DAVIS HIGH INCOME FUND INC, 485BPOS, 1998-07-29

DAVIS HIGH INCOME FUND INC
485BPOS, 1998-07-29

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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. 27
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-3007
AMENDMENT NO. 26
DAVIS SERIES, INC.

124 East Marcy Street
Santa Fe, New Mexico 87501
1-505-983-4335

Agents for Service: Sheldon R. Stein
D'Ancona & Pflaum
30 North LaSalle Street
Suite 2900
Chicago, Illinois 60602
1-312-580-2014

-or-

Thomas D. Tays, Esq.
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, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on _________, pursuant to paragraph (a) of Rule 485

1
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Title of Securities Being Registered: Common Stock of:
Davis High Income Fund, Inc.

<PAGE>

1 FORM N-1A

DAVIS HIGH INCOME FUND, INC. CLASS A, B AND C SHARES

POST-EFFECTIVE AMENDMENT NO. 27 TO REGISTRATION STATEMENT NO. 2-66935
UNDER THE SECURITIES ACT OF 1933 AND AMENDMENT NO. 26 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 1998 Annual Report)
6 Summary; Shareholder Inquiries; Dividends and Distributions;
Federal Income Taxes; Fund Shares
7 Purchase of Shares; Determining the Price of Shares; Dividends and
Distributions
8 Redemptions of Shares; Exchange of Shares
9 (Not Applicable)

PART B CAPTION OR PLACEMENT

<PAGE>

17 Portfolio Transactions
18 *
19 Determining the Price of Shares; Reduction of Class A Sales Charge
20 *
21 *
22 Performance Data
23 Financial Statements for the Company for the year ended March 31,
1998, are incorporated by reference from the 1998 Annual Report to
Shareholders.

- ---------------------------------
* INCLUDED IN PROSPECTUS

FORM N-1A
DAVIS SERIES, INC. CLASS Y SHARES

POST-EFFECTIVE AMENDMENT NO. 27 TO REGISTRATION STATEMENT NO. 2-66935 UNDER THE
SECURITIES ACT OF 1933 AND AMENDMENT NO. 26 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 1998 Annual Report)
6 Summary; Shareholder Inquiries; Dividends and Distributions;
Federal Income Taxes; Fund Shares
7 Purchase of Shares; Determining the Price of Shares; Dividends and
Distributions
8 Redemption of Shares; Exchange of Shares
9 (Not Applicable)

4
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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 Funds
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 Charge
20 *
21 *
22 Performance Data
23 Financial Statements for the Company for the year ended
March 31, 1998, are incorporated by reference from the 1998 Annual
Report to Shareholders.

- ---------------------------
* Included in Prospectus

<PAGE>

PROSPECTUS AUGUST 1, 1998
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

MINIMUM INVESTMENT PLANS AVAILABLE
Initial Purchase $1,000 Individual Retirement Account (IRA)
For Retirement Plans $250 Prototype Retirement Plans
Subsequent Investment $25 Exchange Privilege
Automatic Investment Plan
Automatic Withdrawals Plan

Davis High Income Fund, Inc. (the "Fund") seeks primarily to achieve a
high level of current income. The Fund also seeks to achieve capital growth so
long as such objective is consistent with its primary objective. THE FUND MAY
INVEST UP TO 100% OF ITS ASSETS IN LOWER RATED BONDS, COMMONLY KNOWN AS "JUNK
BONDS," WHICH ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN THOSE FOUND
IN HIGHER RATED SECURITIES. Investors should carefully consider these risks
before investing. See "Investment Objectives and Policies".

The Fund offers 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, 1998, 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 about the Fund 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, 1998. You can refer to the
section "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

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)

Management Fees..................................................... 0.70% 0.70% 0.70%
12b-1 fees**........................................................ 0.23% 1.00% 1.00%
Other expenses...................................................... 0.47% 0.46% 0.39%
----- ----- -----
Total Fund operating expenses....................................... 1.40% 2.16% 2.09%
</TABLE>

*On certain Class A shares purchased at net asset value without a sales load
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 applicable rules of the
National Association of Securities Dealers, Inc.

Example:

You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and (except as provided 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.................................................. $61 $90 $120 $207
Class B.................................................. $62 $98 $136 $220
Class B (assuming no redemption at end of period)........ $22 $68 $116 $220
Class C ................................................. $31 $65 $112 $242
Class C (assuming no redemption at end of period)........ $21 $65 $112 $242
</TABLE>

2
<PAGE>

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, 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 at net asset value without a sales load 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 each 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
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 Fund
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".

3
<PAGE>

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. 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. For more
information, see "Adviser, Sub-Advisers and Distributor".

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. See "Purchase of Shares -- Alternative Purchase Agreements"
for Class Y eligibility requirements.

