be one, five and ten years, and may also
include longer or shorter periods, including the life of the Fund. The
computation of total and average annual total return assumes reinvestment of all
dividends and distributions, and deduction of all charges and expenses. In
addition, a table showing the performance of an assumed investment of $10,000
may be used from time to time.

The Fund may also quote average annual total return and total return on net
asset value. Such data will be calculated substantially as described above
except that sales charges will not be deducted.

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

28
<PAGE>
similar independent mutual fund rating services, and the Fund may use
evaluations published by nationally recognized independent ranking services and
publications.

The Fund's 1997 Annual Report contains additional performance information
and will be made available upon request and without charge.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to Davis Distributors, LLC, by
writing to State Street Bank and Trust Company, c/o The Davis Funds, P.O. Box
8406, Boston, MA 02266-8406 or by calling 1-800-279-0279. Davis Direct Access is
the Davis Funds' automated telephone system that enables shareholders to perform
a number of account transactions automatically by using a touch-tone phone.
Shareholders may obtain Fund and account specific information and make
purchases, exchanges and redemptions.

29
<PAGE>
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.

30
<PAGE>
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.

31
<PAGE>
TERMS AND CONDITIONS FOR A STATEMENT OF INTENTION (CLASS A SHARES ONLY)

TERMS OF ESCROW:

1. Out of my initial purchase (or subsequent purchases if necessary) 5% of
the dollar amount specified in this Statement will be held in escrow by State
Street in the form of shares (computed to the nearest full share at the public
offering price applicable to the initial purchase hereunder) registered in my
name. For example, if the minimum amount specified under this statement is
$100,000 and the public offering price applicable to transactions of $100,000 is
$10 a share, 500 shares (with a value of $5,000) would be held in escrow.

2. In the event I should exchange some or all of my shares to those of
another mutual fund for which Davis Distributors, LLC acts as distributor,
according to the terms of this prospectus, I hereby authorize State Street to
escrow the applicable number of shares of the new fund, until such time as this
Statement is complete.

3. If my total purchases are at least equal to the intended purchases, the
shares in escrow will be delivered to me or to my order.

4. If my total purchases are less than the intended purchases, I will remit
to Davis Distributors, LLC the difference in the dollar amount of sales charge
actually paid by me and the sales charge which I would have paid if the total
purchase had been made at a single time. If remittance is not made within 20
days after written request by Davis Distributors, LLC or my dealer, State Street
will redeem an appropriate number of the escrowed shares in order to realize
such difference.

5. I hereby irrevocably constitute and appoint State Street my attorney to
surrender for redemption any or all escrowed shares with full power of
substitution in the premises.

6. Shares remaining after the redemption referred to in Paragraph No. 4
will be credited to my account.

7. The duties of State Street are only such as are herein provided being
purely ministerial in nature, and it shall incur no liability whatever except
for willful misconduct or gross negligence so long as it has acted in good
faith. It shall be under no responsibility other than faithfully to follow the
instructions herein. It may consult with legal counsel and shall be fully
protected in any action taken in good faith in accordance with advice from such
counsel. It shall not be required to defend any legal proceedings which may be
instituted against it in respect of the subject matter of this Agreement unless
requested to do so and indemnified to its satisfaction against the cost and
expense of such defense.

8. If my total purchases are more than the intended purchases and such
total is sufficient to qualify for an additional quantity discount, a
retroactive price adjustment shall be made for all purchases made under such
Statement to reflect the quantity discount applicable to the aggregate amount of
such purchases during the thirteen-month period.

EXPEDITED REDEMPTION PRIVILEGE

[ ] If you wish the Expedited Redemption Privilege please check the box to the
left and complete the following information.

I (we) hereby authorize State Street Bank and Trust Company, Davis Selected
Advisers, L.P., Davis Distributors, LLC, and/or the Davis Funds to act upon
instructions received by telephone or telegraph, believed by them to be genuine,
and to redeem shares in my (our) account in any of the Davis Funds and to wire
the proceeds of such redemption to the predesignated bank listed below. I (we)
hereby agree that neither State Street Bank and Trust Company, Davis Selected
Advisers, L.P., Davis Distributors, LLC, 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.

<TABLE>
<S> <C>
- ------------------------------------------------------ ------------------------------------------------------
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>

32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE

<S> <C>
Summary............................................................................. 2
Financial Highlights................................................................ 5
Investment Objectives and Policies.................................................. 7
Adviser, Sub-Advisers and Distributor............................................... 13
Distribution Plans.................................................................. 14
Purchase of Shares.................................................................. 15
Telephone Privilege................................................................. 21
Exchange of Shares.................................................................. 21
Redemption of Shares................................................................ 23
Determining the Price of Shares..................................................... 25
Dividends and Distributions......................................................... 26
Federal Income Taxes................................................................ 27
Fund Shares......................................................................... 27
Performance Data.................................................................... 28
Shareholder Inquiries............................................................... 29
Appendix--Quality Ratings of Debt Securities........................................ 30
Expedited Redemption Privilege...................................................... 32
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PROSPECTUS AUGUST 1, 1997
CLASS Y SHARES

DAVIS HIGH INCOME FUND, INC.
124 EAST MARCY STREET
SANTA FE, NEW MEXICO 87501
1-800-279-0279

MINIMUM INVESTMENT PLANS AVAILABLE
Initial Purchase $5,000,000 Exchange Privilege
Wrap Fee Program Minimum
Investment subject to
Sponsor's Minimums

Davis 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 four classes of shares, Class A, B, C and Y, each having
different expense levels and sales charges. This Prospectus provides
information regarding the Class Y shares offered by the Fund. Class Y shares
are offered only to certain qualified purchasers, as described in this
Prospectus. Class A, Class B and Class C shares are offered under a separate
prospectus.

This Prospectus concisely sets forth information about the Class Y
shares of the Fund that prospective investors should know before investing.
It should be read carefully and retained for future reference. A Statement
of Additional Information dated August 1, 1997, 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.

<PAGE>

SUMMARY

FUND EXPENSES. The following table is intended to assist you in
understanding the various costs and expenses that an investor in the Y shares
of the Fund will bear directly or indirectly. Because the Y shares were not
offered prior to September 1, 1996, the information is based on the expenses
of the Class A shares for the Fund's fiscal year ended March 31, 1997.
Expenses have been restated to give effect to the reduction in management
fees which took place on May 1, 1996. Expenses have also been restated to
give effect to the elimination of 12b-1 fees for Class Y shares. You can
refer to "Adviser, Sub-Advisers and Distributor" and "Purchase of Shares" for
more information on transaction and operating expenses of the Fund.