SHAREHOLDER SERVICES. Questions regarding the Fund or your account may
be directed to Davis Distributors, LLC, at 1-800-279-0279 or to your sales
representative. Written inquiries may be directed to State Street Bank and
Trust Co., c/o The Davis Funds, P.O. Box 8406, Boston, MA, 02266-8406. During
severe market conditions, the Distributor may experience difficulty in
accepting telephone redemptions or exchanges. If you are unable to contact the
Distributor at the above telephone number, you should call 1-505-820-3000
Monday through Friday between 7:00 a.m. and 4:00 p.m. Mountain Time.

FINANCIAL HIGHLIGHTS

The following table provides you with information about the financial
history of the Fund's Class A, Class B, and Class C shares. The table expresses
the information in terms of a single Class A, B, or C share for the respective
periods presented and is supplementary information to the Fund's financial
statements which are included in the March 31, 1998 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 year
ended March 31, 1998, have been audited by KPMG Peat Marwick LLP whose opinion
thereon is contained in the 1998 Annual Report. The information for the periods
prior to 1998 was audited by other auditors whose opinion thereon is contained
in the 1997 Annual Report.

4
<PAGE>

<TABLE>
<CAPTION>
CLASS A
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period....... $4.71 $4.84 $4.86 $5.14 $5.18 $4.92 $4.75 $6.07 $8.09 $8.59
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
INCOME FROM INVESTMENT
OPERATIONS

Net Investment
Income.................. 0.34 0.39 0.43 0.46 0.50 0.61 0.53 0.56 0.79 1.20
Net Gains or Losses
on Securities (both
realized and
unrealized)............. 0.13 (0.06) 0.03 (0.24) 0.06 0.25 0.43 (0.85) (1.63) (0.59)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total From
Investment
Operations............ 0.47 0.33 0.46 0.22 0.56 0.86 0.96 (0.29) (0.84) 0.61
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS

Dividends from net
investment income....... (0.34) (0.39) (0.43) (0.46) (0.50) (0.60) (0.53) (0.56) (0.88) (1.11)
Distributions in
excess of
realized gains.......... - - - - (0.10) - - - - -
Returns of Capital........ (0.08) (0.07) (0.05) (0.04) - - (0.26) (0.47) (0.30) -
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions... (0.42) (0.46) (0.48) (0.50) (0.60) (0.60) (0.79) (1.03) (1.18) (1.11)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value,
End of Period............. $4.76 $4.71 $4.84 $4.86 $5.14 $5.18 $4.92 $4.75 $6.07 $8.09
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN (1)............. 10.40% 7.08% 9.93% 4.69% 11.29% 18.81% 22.45% (5.32)% (11.69)% 7.24%

RATIOS/SUPPLEMENTAL DATA

Net Assets, End of
Period (000 omitted).... $44,058 $47,890 $53,816 $56,405 $64,663 $38,305 $24,986 $19,386 $29,909 $53,670
Ratio of Expenses to
Average Net Assets...... 1.40%2 1.48%2 1.51% 1.53% 1.48% 1.81% 1.93% 2.09% 1.52% 1.26%
Ratio of Net Income
to Average Net Assets... 7.11% 8.13% 8.92% 9.49% 9.31% 11.91% 11.01% 10.43% 10.64% 14.18%
Portfolio Turnover
Rate(3)................. 71.54% 66.10% 118.34% 98.94% 98.31% 84.93% 93.78% 76.92% 39.91% 85.91%
</TABLE>

(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected.

(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.39% for the year ended March 31,
1998 and 1.47% for the year ended March 31, 1997.
Prior to 1997, such reductions were reflected in the expense ratios.

(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.

5
<PAGE>

<TABLE>
<CAPTION>
CLASS B

DECEMBER 5, 1994
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
MARCH 31, THROUGH
------------------------------- MARCH 31,
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $4.68 $4.81 $4.85 $4.80
----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................ 0.33 0.36 0.40 0.11
Net Gains or Losses on 0.10 (0.07) - 0.05
----- ----- ----- -----
Securities (both realized and unrealized)..
Total From Investment Operations........ 0.43 0.29 0.40 0.16
----- ----- ----- -----
LESS DISTRIBUTIONS
Dividends (from net investment income)....... (0.33) (0.36) (0.40) (0.11)
Returns of Capital........................... (0.05) (0.06) (0.04) -
----- ----- ----- -----
Total Distributions...................... (0.38) (0.42) (0.44) (0.11)
----- ----- ----- -----
Net Asset Value, End of Period.................. $4.73 $4.68 $4.81 $4.85
===== ===== ===== =====
TOTAL RETURN (1)................................ 9.53% 6.26% 8.68% 4.28%

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000 omitted)...... $21,624 $10,217 $6,599 $1,900
Ratio of Expenses to Average Net Assets...... 2.16%(2) 2.30%(2) 2.32% 2.36%*
Ratio of Net Income to Average Net Assets.... 6.35% 7.28% 8.11% 8.66%*
Portfolio Turnover Rate (3).................. 71.54% 66.10% 118.34% 98.94%
</TABLE>

(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.15% for the year ended March 31,
1998 and 2.29% for the year ended March 31, 1997. Prior to 1997, such
reductions were reflected in the expense ratios.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.

* Annualized

6
<PAGE>

<TABLE>
<CAPTION>
CLASS C
AUGUST 12, 1997
(COMMENCEMENT OF
OPERATIONS)
THROUGH
MARCH 31,
1998
----
<S> <C>
Net Asset Value,
Beginning of Period...................... $4.71
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................... 0.16
Net Gains or Losses on Securities
(both realized and unrealized)......... 0.10
------
Total From Investment
Operations........................ 0.26
------
LESS DISTRIBUTIONS
Dividends (from net
investment income)..................... (0.16)
Returns of Capital....................... (0.05)
------
Total Distributions.................. (0.21)
Net Asset Value,
End of Period............................ $4.76
=====
TOTAL RETURN (1)............................ 5.61%

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted).......................... $1,928
Ratio of Expenses to
Average Net Assets..................... 2.09%(2)*
Ratio of Net Income to
Average Net Assets..................... 6.42%*
Portfolio Turnover Rate (3).............. 71.54%
</TABLE>

(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.08% for the period ended March 31,
1998.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized

7
<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.

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 many 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 invests a substantial portion of its assets in fixed-income securities
rated Ba or lower by Moody's, BB or lower by S&P, 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

8
<PAGE>

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 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.

9
<PAGE>

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 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, 1998, 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.

10
<PAGE>

COMPOSITION OF THE FUND'S PORTFOLIO BY QUALITY RATING AS A PERCENTAGE OF
TOTAL NET ASSETS AT MARCH 31, 1998

<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 ............................ 7.13% 0.00% Highest quality
Aa/AA ............................ 6.39% 0.00% High quality
A/A ............................ 0.41% 0.00% Upper medium grade
Baa/BBB ............................ 3.73% 0.00% Medium grade
Ba/BB ............................ 10.97% 0.51% Some speculative elements
B/B ............................ 37.20% 12.20% Speculative
Caa/CCC ............................ 4.14% 0.15% More speculative
Ca, C/CC, C, D...................... 0.13% 0.35% Very speculative, may be in default
Not Rated........................... 13.21% 0.00% Not rated by Moody's or S&P
Common and Preferred Stock.......... 2.15% 0.00%
Short-term Investments.............. 14.54% 0.00%
------ -----
100.00% 13.21%
</TABLE>

The description of each bond quality category set forth in the table
above is intended to be a general guide and not a definitive statement as to
how Moody's and S&P define such rating category. A more complete description of
the rating categories is set forth in the Appendix. The ratings of Moody's and
S&P represent their opinions as to the quality of the securities that they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality. There is no assurance
that a rating assigned initially will not change. The Fund may retain a
security whose rating has changed or has become unrated.

RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities, i.e., securities which, if sold, would cause the Fund to be deemed
an "underwriter" under the Securities Act of 1933 (the "1933 Act") or which are
subject to contractual restrictions on resale. The Fund's policy is to not
purchase or hold illiquid securities (which may include restricted securities)
if more than 15% of the Fund's net assets would then 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 Adviser or Sub-Advisers, under criteria established by
the Fund's Board of Directors, will consider whether Rule 144A securities being
purchased or held by the Fund are illiquid and thus subject to the Fund's
policy limiting investments in illiquid securities. In making this
determination, the Adviser or Sub-Advisers will consider the frequency of
trades and quotes, the number of dealers and potential purchasers, dealer
undertakings to make a market, and the nature of the security and the market
place trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A Securities will also be monitored by the Adviser and Sub-Advisers
and, if as a result of changed conditions, it is determined that a Rule 144A
Security is no longer liquid, the Fund's holding of illiquid securities will be
reviewed to determine what, if any, action is required in light of the policy
limiting investments in such securities. Investing in Rule 144A Securities
could have the effect of increasing the amount of investments in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities.

11
<PAGE>

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. These transactions arise when securities are purchased or sold
by the Fund with payment and delivery taking place in the future. No payment is
made until delivery is made which may be up to 60 days after purchase. If
delivery of the obligation does not take place, no purchase will result and the
transaction will be terminated. Such transactions are considered to involve
more risk than immediate cash transactions. As a matter of non-fundamental
policy, 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. The Fund may enter into repurchase agreements,
but normally will not enter into repurchase agreements maturing in more than
seven days, and may make repurchase agreement transactions through a joint
account with other funds, which have the same investment adviser. A repurchase
agreement, as referred to herein, involves a sale of securities to the Fund,
with the concurrent agreement of the seller (a bank or securities dealer which
the Adviser or Sub-Advisers determines to be financially sound at the time of
the transaction) to repurchase the securities at the same price plus an amount
equal to accrued interest at an agreed-upon interest rate, within a specified
time, usually less than one week, but, on occasion, at a later time. The
repurchase obligation of the seller is, in effect, secured by the underlying
securities. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying securities and losses, including (a) possible decline in the value
of the collateral during the period while the Fund seeks to enforce its rights
thereto, (b) possible loss of all or a part of the income during this period,
and (c) expenses of enforcing its rights.