Shareholder Transaction Expenses Class Y
- -------------------------------- -------
Maximum sales load imposed on purchases. . . . . . . . . . . . . . . . None
Maximum sales load imposed on reinvested dividends . . . . . . . . . . None
Deferred sales load (a declining percentage of the
lesser of the net asset value of the shares
redeemed or the total cost of such shares)
Redeemed during first year. . . . . . . . . . . . . . . . . . . None
Redeemed during second or third year. . . . . . . . . . . . . . None
Redeemed during fourth or fifth year. . . . . . . . . . . . . . None
Redeemed during sixth year. . . . . . . . . . . . . . . . . . . None
Redeemed after sixth year . . . . . . . . . . . . . . . . . . . None
Exchange Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . None

Annual Fund operating expenses (as a percentage of average net assets)
- ----------------------------------------------------------------------

Management fees . . . . . . . . . . . . . . . . . . . . . . . .0.70%
12b-1 fees . . . . . . . . . . . . . . . . . . . . . . . . . .0.00%
Other expenses. . . . . . . . . . . . . . . . . . . . . . . . .0.62%
-----
Total Fund operating expenses. . . . . . . . . . . . . . .1.21%

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 Y. . . . . . . . . . $12 $38 $66 $147

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 four classes of shares. Class A, Class B and Class C
shares are sold through a separate prospectus. Class Y shares are offered
through this Prospectus to (i) trust companies, banks trusts, endowments or
foundations acting on behalf of their own account or one or more clients for
which such institution acts in a fiduciary capacity and investing at least
$5,000,000 at any one time; (ii) any state, county, city, department,
authority or similar agency which invests at least $5,000,000 ("Government
Entities"); and (iii) any investor with an account established under a "wrap
account" or other fee based program, sponsored and maintained by a registered
broker-dealer approved by the Adviser ("Wrap Program Investors").

INVESTMENT 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

<PAGE>

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-ADVISERS AND DISTRIBUTOR. Davis Selected
Advisers, L.P., (the "Adviser" or "Distributor") is the investment adviser
for the Fund. Davis Distributors, LLC (the "Distributor") serves as the
principal underwriter 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. For more information, see "Adviser, Sub-Advisers
and Distributor". The Adviser has also entered into a Sub-Advisory Agreement
with its wholly-owned subsidiary, Davis Selected Advisers-NY"). DSA-NY
Performs research and other services for the Fund on behalf of the Adviser.
See "Adviser, Sub-Advisers and Distributor".

PURCHASES, EXCHANGES AND REDEMPTIONS. Class Y shares are sold at net
asset value without a sales charge. The initial minimum investment for
Institutions and Governmental Entities is $5,000,000. The initial minimum
investment for Wrap Program Investors is set by the sponsor of the program.
Shares may be exchanged under certain circumstances at net asset value for
the same class of shares of certain other funds managed and distributed by
the Adviser. See "Purchase of Shares," "Exchange of Shares" and "Redemption
of Shares".

Class A shareholders who are eligible to purchase Class Y shares may
exchange their shares for Class Y shares of the Fund. There is no charge for
this service.

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 State Street Bank
& Trust Co., c/o The Davis Funds, P.O. Box 8406, Boston, MA, 02266-8406.
During drastic market conditions, the Distributor may experience difficulty
in accepting telephone redemptions. If you are unable to contact the
Distributor at the above telephone number, you should call 1-505-820-3000
Monday through Friday between 8:00 a.m. and 4:00 p.m. Mountain Time.

FINANCIAL HIGHLIGHTS

The following financial highlights are derived from the financial
statements of the Fund and have been audited by Tait, Weller and Baker,
independent auditors. The table expresses the information in terms of a
single Class Y share for the period presented and is supplementary
information to the Fund's financial statements which are included in the
March 31, 1997 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, 1997, have been
audited by the Fund's independent certified public accountants, whose opinion
thereon is contained in the Annual Report.

CLASS Y
--------CLASS Y--------
MARCH 20, 1997
(COMMENCEMENT OF
OPERATIONS)
THROUGH
MARCH 31, 1997
-----------------------

Net Asset Value, Beginning of Period . . . . . . . . . . . . $4.74
-----
Income From Investment
- ----------------------
Operations
- ----------
Net Investment Income. . . . . . . . . . . . . . . . . --
Net Gains or Losses on Securities (both realized
and unrealized) . . . . . . . . . . . . . . . . . . . . (0.02)
-----
Total From Investment Operations. . . . . . . . . . . . (0.02)
-----

Less Distributions
- ------------------
Dividends from net investment income. . . . . . . . . --
Returns of Capital. . . . . . . . . . . . . . . . . . . --
-----
Total Distributions . . . . . . . . . . . . . . . . . . --
-----
Net Asset Value, End of Period . . . . . . . . . . . . . . $4.72
-----
-----

Total Return(2) . . . . . . . . . . . . . . . . . . . . . . . (0.42)%

Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000 omitted). . . . . . . . $7
Ratio of Expenses to Average Net Assets . . . . . . . 1.21%(2)*
Ratio of Net Income to Average Net Assets . . . . . . 8.89%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . 66.10%

1 Sales charges are not reflected in calculation.
2 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement were 1.20% for 1997. Prior to
1997, such reductions were reflected in the expense ratios.
* Annualized

<PAGE>

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

<PAGE>

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. 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. 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.

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.

<PAGE>

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 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. To the extent that the Fund
purchases illiquid or restricted bonds, it may incur 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

<PAGE>

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 shareholders against
loss.

PORTFOLIO COMPOSITION. The table below reflects the Fund's portfolio
composition by quality rating for the year ended March 31, 1997, 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.

COMPOSITION OF THE FUND'S PORTFOLIO BY QUALITY RATING AS A PERCENTAGE OF
TOTAL NET ASSETS AT MARCH 31, 1997

FUND'S ASSESSMENT OF GENERAL DEFINITION
MOODY'S/S&P RATING CATEGORY PERCENTAGE NON-RATED SECURITIES OF BOND QUALITY
- ----------- --------------- ---------- -------------------- -----------------
Aaa/AAA. . . . . . . . . . . 8.16% 0.00% Highest quality
Aa/AA. . . . . . . . . . . . 2.91% 0.00% High quality
A/A. . . . . . . . . . . . . 0.47% 0.00% Upper medium grade
Baa/BBB. . . . . . . . . . . 9.29% 0.00% Medium grade
Ba/BB. . . . . . . . . . . . 17.55% 8.61% Some speculative
elements
B/B. . . . . . . . . . . . . 29.15% 7.93% Speculative
Caa/CCC. . . . . . . . . . . 2.72% 0.00% More speculative
Ca, C/CC, C, D . . . . . . . 4.03% 0.16% Very speculative,
may be in default
Not Rated. . . . . . . . . . 16.70% 0.00% Not rated by
Moody's or S&P
Common and Preferred Stock . 2.77% 0.00%
Short-term Investments . . . 6.25% 0.00%
------- ------
100.00% 16.70%

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

<PAGE>

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 and Sub-Advisers are 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
Adviser or Sub-Advisers believe such security will no longer continue to
provide a relatively high current yield or involves undue risk, or when the
Advisers or Sub-Advisers deem 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-ADVISERS AND DISTRIBUTOR

<PAGE>

Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of the
Adviser, performs research and other services for the Fund on behalf of the
Adviser under a Sub-Advisory Agreement with the Adviser. This Agreement does
not affect the services provided by Stamper Capital & Investments. The
Adviser also acts as investment adviser 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
Distributor also acts as the principal underwriter for the Davis and 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. Under the
Sub-Advisory Agreement with DSA-NY, the Adviser pays all of DSA-NY's direct
and indirect costs of operations. All the fees paid to DSA-NY are paid by
the Adviser and not the Fund.

Stamper Capital & Investments, Inc. (the "Sub-Adviser"), is a
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 are paid by the Adviser and not the Fund. The
Sub-Adviser receives 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, trusts 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.

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 Distributors, LLC, in its capacity as distributor, is reimbursed
by the Fund for some of its distribution expenses through Distribution Plans
which have been adopted with respect to Class A, Class B and Class C shares
and approved by the Fund's Board of Directors in accordance with Rule 12b-1
under the Investment Company Act of 1940. The Class Y shares are not subject
to Rule 12b-1 fees.

PURCHASE OF SHARES

GENERAL. Class Y shares are offered through this Prospectus to (i)
trust companies, bank trust, endowments or foundations ("Institutions")
acting on behalf of their own account or one or more clients for which such
Institution acts in a fiduciary capacity and investing at least $5,000,000 at
any one time; (ii) any state, county, city, department, authority or similar
agency which invests at least $5,000,000 ("Governmental Entities"); and (iii)
any investor with an account established under a "wrap account" or other
similar fee-based program sponsored and maintained by a registered
broker-dealer approved by the Fund's Adviser ("Wrap Program Investors").
Wrap Program Investors may only purchase Class Y shares through the sponsors
of such programs who have entered into agreements with Davis Selected
Advisers, L.P.

Wrap Program Investors should be aware that both Class A and Class Y
shares are made available by the Fund at net asset value to sponsors of wrap
programs. However, Class A shares are subject to additional expenses under
the Fund's Rule 12b-1 Plan and sponsors of wrap programs utilizing Class A
shares are generally entitled to payments under the Plan. If the sponsor has
selected Class A shares, investors should discuss these charges with their
program's sponsor and weigh the benefits of any services to be provided by
the sponsor against the higher expenses paid by Class A shareholders.

<PAGE>

PURCHASES BY BANK WIRE. Shares may be purchased at any time by wiring
federal funds directly to State Street. Prior to an initial investment by
wire, the institutional shareholder or wrap program sponsor should telephone
Davis Distributors, LLC at 1-800-279-0279 to advise them of the investment
and class of shares and to obtain an account number and instructions. 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.
Simply mail a check payable to "The Davis Funds" to State Street Bank and
Trust Company, c/o The Davis Funds, P.O. Box 8406, Boston, MA 02266-8406.
The check should be accompanied by a form which State Street will provide
after each purchase. If you do not have a form, you should tell State Street
that you want to invest the check in Class Y shares of the Fund. If you know
your account number, you should also give it to State Street.

The Fund does not issue certificates for Class Y shares. Each time you
add to or withdraw from your account, you will receive a statement showing
the details of the transaction and any other transactions you had during the
current year.

TELEPHONE PRIVILEGE

Unless you have provided in your application that the telephone
privilege is not to be available, the telephone privilege is automatically
available under certain circumstances for exchanging shares and for redeeming
shares. BY EXERCISING THE TELEPHONE PRIVILEGE TO SELL OR EXCHANGE SHARES,
YOU AGREE THAT THE FUND SHALL NOT BE LIABLE FOR FOLLOWING TELEPHONE
INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE. Reasonable procedures will
be employed to confirm that such instructions are genuine and if not
employed, the Fund may be liable for unauthorized instructions. Such
procedures will include a request for personal identification (account or
social security number) and tape recording of the instructions. You should
be aware that during unusual market conditions we may have difficulty in
accepting telephone requests in which case you should contact us by mail.
See "Exchange of Shares - By Telephone", "Redemption of Shares - By
Telephone" and "Redemption of Shares - Expedited Redemption Privilege".

EXCHANGE OF SHARES

GENERAL. You may exchange Class Y shares of the Fund for Class Y shares
of the other Davis Funds. The Davis Funds offer a variety of investment
objectives that includes common stock funds, tax-exempt and corporate bond
funds, and a money market fund. However, the Fund is intended as a long-term
investment and is not intended for short-term trades. The net asset value of
the initial shares being acquired must be at least $5,000,000 for
Institutions and Governmental Entities or minimums set by wrap program
sponsors. Class A shareholders who are eligible to purchase Class Y shares
may exchange their shares for Class Y shares of the Fund. There is no charge
for this service.

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

An exchange involves both a redemption and a purchase, and normally both
are done on the same day. However, in certain instances such as where a
large redemption is involved, the investment of redemption proceeds into
shares of other Davis Funds may take up to seven days. For federal income
tax purposes, exchanges are treated as a sale and purchase. Therefore, there
will usually be a recognizable capital gain or loss due to an exchange.

<PAGE>

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.

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
correspond to the account from which the shares are being redeemed.

Sometimes State Street needs more documents to verify authority to make
a redemption. This usually happens when the owner is a corporation,
partnership or fiduciary (such as a trustee or the executor of an estate) or
if the person making the request is not the registered owner of the shares.

For the protection of all shareholders, the Company also requires that
signatures appearing on a share certificate, stock power or redemption
request where the proceeds would be more than $50,000 must be guaranteed by a
bank, credit union, savings association, securities exchange, broker, dealer
or other guarantor institution. A signature guarantee is also required in
the event that any modification to the Company's application is made after
the account is established, including the selection of the Expedited
Redemption Privilege. In some situations such as where corporations, trusts
or estates are involved, additional documents may be necessary to effect the
redemption. The transfer agent may reject a request from any of the
foregoing eligible guarantors, if such guarantor does not satisfy the
transfer agent's written standards or procedures or if such guarantor is not
a member or participant of a signature guarantee program. This provision
also applies to exchanges when there is also a redemption for cash. A
signature guarantee on redemption requests where the proceeds would be
$50,000 or less is not required, provided that such proceeds are being sent
to the address of record and, in order to ensure authenticity of an address
change, such address of record has not been changed within the last 30 days.
All notifications of address changes must be in writing.

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 brokers or
dealers. The Distributor may repurchase shares from your dealer if your
dealer is a member of the Distributor's selling group. Your dealer may, but
is not required to, use this method in selling back your shares may place any
repurchase request by telephone or wire. Any broker 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.