BORROWING. The Fund may not borrow money except from banks for
extraordinary or emergency purposes in amounts not exceeding 10% of the value
of the Fund's total assets (excluding the amount borrowed) at the time of
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 the Fund's total assets (excluding the amount borrowed) at the time of 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

12
<PAGE>

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 POLICIES. The Fund has adopted certain investment
restrictions set forth in the Statement of Additional Information as
fundamental policies. These restrictions and the Fund's investment objectives
are fundamental policies and may not be changed unless authorized by a vote of
the shareholders. All other policies are non-fundamental and may be changed
without shareholder approval. Except for the restriction with respect to
illiquid securities, any percentage restrictions set forth in the prospectus or
in the Statement of Additional Information apply as of the time of investment
without regard to later increases or decreases in the values of securities or
total net assets.

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. (the
"Sub-Adviser") 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 Tax-Free High Income Fund, Inc., Davis New York Venture 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 Fund pays the Adviser 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 98940. B. Clark Stamper is the
controlling shareholder of the Sub-Adviser.

13
<PAGE>

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.

YEAR 2000 ISSUES. Like all financial service providers, the Adviser,
Sub-Advisers, Distributor and third parties providing transfer agent, custodial
and other services (jointly the "Service Providers") utilize systems that may
be affected by Year 2000 transition issues. The services provided to the Fund
and the shareholders by the Service Providers depend on the smooth functioning
of their computer systems and those of other parties they deal with. Many
computer software systems in use today cannot distinguish the year 2000 from
the year 1900 because of the way dates are encoded and calculated. Such an
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund, the
Service Providers have advised the Fund that they have been actively working on
necessary changes to their computer systems to prepare for the year 2000 and
expect that their systems, and those of other parties they deal with, will be
adapted in time for that event.

DISTRIBUTION PLANS

Davis Distributors, LLC 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. Rule 12b-1 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. The Distributor pays broker/dealers up to 4% in
commissions on new sales of Class B Shares. Up to an annual rate of 0.75% of
the average daily net assets is used to reimburse the Distributor for these
commission payments. Most or all of such commissions are reallowed to
salespersons and to firms responsible for such sales. No commissions are paid
by the Fund with respect to sales by the Distributor to officers, directors and
full-time employees of the Fund, the Distributor, the Adviser, the Adviser's
general partner, or DSA-NY. Up to 0.25% of average net assets is used to
reimburse the Distributor for the payment of service and maintenance fees to
its salespersons and other firms for shareholder servicing and maintenance of
shareholder accounts.

14
<PAGE>

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, 1998, the Distributor paid $582,180 in commissions for
which the Distributor had not yet received reimbursement.

Payments under the Class C Distribution Plan are also limited to an
annual rate of 1% of the average daily net asset value of the Class C shares,
and are subject to the same 6.25% and 1% limitations applicable to the Class B
Distribution Plan. The entire amount of payments may be used to reimburse the
Distributor for the payments of commissions 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 herein, dealers or others may receive different levels of
compensation depending on which class of shares they sell. The Distributor may
make expense reimbursements for special training of a dealer's registered
representatives or personnel of dealers and other firms who provide sales or
other services in respect to the Fund and/or its shareholders, or to defray the
expenses of meetings, advertising or equipment. Any such amounts may be paid by
the Distributor from the fees it receives under the Class A, Class B and Class
C Distribution Plans.

In addition, the Distributor may, from time to time, pay additional
cash compensation or other promotional incentives to authorized dealers or
agents 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.

15
<PAGE>

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.

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. For overnight delivery, please send your check to State Street Bank
and Trust Company, c/o the Davis Funds, 66 Brooks Drive, Braintree, MA 02184.
THIRD PARTY CHECKS WILL NOT BE ACCEPTED. The 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. You will
receive a statement showing the details of the transaction and any other
transactions you had during the current year each time you add to or withdraw
from your account.

16
<PAGE>

ALTERNATIVE PURCHASE ARRANGEMENTS. The Fund offers four classes of
shares. With certain exceptions described below, Class A shares are sold with a
front-end sales charge at the time of purchase and are not subject to a sales
charge when they are redeemed. Class B shares are sold without a sales charge
at the time of purchase, but are subject to a deferred sales charge if they are
redeemed within six years after purchase. Class B shares will automatically
convert to Class A shares eight years after the end of the calendar month in
which the shareholder's order to purchase was accepted. Class C shares are
purchased at their net asset value per share without the imposition of a
front-end sales charge but are subject to a 1% deferred sales charge if
redeemed within one year after purchase and do not have a conversion feature.
Class Y shares are offered 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 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 following
table.

<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>

17
<PAGE>

* On purchases of $1 million or more, the investor pays no front-end sales
charge, but a contingent deferred sales charge of 0.75% is imposed if shares
purchased at net asset value without a sales load 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> <C>
First $3,000,000................................................ .75%
Next $2,000,000................................................ .50%
Over $5,000,000................................................ .25%
</TABLE>

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 the
back of this prospectus.