<PAGE>

DETERMINING THE PRICE OF SHARES

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.
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 Distributor. 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. 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.

<PAGE>

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 four classes, Class
A, Class B, Class C and Class Y shares. Due to differing expenses of the
Classes, dividends of Class B and Class C shares are likely to be lower than
for Class A shares, and are likely to be higher for Class Y shares than for
any other class of shares. For more information regarding the Class A, B,
and C shares, please call 1-800-279-0279 to request a prospectus for those
shares.

The Board of Directors may offer additional classes in the future and
may at any time discontinue the offering of any class of shares. Each share,
when issued and paid for in accordance with the terms of the offering, is
fully paid and non-assessable. Shares have no preemptive or subscription
rights and are freely transferable. Each share of the Fund represents an
interest in the assets of the Fund and has identical voting, dividend,
liquidation and other rights and the same terms and conditions as any other
shares except that (i) each dollar of net asset value per share is entitled
to one vote, (ii) the expenses related to a particular class, such as those
related to the distribution of 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.

<PAGE>

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.

"Average annual total return" refers to the Fund's average annual
compounded rate of return over a stated period that would equate an initial
amount invested at the beginning of the period to the ending redeemable value
of

"Total return" refers to the Fund's compounded rate of return over a
stated period that would equate an initial amount invested at the beginning
of the period to the ending redeemable value of the investment. Total return
is not annualized. In the event the Fund advertises its total return or
average annual total return, the stated periods will be one, five and ten
years, and may also include longer or shorter periods, including the life of
the Fund. The computation of total and average annual total return assumes
reinvestment of all dividends and distributions, and deduction of all charges
and expenses.

In addition, a table showing the performance of an assumed investment of
$10,000 may be used from time to time. The Fund may also quote average
annual total return and total return on net asset value. Such data will be
calculated substantially as described above, except that sales charges will
not be deducted.

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 1997 Annual Report contains additional performance
information and will be made available upon request and without charge.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to Davis Distributors, LLC, by
writing to State Street Bank and Trust Company, c/o The Davis Funds, P.O. Box
8406, Boston, MA 02266-8406 or by calling 1-800-279-0279. Davis Direct
Access is the Davis Funds' automated telephone system that enables
shareholders to perform a number of account transactions automatically by
using a touch-tone phone. Shareholders may obtain Fund and account specific
information and make purchases, exchanges and redemptions.

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

<PAGE>

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.

<PAGE>

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

<PAGE>

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

TABLE OF CONTENTS

PAGE
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . 4

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

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

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

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

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

Determining the Price of Shares. . . . . . . . . . . . . . . . . . . . . . . .10

Dividends and Distributions. . . . . . . . . . . . . . . . . . . . . . . . . .11

Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Fund Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Shareholder Inquiries. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Appendix - Quality Ratings of Debt Securities. . . . . . . . . . . . . . . . .13

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1997

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. . . . . . . . . . . . . . . . . . . . . . . . . 4

Lending Portfolio Securities . . . . . . . . . . . . . . . . . . . . . 4

Writing Covered Call Options . . . . . . . . . . . . . . . . . . . . . 5

Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . 5

Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . 6

Directors' Compensation Schedule . . . . . . . . . . . . . . . . . . . 8

Certain Shareholders of the Fund . . . . . . . . . . . . . . . . . . . 8

Investment Advisory Services . . . . . . . . . . . . . . . . . . . . . 9

Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Determining the Price of Shares. . . . . . . . . . . . . . . . . . . . 10

Reduction of Class A Sales Charges . . . . . . . . . . . . . . . . . . 10

Exemptions To Class B Sales And Conversion Features. . . . . . . . . . 12

Distribution of Fund Shares. . . . . . . . . . . . . . . . . . . . . . 14

Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE CLASS A, CLASS B AND CLASS C PROSPECTUS DATED AUGUST 1,
1997 AND THE CLASS Y PROSPECTUS DATED AUGUST 1, 1997. THE PROSPECTUSES MAY BE
OBTAINED FROM THE FUND.

THE FUND'S MARCH 31, 1997 ANNUAL REPORT TO SHAREHOLDERS ACCOMPANIES THIS
STATEMENT OF ADDITIONAL INFORMATION AND THE FINANCIAL STATEMENTS APPEARING
THEREIN ARE INCORPORATED HEREIN BY REFERENCE.

<PAGE>
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 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 officers or
directors of the Fund, the Adviser or the Adviser's General Partner own too
many of the same securities. This would

2
<PAGE>

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.

NON-FUNDAMENTAL POLICIES. In addition to the foregoing restrictions, the Fund
is subject to certain non-fundamental policies which 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 in
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 these 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

3
<PAGE>

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 it 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 obligations 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 of 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.

4
<PAGE>

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 interest 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.

5
<PAGE>

During the last three fiscal years ended March 31, 1997, 1996 and 1995, the
Fund paid brokerage commissions of $1,580, $854 and $7,297, 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
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 Adviser: 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 Trade Return Fund, L.P. (a private investment
fund); Member, Gordon, Feinblatt, Rothman, Hoffberger, LLC (attorneys);
Director, Mid-Atlantic Realty Trust.

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 Drive 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. (a manufacturer of semi-conductor circuits);
Director, Intel Corp. (a manufacturer of semi-conductor

6
<PAGE>

circuits), and 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.

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), Gosling Hill Drive, Manhassat, 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.

SHELBY M.C. DAVIS (3/20/37),* 4135 North Steers Head Road, Jackson Hole, WY
83001. President of the Fund and each of the Davis Funds; President of Selected
American Shares, Inc., Selected Special shares, Inc. and Selected Capital
Preservation Trust; Director, Chairman and Chief Executive Officer, Venture
Advisers, Inc., 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.

CAROLYN H. SPOLIDORO (1/19/52), 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, Paine Webber, 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 Series, Inc.; Director, Venture Advisers, Inc.

KENNETH C. EICH (8/14/53), 124 East Marcy Street, Santa Fe, NM 87501. Vice
President of the Fund and each of the Davis Funds, Selected American Shares,
Inc., Selected Special Shares, Inc. and Selected Capital Preservation Trust;
Chief Operating Officer, Davis Selected Advisers, L.P. Former President and
Chief Executive Officer of First of Michigan Corporation. Former Executive Vice
President and Chief Financial Officer of Oppenheimer Management Corporation.

SAMUEL P. YNZUNZA (8/13/62), 124 East Marcy Street, Santa Fe, NM 87501. Vice
President and Secretary of the Fund and each of the Davis Funds, Selected
American Shares, Inc. Selected Special Shares, Inc., and Selected Capital
Preservation Trust. Senior Vice President and General Counsel, Davis

7
<PAGE>

Selected Advisers, L.P. Former Corporate Counsel for INVESCO Funds Group, Inc.
and Franklin Resources, Inc.

EILEEN R. STREET (3/11/62), 124 East Marcy Street, Santa Fe, NM 87501. Treasurer
and Assistant Secretary of the Fund and each of the Davis Funds, Selected
American Shares, Inc., Selected Special Shares, Inc. and Selected Capital
Preservation Trust; Senior Vice President and Chief Financial Officer, Venture
Advisers, Inc.

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

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

The 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, 1997, the compensation paid to
the directors who are not considered to be interested persons of the Fund was as
follows:

Aggregate Fund Total
Name Compensation Complex Compensation*
---- ------------ ---------------------

Wesley E. Bass $2,250 $24,250
Marc P. Blum 2,100 23,550
Eugene M. Feinblatt 1,800 20,800
Jerry D. Geist 2,000 23,050
D. James Guzy 2,150 23,700
G. Bernard Hamilton 2,050 23,450
LeRoy E. Hoffberger 2,100 23,500
Laurence W. Levine 2,100 23,500
Christian R. Sonne 2,100 23,550
Edwin R. Werner 2,050 23,200

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

CERTAIN SHAREHOLDERS OF THE FUND

The following table sets forth, as of July 30, 1997, 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 9,639,208.097 Class A
shares outstanding and the directors and officers of the Fund, as a group, owned
117,868.953 Class A shares, or approximately 1.223% of the Fund's outstanding
Class A shares. As of such date, there were 2,624,458.855 Class B shares
outstanding. The directors and officers

8
<PAGE>

of the Fund do not presently own or intend to own any Class B shares of the
Fund. As of such date, there were 747,402.020 Class Y Shares outstanding. The
directors and officers of the Fund do not presently own or intend to own any
Class Y shares of the Fund.

9
<PAGE>

CLASS A SHARES

Name and Address Number of Percent of
---------------- Shares Owned Class Outstanding
------------ -----------------

National City Bank TTEE 935,113.763 9.70%
FBO McKeesport Hospital TR
P.O. Box 94777
Cleveland, OH 44101-4777

CLASS B SHARES

Name and Address Number of Percent of
---------------- Shares Owned Class Outstanding
------------ -----------------

MLPF&S for the sole benefit 517,239.096 19.71%
of its clients
4800 Deerlake Drive East
3rd Floor
Jacksonville, FL 32246-6484

CLASS Y SHARES

Name and Address Number of Percent of
---------------- Shares Owned Class Outstanding
------------ -----------------

Currie and Co. 745,892.638 99.8%
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.

10
<PAGE>

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, 1997, 1996 and 1995 and were $419,844, $458,668 and $453,243,
respectively.

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 Adviser has also entered into a Sub-Advisory Agreement with its
wholly-owned subsidiary, Davis Selected Advisers - NY, Inc. ("DSA-NY") under
which DSA-NY performs research and other services for the Fund on behalf of the
Adviser. Under the Agreement, the Adviser pays all of DSA-NY's direct and
indirect costs of operation. This Agreement does not affect the services
provided by Stamper Capital & Investments.

The reimbursable costs for certain accounting and administrative services
for the fiscal years ended March 31, 1997, 1996 and 1995 were $14,663, $15,996
and $11,004, respectively. The reimbursable costs for qualifying the Fund's
shares for sale with state agencies for such periods were $12,000, $12,000 and
$8,004, respectively, and the reimbursable costs for providing shareholder
services for such periods were $6,713, $6,987 and $7,749, 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, DSA-NY and the Sub-Adviser have each adopted a Code of Ethics
which regulates the personal securities transactions of their investment
personnel and other employees and affiliates with access to information
regarding securities transactions of the Fund. The Codes require investment
personnel to disclose personal securities holdings upon commencement of
employment and all subsequent trading activity to the Adviser's, DSA-NY'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

11
<PAGE>

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 Governors.

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.

STATEMENT 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.

12
<PAGE>

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. (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.

13
<PAGE>

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 charge.

ISSUANCE OF SHARES AT NET ASSET VALUE. There are many situations where the
sales charge will not apply to the purchase of Class A shares, as discussed in
the Prospectus. In addition, the Fund occasionally may be provided with an
opportunity to purchase substantially all the assets of a public or private
investment company or to merge another such company into the Fund. This offers
the Fund the opportunity to obtain significant assets. No dealer concession is
involved. It is industry practice to effect such transactions at net asset
value as it would adversely affect the Fund's ability to do such transactions if
the Fund had to impose a sales charge.

EXEMPTIONS TO CLASS B SALES AND CONVERSION FEATURES

Class B shares of the Davis High Income Fund, Inc. are made available to
Retirement Plan Participants such as 401K or 403B Plans at NAV with the waiver
of contingent deferred sales charge (CDSC) if:

(i) the Plan is recordkept on a daily valuation basis by Merrill Lynch and,
on the date the Plan sponsor signs the Merrill Lynch Recordkeeping
Service Agreement, the Plan has less than $3 million in assets invested
in broker/dealer funds not advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM") that are made available pursuant to a Services
Agreement between Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM (collectively, the
"Applicable Investments"); or

(ii) the Plan is recordkept on a daily valuation basis by an independent
recordkeeper whose services are provided through a contract o alliance
arrangement with Merrill Lynch, and on the date the Plan Sponsor signs
the Merrill Lynch Recordkeeping Service Agreement, the Plan has less
than $3 million in assets, excluding money market funds, invested in
Applicable Investments; or

(iii) the Plan has less than 500 eligible employees, as determined by the
Merrill Lynch plan conversion manager, on the date the Plan Sponsor
signs the Merrill Lynch Recordkeeping Service Agreement.

Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Davis mutual funds convert to Class A shares once the Plan
has reached $5 million invested in Applicable Investments. The Plan will
receive a Plan level share conversion. The Fund may make similar exceptions for
other financial institutions sponsoring or administering similar benefit plans.

14
<PAGE>

DISTRIBUTION OF FUND SHARES

Davis Distributors, LLC (the "Distributor") acts as principal underwriter
of the Fund's shares on a continuing basis pursuant to a Distributing Agreement.
Pursuant to such Distributing Agreement, the Distributor pays for all expenses
in connection with the preparation, printing and distributing of advertising and
sales literature for use in offering the Fund's shares to the public, including
reports to shareholders to the extent they are used as sales literature. The
Distributor also pays for prospectuses in excess of those which the Fund must
file with the Securities and Exchange Commission 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, 1997, the Distributor
received total sales charges of Class A shares (which the Fund does not pay) on
the sale of Fund shares of $123,695. Of this amount, the Distributor paid
concessions to dealers of $104,712. For the two prior fiscal years ended March
31, 1996 and 1995, the Distributor received total sales charges on the sale of
the Fund shares of $163,366 and $236,817, respectively, and of those amounts
paid concessions to dealers of $140,825 and $199,230, 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 and Class C Distribution Plans are limited
to an annual rate of 1.00% of the average daily net asset value of such shares.