(v) Rights of Accumulation: If you notify your dealer or the
Distributor, you may include the Class A, B and C shares you already own
(except shares of Davis Government Money Market Fund) 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, Davis Growth & Income
Fund., Davis Tax-Free High Income Fund, Davis International Total Return Fund,
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

18
<PAGE>

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 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 and
records of the broker or agent; and (7) Class A shares amounting to less than
$5,000,000 purchased by any state, county, city, department, authority or
similar agency. Investors may be charged a fee if they effect purchases in Fund
shares through a broker or agent. The Fund may also issue Class A shares at net
asset value incident to a merger with or acquisition of assets of an investment
company.

CLASS B SHARES. Class B shares are offered at net asset value, without
a front-end sales charge. The Distributor receives and usually reallows
commissions to firms responsible for the sale of such shares. See "Distribution
Plans". 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 in exchange from Class B shares of other Davis
Funds which were purchased prior to December 1, 1994, the Fund will impose a
deferred sales charge of 4% on shares redeemed during the first calendar year
after purchase; 3% on shares redeemed during the second calendar year after
purchase; 2% on shares redeemed during the third calendar year after purchase;
and 1% on shares redeemed during the fourth calendar year after purchase, and
no deferred sales charge is imposed on amounts redeemed after four calendar
years from purchase. Class B shares will be subject to a maximum Rule 12b-1 fee
at the annual rate of 1% of the class's average daily net asset value. The Fund
will not accept any purchase of Class B shares in the amount of $250,000 or
more per investor.

Class B shares that have been outstanding for eight years will
automatically convert to Class A shares without imposition of a front-end sales
charge The Class B shares so converted will no longer be subject to the higher
expenses borne by Class B shares. Because the net asset value per share of the
Class A shares may be higher or lower than that of the Class B shares at the
time of conversion, although the dollar value will be the same, a shareholder
may receive more or less Class A shares than the number of Class B shares
converted. Under a private Internal Revenue Service Ruling, such a conversion
will not constitute a taxable event under the federal income tax law. In the
event that this ceases to be the case, the Board of Directors will consider
what action, if any, is appropriate and in the best interests of the Class B
shareholders. In addition, certain Class B shares held by certain defined
contribution plans automatically convert to Class A shares based on increases
of plan assets as described in the Statement of Additional Information.

19
<PAGE>

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

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

CONTINGENT DEFERRED SALES CHARGES. Any contingent deferred sales
charge ("CDSC") imposed upon the redemption of Class A, Class B or Class C
shares is a percentage of the lesser of (i) the net asset value of the shares
redeemed or (ii) the original cost of such shares. No CDSC is imposed when you
redeem amounts derived from (a) increases in the value of shares redeemed above
the net cost of such shares or (b) certain shares with respect to which the
Fund did not pay a commission on issuance, including shares acquired through
reinvestment of dividend income and capital gains distributions. Upon request
for redemption, shares not subject to the CDSC will be redeemed first.
Thereafter, shares held the longest will be the first to be redeemed.

The CDSC on Class A, B, and C Shares that are subject to a CDSC will
be waived if the redemption relates to the following: (a) in the event of the
total disability (as evidenced by a determination by the federal Social
Security Administration) of the shareholder (including registered joint owner)
occurring after the purchase of the shares being redeemed; (b) in the event of
the death of the shareholder (including a registered joint owner); (c) for
redemptions made pursuant to an automatic withdrawal plan in an amount, on an
annual basis, up to 12% of the value of the account at the time the shareholder
elects to participate in the automatic withdrawal plan; (d) for redemptions
from a qualified retirement plan or IRA that constitute a tax-free return of
contributions to avoid tax penalty; (e) on redemptions of shares sold to
directors, officers and employees of any Fund for which the Adviser acts as
investment adviser or officers and employees of the Adviser, Sub-Adviser or
Distributor including former directors and officers and immediate family
members of all of the foregoing, and any employee benefit or payroll deduction
plan established by or for such persons; (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
Funds for corporations and self-employed individuals. The Distributor and
certain qualified dealers also have prototype Individual Retirement Account
("IRA") plans (deductible IRAs, non-deductible IRAs, including "Roth IRAs", and
educational IRAs) and SIMPLE IRA plans for both individuals and employers.
These plans utilize the shares of the 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 social security number. Such fees will be redeemed automatically
at year end from your account, unless you elect to pay the fee directly.

20
<PAGE>

AUTOMATIC INVESTMENT PLAN. You may arrange for automatic monthly
investing whereby State Street will be authorized to initiate a debit to your
bank account of a specific amount (minimum $25) each month which will be used
to purchase Fund shares. The account minimums of $1,000 for non-retirement
accounts and $250 for retirement accounts will be waived if, pursuant to the
automatic investment plan, the account balance will meet the minimum investment
requirements within twelve months of the initial investment. For institutions
that are members of the Automated Clearing House system (ACH), such purchases
can be processed electronically on any day of the month between the 4th and
28th day of each month. After each automatic investment, you will receive a
transaction confirmation and the debit should be reflected on your next bank
statement. You may terminate the Plan at any time. 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 the
other fund or funds 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. The exchange privilege is a convenient way to buy shares in
other Davis Funds in order to respond to changes in your goals or in market
conditions. If such goals or market conditions change, the Davis Funds offer a
variety of investment objectives that includes common stock funds, tax-exempt,
government 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
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. See "Purchase of Shares--Alternative Purchase
Arrangements" for Class Y eligibility requirements.