To the extent that any investment advisory fees paid by the Fund may be
deemed to be indirectly financing any activity which is primarily intended to
result in the sale of shares of the Fund 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 Distributor is required to furnish quarterly written reports to the
Board of Directors detailing the amounts expended under the Distribution Plans.
The Distribution Plans may be amended provided that all such amendments comply
with the applicable requirements then in effect under Rule 12b-1. Presently,
Rule 12b-1 requires, among other procedures, that it be continued only if a
majority of the Independent Directors approve continuation at least annually and
that amendments materially increasing the amount to be spent for distribution be
approved by the Independent Directors and the shareholders. As long as the
Distribution Plans are in effect, the Fund must commit the selection and
nomination of candidates for new Independent Directors to the sole discretion of
the existing Independent Directors.

The following commissions were paid to the Distributor, with respect to the
Fund under the Class A Distribution Plan. During the fiscal year ended March
31, 1997, the Adviser received $98,840,

15
<PAGE>

all of which was reallowed to investment dealers. The following commissions
were paid to the Distributor with respect to the Fund under the Class B
Distribution Plan. During the fiscal year ended March 31, 1997, the Adviser
received $86,015 and paid $157,210 (the Distributor thus advanced $71,195) 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, 1997, the yields for the
Fund's Class A and Class B shares were 9.53% and 9.24%, respectively. Such
yield figure was determined by dividing the net investment income 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 entitled to 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 if any realized or unrealized appreciation
or depreciation of, the underlying investments in the Fund's portfolio. Average
annual total return is calculated separately for each class in accordance with
the standardized method prescribed by the Securities and Exchange Commission by
determining the average annual compounded rates of return over the periods
indicated that would equate the initial amount invested to the ending redeemable
value, according to the following formula:

n
P(1+T) = ERV

Where: P = 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.

16
<PAGE>

The average annual total return figures for the Fund's Class A shares
during the one, five and ten year periods ended March 31, 1997, were 2.02%,
9.17% and 5.16%, respectively. The average annual total return figures for the
Fund's Class B shares during the year ended March 31, 1997 and the period from
December 5, 1994 through March 31, 1997 (life of the Class) was 3.34% and 6.79%,
respectively.

17
<PAGE>

FORM N-1A

DAVIS HIGH INCOME FUND, INC.

POST-EFFECTIVE AMENDMENT NO. 26 UNDER THE SECURITIES ACT OF
1933
REGISTRATION STATEMENT NO. 2-66935

AND

AMENDMENT NO. 25 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 1997 Annual Report:

(i) Schedule of Investments at March 31, 1997.

(ii) Statements of Assets & Liabilities at March 31, 1997.

(iii) Statement of Operations for the year ended March 31, 1997.

(iv) Statement of Changes in Net Assets for the years ended March
31, 1997 and 1996.

(v) Notes to Financial Statements.

(vi) Financial Highlights.

(vii) Report of Independent Certified Public Accountants.

(b) Exhibits:

1(a) Articles of Incorporation, incorporated by reference to
Exhibit 1 to Registrant's Post Effective Amendment No. 23,
File No. 2-66935.
1(b) Articles Supplementary dated September 1, 1996.

1
<PAGE>

2 Amended and Restated Bylaws, incorporated by reference to
Exhibit 2 to Registrant's Post-Effective Amendment No. 23,
File No. 2-66935.

3 Not Applicable.

4 Not Applicable.

5(a) Investment Advisory Agreement, incorporated by reference to
Exhibit 5(a) to Registrant's Post Effective Amendment No.
23, File No. 2-66935.

5(b) Amendment of Investment Advisory Agreement, incorporated by
reference to Exhibit 5(b) to Registrant's Post Effective
Amendment No. 23, File No. 2-66935.

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.

5(d) Sub-Advisory Agreement with Davis Selected Advisers-NY, Inc.

6(a) Distributor's Agreement, incorporated by reference to
Exhibit 6(b) to Registrant's Post-Effective Amendment No.
17, File No. 2-66935.

6(b) Distributor's Transfer and Assumption Agreement.

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.

2
<PAGE>

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(c)(7) Retirement Plan Custodial Account, incorporated by
reference to Exhibits 9(b) and 9(c) to Registrant's
Post-Effective No. 12, File No. 2-66935.

15(a) Distribution Plan for Class A shares, incorporated by
reference to Exhibit 15(a) to Registrant's Post Effective
Amendment No. 23, File No. 2-66935.

15(b) Distribution Plan for Class B shares, incorporated by
reference to Exhibit 15(b) to Registrant's Post Effective
amendment No. 23, File No. 2-66935.

15(c) Distribution Plan for Class C 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.

17(c) Power of Attorney for Eileen R. Street.

18 Plan pursuant to Rule 18f-3.

NOTE: Must be filed as amended

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 June 30, 1997
-------------- -------------------

Common Stock
Davis High Income Fund, Inc., Class A 1,846
Davis High Income Fund, Inc., Class B 404
Davis High Income Fund, Inc., Class Y 5

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

3
<PAGE>

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.

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

4
<PAGE>

Name and Principal Positions and Officers with Positions and Offices
Business Address General Partner of Underwriter with Registrant
- ---------------- ------------------------------ ---------------
<S> <C> <C>

Shelby M.C. Davis Director, Chairman and Chief Director and Chief Executive Officer
P.O. Box 205 Executive Officer
Hobe Sound, FL 33455

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 Assistant Secretary Assistant Secretary
Santa Fe, NM 87501

Sam P. Ynzunza Senior Vice President and Vice President and Secretary
124 East Marcy Street General Counsel
Santa Fe, NM 87501

Carolyn H. Spolidoro Vice President Vice President
142 East Marcy Street
Santa Fe, NM 87501

Christopher C. Davis Employee of Davis Selected Vice President
70 Pine Street, Advisers, L.P.
43rd Floor
New York, NY 10270-0108

</TABLE>

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.

5
<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 30th day of July, 1997.

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, (Chief Executive Officer) July 30, 1997

Eileen R. Street* Principal Financial Officer and Treasurer July 30, 1997

*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(b) to Post Effective Amendment No. 22 to Registrant's
Registration Statement and Exhibit 17(c) to this Registration Statement.

6
<PAGE>

DAVIS HIGH INCOME FUND, INC.

Pursuant to the requirements of the Securities Act of 1933, this Post
Effective amendment has been signed on July 30, 1997 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

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, 17(b) and
Exhibit 17(c) to this Registration Statement to Post Effective Amendment Nos. 21
and 22, respectively, to Registrant's Registration Statement.

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

<PAGE>

Exhibit 5(d)

Re: Sub-Advisory Agreement for Davis High Income Fund, Inc.

This is to confirm that Davis Selected Advisers, L.P. (the "Adviser") is
retaining Davis Selected Advisers - NY, Inc. ("DSA-NY") as investment
sub-adviser for the portfolio of Davis High Income Fund, Inc. (the "Fund").

The terms and conditions of your retention are as follows:

1. DSA-NY shall act as an investment sub-adviser for the Fund and will provide
such investment management and research services as the Adviser shall request
subject to the general supervision of the Board of Directors of the Fund, Davis
Selected Advisers, L.P. (the "Adviser") and to any applicable provisions as in
effect from time to time of (a) the Articles of Incorporation and Bylaws of the
Fund, (b) the prospectus, statement of additional information and other
information set forth in the Fund's registration documents under the Securities
Act of 1933 and the Investment Company Act of 1940 ("1940 Act"), including any
supplements thereto, (c) the Investment Advisory Agreement between the Adviser
and the Fund (the "Investment Advisory Agreement"), the Adviser's and the Fund's
Code of Ethics and (d) any additional policies or guidelines established by the
Fund's Board of Directors or the Adviser. DSA-NY acknowledges receipt of copies
of the above documents as in effect on the date of acceptance of this letter.
The Adviser agrees that it will promptly deliver to DSA-NY any amendments,
changes or additions of or to these documents.

2. DSA-NY agrees that all securities transactions will conform to (a) the stated
objectives and policies of the Fund, (b) the brokerage policies set forth in the
Investment Advisory Agreement (which are hereby incorporated by reference
herein) and the registration documents, and (c) those investment and brokerage
policies or guidelines directed by the Board of Directors of the Fund, any
committee thereof and the Adviser.

3. DSA-NY shall be an independent contractor. Unless otherwise expressly
provided or authorized hereunder, or by the Board of Directors of the Fund, DSA-
NY shall have no authority to represent the Fund or the Adviser in any way or
otherwise be an agent of the Adviser or the Fund, except with regard to the
execution of securities transactions on behalf of the Fund with registered
broker/dealers, including broker/dealers affiliated with the Adviser, provided
transactions with affiliated broker/dealers comply with Rule 17e-1 of the 1940
Act.

4. DSA-NY shall provide the Adviser with any reports, analyses or other
documentation the Adviser requests including those related to placement of
security transactions, its administrative responsibilities and its
responsibility to monitor compliance with stated investment objectives, policies
and limitations and the investment performance of the

<PAGE>

Fund. DSA-NY agrees, directly or through an agent, to provide daily information
in respect to any portfolio transactions of the Fund to the Adviser. DSA-NY
agrees to provide all documentation reasonably required by the Adviser to
maintain the Fund's accounting records in accordance with the 1940 Act and the
Investment Advisers Act of 1940 and the regulations issued thereunder, and to
preserve copies of all documents and records related to asset transactions,
positions and valuations related to the Fund in the manner and for the periods
prescribed by such regulations. DSA-NY further agrees that all documents and
records it maintains relating to the Fund, are the property of the Fund and will
be surrendered to the Adviser or the Fund upon the request of either. DSA-NY
agrees to provide information and to allow inspection of such documents and
records at reasonable times by any authorized representative of the Adviser, the
Fund's Board of Directors or any committee thereof, the Fund's independent
public accountants or appropriate regulatory authorities. DSA-NY shall provide
to the Adviser a copy of its Form ADV as filed with the SEC and as amended from
time to time and a written list of persons DSA-NY has authorized to give written
and/or oral instructions to the Adviser and the Fund custodian.

5. DSA-NY agrees to make its personnel who are engaged in activities on behalf
of the Fund available at reasonable times for consultations with the Adviser's
personnel and the Fund's Board of Directors or any committee thereof, including
attendance at their meetings, wherever situated. In addition, personnel of DSA-
NY, at the request of the Adviser, will attend other meetings to be scheduled at
mutually convenient times.

6. DSA-NY agrees to provide all office facilities, equipment and personnel
needed for carrying out its duties hereunder at its own expense. In addition,
DSA-NY shall, if requested by the Adviser or the Fund, employ at its own expense
and subject to the prior written approval of the Adviser which approval shall
not be unreasonably withheld (i) a public auditing firm, (ii) attorneys and
(iii) such other professional staff as in the sole discretion of the Adviser are
necessary to assure the fulfillment of the terms and conditions of this
agreement.

7. It is agreed that DSA-NY's services are not to be deemed exclusive and DSA-NY
shall be free to render similar services or other services to others provided
that (i) its services hereunder are not impaired and are not in violation of
federal or state securities laws and (ii) that it shall not provide services to
any registered investment company other than the Fund or other investment
companies managed by the Adviser without the Adviser's prior express written
permission.

8. In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations or duties hereunder, DSA-NY, its officers,
directors and employees shall not be subject to liability for any act or
omission in the cause of, or connected with, rendering services hereunder or for
any losses that may be sustained in the purchase, holding or sale of any
security. In the event of any claim, arbitration, suit, or

2
<PAGE>

administrative proceedings in which DSA-NY or the Adviser is a party and in
which it is finally determined that there is liability or wrongdoing by only one
of us, the party liable or found to be the wrongdoer shall pay for all liability
and expenses of such claim or proceeding including reasonable attorneys' fees.
If it is determined that there is liability or wrongdoing by both or none of us,
then each shall pay their own liability and expenses. In the event of any
settlement of any such claim, arbitration, suit or proceeding before final
determination by a court or arbitrator(s), the liability and expenses shall be
assumed as agreed between the parties, but if there is no agreement within
thirty (30) days of such settlement, then the assumption of liability and
expenses shall be settled by arbitration, in accordance with the then applicable
rules of the American Arbitration Association. Judgment upon the award rendered
by the arbitrator shall be final and binding and may be entered in any court
having jurisdiction. The parties shall pay for their own costs and expenses in
respect to any such arbitration and such costs may be included in the
arbitrator's award.

9. As investment sub-adviser, DSA-NY understands that it will be responsible for
complying with all provisions of applicable law, including the 1940 Act, the
Investment Advisers Act of 1940, and the Insider Trading and Securities Fraud
Enforcement Act of 1988 and all rules and regulations thereunder. DSA-NY agrees
to adopt and comply with the "Code of Ethics of and for Davis Selected Advisers,
L.P. and the Companies For Which It Acts As Investment Adviser" as in effect
from time to time and to keep in effect a policy and supervisory procedures
designed to prevent insider trading.

10. The parties acknowledge that DSA-NY is controlled by or under common
control with the Adviser. The Adviser shall pay DSA-NY all reasonable direct
and indirect costs associated with the maintenance of an office and the
performance of the terms of this Agreement. The Adviser shall also reimburse
expenses expressly approved for reimbursement by the Adviser. Payment for DSA-
NY's services and reimbursement of expenses approved by the Adviser shall be
made monthly, in arrears, by the 15th day of the following month.