21
<PAGE>

Shares may be exchanged at relative net asset value without any
additional charge. However, if any shares being exchanged are subject to an
escrow or segregated account pursuant to the terms of a Statement of Intention
or a CDSC, such shares will be exchanged at relative net asset value, but the
escrow or segregated account will continue with respect to the shares acquired
in the exchange. In addition, the terms of any CDSC, or redemption fee
applicable at the time of exchange will continue to apply to any shares
acquired upon exchange.

Before you decide to make an exchange, you must obtain the current
prospectus of the desired fund. Call your broker or the Distributor for
information and a prospectus for any of the other Davis Funds registered in
your state. Read the prospectus carefully. If you decide to exchange your
shares, 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 between funds are treated as a sale and purchase.
Therefore, there will usually be a recognizable capital gain or loss due to an
exchange. An exchange between different classes of the same fund is not a
taxable event.

The number of times you may exchange shares among the Davis Funds
within a specified period of time may be limited at the discretion of the
Distributor. Currently, more than four exchanges out of the 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 days' notice.

BY TELEPHONE. You may exchange shares by telephone into accounts with
identical registrations. Please see the discussion of procedures in respect to
telephone instructions in the section entitled "Telephone Privilege," as such
procedures are also applicable to exchanges.

AUTOMATIC EXCHANGE PROGRAM. The Fund also offers an automatic monthly
exchange program. All accounts established or utilized under this program must
have the same registration and a minimum initial value of at least $250. All
subsequent exchanges must have a value of at least $25. Each month, shares will
be simultaneously redeemed and purchased at the chosen fund's applicable price.
If you would like to participate in this program, you may use the appropriate
designation on the Application Form.

REDEMPTION OF SHARES

GENERAL. You can redeem, or sell back to the Fund, all or part of your
shares at any time at net asset value less any applicable sales charges. You
can do this by sending a written request to State Street Bank and Trust
Company, c/o The Davis Funds, P.O. Box 8406, Boston, MA 02266-8406, indicating
how many of your shares or what dollar amount you want to redeem. If more than
one person owns the shares to be redeemed, all owners must sign the request.
The signatures on the request must correspond to the account from which the
shares are being redeemed.

22
<PAGE>

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 redemption delay by paying for your shares by bank wire or
federal funds.

Redemptions are ordinarily paid to you in cash. However, the Fund's
Board of Directors is authorized to decide that conditions exist making cash
payments undesirable, although the Board has never reached such a decision. If
the Board should decide to make payment in other than cash, redemptions could
be paid in securities, valued at the value used in computing the Fund's net
asset value. There would be brokerage costs incurred by the shareholder in
selling such redemption proceeds. We must, however, redeem shares solely in
cash up to the lesser of $250,000 or 1% of the Fund's net asset value,
whichever is smaller, during any 90-day period for any one shareholder.

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

EXPEDITED REDEMPTION PRIVILEGE. 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 redemptions 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

23
<PAGE>

Distributors, LLC (1-800-279-0279), and (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
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 you 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 when shares are
held by a corporation, partnership, executor, administrator, trustee or
guardian.

BY TELEPHONE. You can redeem shares by telephone and receive a check
by mail, but please keep in mind:

The check can only be issued for up to $25,000;
The check can only be issued to the registered owner (who
must be an individual);
The check can only be sent to the address of record; and Your current
address of record must have been on file for 30 days.

AUTOMATIC WITHDRAWALS PLAN. Under the Automatic Withdrawals Plan, you
can indicate to State Street how many dollars you would like to receive each
month or each quarter. Your account must have a value of at least $10,000 to
start a plan. Shares are redeemed so that you will receive the payment you have
requested approximately on the 25th day of the month. Withdrawals involve
redemption of shares and may produce gain or loss for income tax purposes.
Shares of the Fund initially acquired by exchange from any of the other Davis
Funds, will remain subject to an escrow or segregated account to which any of
the exchanged shares were subject. If you utilize this program, any applicable
CDSCs will be imposed on such shares redeemed. Purchase of additional shares
concurrent with withdrawals may be disadvantageous to you because of tax and
sales load consequences. If the amount you withdraw exceeds the dividends on
your shares, your account will suffer depletion. 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.

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 or all of your shares are redeemed
or repurchased, you may decide to put back all or part of your proceeds into
the same class of 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 applicable CDSC assessed on such
shares will be returned to the account. Shares

24
<PAGE>

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.