11. This Agreement shall become effective on the later of December 1, 1996 or
the first business day after the date this Agreement is approved in accordance
with the 1940 Act (provided that it is reflected in an effective post-effective
amendment under the Securities Act of 1933 and the 1940 Act). Unless sooner
terminated as hereunder provided, it shall initially remain in effect for a
period not exceeding two years. Thereafter, subject to the termination
provisions herein, this Agreement shall continue in force from year to year
thereafter, but only as long as such continuance is specifically approved at
least annually in the manner required by the 1940 Act; provided, however, that
if the continuation of this Agreement is not approved, DSA-NY may continue to
serve in the manner and to the extent permitted by the 1940 Act and the rules
and regulations thereunder.

3
<PAGE>

12. This Agreement shall automatically terminate immediately in the event of its
assignment (except as otherwise permitted by the 1940 Act or rules thereunder)
or in the event of the termination of the Investment Advisory Agreement. This
Agreement may be terminated without payment of any penalty at any time (a) upon
sixty (60) days' written notice to DSA-NY by the Adviser or upon such sixty (60)
days' written notice to DSA-NY by the Fund pursuant to action by its Board of
Directors or by the vote of a majority of the outstanding voting securities of
the Fund, or (b) upon sixty (60) days' written notice by DSA-NY to the Adviser.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meaning set forth in the 1940 Act and the rules and
regulations thereunder. Termination of this Agreement shall not affect DSA-NY's
right to receive payments on any unpaid balance of the compensation earned and
reimbursable expenses incurred prior to such termination. Upon receipt of
notification of termination as provided above DSA-NY shall immediately cease all
activities in connection with the Fund except as otherwise directed by the
Adviser.

13. DSA-NY agrees that it shall abide by the terms of the agreement of the
Adviser with the Fund as to the names of the Fund and the Adviser and shall not
use the name of the Adviser or the Fund without the prior written consent of the
Adviser or the Fund.

14. If any provisions of this Agreement shall be held or made invalid by a court
decision, statute or rule or otherwise, the remainder shall not be thereby
affected.

15. This Agreement shall be construed according to the laws of the State of New
Mexico. It may be executed in counterparts each of which shall be deemed an
original and all of which together shall constitute one and the same agreement.

If the foregoing terms and conditions are acceptable to you, please acknowledge
in the space provided. Upon your acceptance, the retention and the mutual
obligations in respect thereto shall be effective as provided herein.

Sincerely,

Davis Selected Advisers, L.P.
By Venture Advisers, Inc.,
General Partner

4
<PAGE>

By:
-------------------------

Its:
-------------------------

Accepted and Approved this 1st day of December, 1996

Davis Selected Advisers - NY, Inc.

By:
-------------------------
Its:
-------------------------

<PAGE>

TRANSFER AND ASSUMPTION

THIS TRANSFER AND ASSUMPTION is entered into as of June 1, 1997 by and
among Davis Selected Advisors, L.P., a Colorado limited partnership (the
"Transferor"), Davis Distributors, L.L.C., a Delaware limited liability company
(the "Transferee") and Davis High Income Fund, Inc. ("DHIF"), a Maryland
corporation.

WHEREAS, this Transferor is the sole member of the Transferee and
controls and manages the business of the Transferee; and

WHEREAS, the Transferor was organized to assume and continue the
distribution services business with respect to the investment companies for
which the Transferor serves as investment advisor; and

WHEREAS, the Transferor has entered into a Distributing Agreement (the
"Agreement") dated April 15, 1993 with DHIF, pursuant to which the Transferor
serves as distributor of shares of capital stock of DHIF;

NOW THEREFORE, the parties hereto agree as follows:

1. The Transferor hereby transfers unto the Transferee all of its
rights, obligations and liabilities under the Agreement.

2. The Transferee, in consideration of the transfer to it of all
Transferor's rights, obligations and liabilities under the
Agreement, hereby accepts and assumes such rights, obligations
and liabilities.

3. All references to Transferor in the Agreement shall, as of June
1, 1997, be deemed to refer to the Transferee.

4. DHIF hereby acknowledges and approves this transfer and agrees
that, as of June 1, 1997, the transferee shall be the other party
to the Agreement in lien of the Transferor

IN WITNESS THEREOF, the undersigned have caused this Transfer and
Assumption to be executed on their behalf as of the date written
above.

DAVIS SELECTED ADVISERS, L.P. DAVIS HIGH INCOME FUND, INC.
BY: VENTURE ADVISERS, INC.
GENERAL PARTNER

BY: BY:
------------------------- ------------------------------

DAVIS DISTRIBUTORS, LLC

<PAGE>

BY:
-------------------------

<PAGE>

EXHIBIT 11

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the reference to our firm in the Registration Statement, (Form
N-1A), and related Statement of Additional Information of Davis High Income
fund, Inc. and to the inclusion of our report dated May 2, 1997 to the
Shareholders and Board of Directors of Davis High Income Fund, Inc.

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

Philadelphia, Pennsylvania
July 30, 1997

<PAGE>

Exhibit 15(c)

DAVIS HIGH INCOME FUND, INC.
DAVIS TAX-FREE HIGH INCOME FUND, INC.
DAVIS SERIES, INC.
MASTER RULE 12B-1 DISTRIBUTION PLAN
FOR CLASS C SHARES

THE PLAN:

1. PURPOSE. The Company shall finance the distribution of its Class C
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 Dealer, 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 TERMS. Subject to paragraph 8, 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 C shares.

6. RELATED AGREEMENTS. Any agreement related to the Plan shall be in
writing, and shall provide:

<PAGE>

(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 C 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 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 C shares of any series and no amendment may be
effected to increase materially the amount of distribution expenses as to the
Class C shares of any series until it has been approved as to the Class C shares
of such series by the Board of Directors and the Independent Directors 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 C shareholders of the series.

<PAGE>

EXHIBIT 17(c)

DAVIS HIGH INCOME FUND, INC.

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Shelby M.C. Davis, Samuel P. Ynzunza, Sheldon R. Stein and Arthur Don,
and each of them, her attorneys-in-fact, each with the power of substitution,
for her in any and all capacities, to sign any post-effective amendments to the
registration statement under the Securities Act of 1933 (Registration No.
2-66935) and/or the Investment Company Act of 1940 (Registration No. 811-3007),
whether on Form N-1A or any successor forms thereof, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and all appropriate state or federal
regulatory authorities. The undersigned hereby ratifies and confirms all that
each of the aforenamed attorneys-in-fact, or her substitute or substitutes, may
do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney
as of the 30th day of July, 1997.

/s/ Eileen R. Street
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Eileen R. Street, Treasurer