DETERMINING THE PRICE OF SHARES

NET ASSET VALUE. The net asset value per share of each class is
determined daily by dividing the total value of investments and other assets,
less any liabilities by the total outstanding shares. The net asset value of
the Fund is determined daily as of the earlier of the close of the New York
Stock Exchange (the "Exchange") or 4:00 p.m., Eastern Time, on each day that
the Exchange is open for trading.

The price per share for purchases or redemptions made directly through
State Street normally is such value next computed after State Street receives
the purchase order or redemption request. In order for your purchase order or
redemption request to be effective on the day you place your order with your
broker-dealer or other financial institution, such broker-dealer or financial
institution must (i) receive your order before 4:00 p.m. Eastern time and (ii)
promptly transmit the order to State Street. The broker-dealer or financial
institution is responsible for promptly transmitting purchase orders or
redemption requests to State Street so that you may receive the same day's net
asset value. Note that in the case of redemptions and repurchases of shares
owned by corporations, trusts or estates, or of shares represented by
outstanding certificates, State Street may require additional documents to
effect the redemption and the applicable price will be determined as of the
close of the next computation following the receipt of the required
documentation or outstanding certificates. See "Redemption of Shares".

VALUATION OF PORTFOLIO SECURITIES. Portfolio securities are normally
valued using current market valuations. 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.

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 monthly confirmation statements for dividends
declared and shares purchased through reinvestment of dividends. You will
receive monthly confirmation statements for dividends which are not reinvested.
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.

25
<PAGE>

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 paid in cash and capital gain distributions
reinvested. Reinvestment of all dividends and distributions is automatic for
accounts utilizing the Automatic Withdrawal Plan. The reinvestment of dividends
and distributions is made at net asset value (without any initial or contingent
deferred sales charge) on the payment date.

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 foreign, federal, state and local taxes on an
investment in the Fund.

The Fund intends to continue to qualify as a regulated investment
company under the Internal Revenue Code (the "Code") and, if so qualified, will
not be liable for federal income tax to the extent its earnings are
distributed. 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
gain distribution during that period, then the loss is treated as a long-term
capital loss to the extent of such 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

26
<PAGE>

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 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 shares. For
more information about 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
voting power 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 the
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

27
<PAGE>

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 1998 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.

28
<PAGE>

APPENDIX
QUALITY RATINGS OF DEBT SECURITIES

MOODY'S MUNICIPAL AND 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 edged". Interest payments are protected by a large or by 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 larger 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 in 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.

29
<PAGE>

STANDARD & POOR'S 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.

30
<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.

31
<PAGE>

TABLE OF CONTENTS

PAGE
Summary.................................................................... 2
Financial Highlights....................................................... 4
Investment Objectives and Policies......................................... 8
Adviser, Sub-Advisers and Distributor...................................... 13
Distribution Plans......................................................... 14
Purchase of Shares......................................................... 16
Telephone Privilege........................................................ 21
Exchange of Shares......................................................... 21
Redemption of Shares....................................................... 22
Determining the Price of Shares............................................ 25
Dividends and Distributions................................................ 25
Federal Income Taxes....................................................... 26
Fund Shares................................................................ 26
Performance Data........................................................... 27
Shareholder Inquiries...................................................... 28
Appendix - Quality Ratings of Debt Securities.............................. 29

<PAGE>

PROSPECTUS AUGUST 1, 1998
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

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, 1998, 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 IN 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 Class Y
shares of the Fund will bear directly or indirectly. The information is based
on the Fund's fiscal year ended March 31, 1998. You can refer to the section
"Adviser, Sub-Adviser and Distributor" and "Purchase of Shares" for more
information on transaction and operating expenses of the Fund.

<TABLE>
<CAPTION>
Shareholder Transaction Expenses Class Y
- -------------------------------- -------
<S> <C>
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........................................................... 0.35%
-----
Total Fund operating expenses................................... 1.05%
</TABLE>

Example:

You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class Y.......................................... $11 $33 $58 $128
</TABLE>

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, B and C shares are
sold through a separate Prospectus. Class Y shares are offered through this
Prospectus to (i) trust companies, bank trusts, endowments, pension plans 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
("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 Distributor ("Wrap Program
Investors").

2
<PAGE>

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. 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 Government 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 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.

SHAREHOLDER SERVICES. Questions regarding the Fund or your account may
be directed to Davis Distributors, LLC at 1-800-279-0279 or to your sales
representative. Written inquiries may be directed to State Street Bank and
Trust Co., c/o The Davis Funds, P.O. Box 8406, Boston, MA, 02266-8406. During
severe market conditions, the Distributor may experience difficulty in
accepting telephone redemptions or exchanges. If you are unable to contact the
Distributor at the above telephone number, you should call 1-505-820-3000
Monday through Friday between 7:00 a.m. and 4:00 p.m. Mountain Time.

FINANCIAL HIGHLIGHTS

The following 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 1998 Annual Report to
Shareholders. The Report may be obtained by writing or calling the Fund. The
Fund's financial statements and financial highlights for the fiscal year ended
March 31, 1998 have been audited by KPMG Peat Marwick whose opinion thereon is
contained in the Annual Report. The information for the period prior to 1998
was audited by other auditors whose opinion thereon is contained in the 1997
Annual Report.

<TABLE>
<CAPTION>
CLASS Y
MARCH 20, 1997
(COMMENCEMENT
YEAR OF OPERATIONS)
ENDED THROUGH
MARCH 31, MARCH 31,
1998 1997
---- ----
<S> <C> <C>
Net Asset Value,
Beginning of Period...................... $4.72 $4.74
----- -----
Income From Investment Operations
Net Investment Income.................... 0.34 -
Net Gains or Losses on Securities
(both realized and unrealized)......... 0.14 (0.02)
----- -----
Total From Investment
Operations........................ 0.48 (0.02)
----- -----
Less Distributions
Dividends (from net
investment income)..................... (0.34) -
Returns of Capital....................... (0.07) -
----- -----
Total Distributions.................. (0.41) -
Net Asset Value,
End of Period............................ $4.79 $4.72
===== =====
Total Return (1)............................ 10.64% (0.42)%

Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted).......................... $4,187 $7
Ratio of Expenses to
Average Net Assets..................... 1.05%(2) 1.21%(2)*
Ratio of Net Income to
Average Net Assets..................... 7.46% 8.89%*

3
<PAGE>

Portfolio Turnover Rate (3).............. 71.54% 66.10%
</TABLE>

(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized
for periods of less than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.04% for the year ended March 31,
1998, and 1.20% for the period ended March 31, 1997.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized

4
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

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 invests a substantial portion of its assets in fixed-income securities
rated Ba or lower by Moody's, or BB or lower by S&P, 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.

5
<PAGE>

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.

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".

6
<PAGE>

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.

COMPOSITION OF THE FUND'S PORTFOLIO BY QUALITY RATING AS A PERCENTAGE OF
TOTAL NET ASSETS AT MARCH 31, 1998

7
<PAGE>

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements,
but normally will not enter into repurchase agreements maturing in more than
seven days, and may make repurchase agreement transactions through a joint
account with other funds, which have the same investment adviser. A repurchase
agreement, as referred to herein, involves a sale of securities to the Fund,
with the concurrent agreement of the seller (a bank or securities dealer which
the Adviser or Sub-Advisers determines to be financially sound at the time of
the transaction) to repurchase the securities at the same price plus an amount
equal to accrued interest at an agreed-upon interest rate, within a specified
time, usually less than one week, but, on occasion, at a later time. The
repurchase obligation of the seller is, in effect, secured by the underlying
securities. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying securities and losses, including (a) possible decline in the value
of the collateral during the period while the Fund seeks to enforce its rights
thereto; (b) possible loss of all or a part of the income during this period;
and (c) expenses of enforcing its rights.

ADVISER, SUB-ADVISERS AND DISTRIBUTOR

8
<PAGE>

Adviser, serves as the distributor or principal underwriter of the Fund's
shares. As discussed below, the Adviser has hired Stamper Capital &
Investments, Inc. (the "Sub-Adviser") 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 Tax-Free High Income Fund, Inc.,
Davis New York Venture 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.

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. In the spring of 1995 he established
Stamper Capital & Investments, Inc. Prior to the spring of 1995, Mr. Stamper
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.

PURCHASE OF SHARES

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

9
<PAGE>

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.

PURCHASE BY BANK WIRE. Shares may be purchased at any time by wiring
federal funds directly to State Street Bank and Trust Company. 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

You may make additional investments by wire or you may simply mail a
check payable to "The Davis Funds" to State Street Bank and Trust Company, c/o
The Davis Funds, P.O. Box 8406, Boston, MA 02266-8406. For overnight delivery,
please send your check to State Street Bank and Trust Company, c/o the Davis
Funds, 66 Brooks Drive, Braintree, MA 02184. Where purchases are made by
checks, redemptions will not be allowed until the check has cleared, usually
about 15 calendar days. 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".

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, government 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 Government 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.

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.

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<PAGE>

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.

The number of times you may exchange shares among the Davis Funds
within a specified period of time may be limited at the discretion of the
Adviser. Currently, more than four exchanges out of the 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 days' notice.

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, all owners
must sign the request. The signatures on the request must correspond to the
account from which the shares are registered.

For the protection of all shareholders, the Company also requires that
signatures appearing on a 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.

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 other than in 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 and may place any
repurchase request by telephone or wire. Any dealer may charge you

11
<PAGE>

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.

DETERMINING THE PRICE OF SHARES

DIVIDENDS AND DISTRIBUTIONS

FEDERAL INCOME TAXES

12
<PAGE>

The Fund intends to continue to qualify as a regulated investment
company under the Internal Revenue Code (the "Code") and, if so qualified, will
not be liable for federal income tax to the extent its earnings are
distributed. 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.

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.

PERFORMANCE DATA

13
<PAGE>

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.

The Fund's 1998 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 edged." 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

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<PAGE>

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 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

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<PAGE>

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.

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<PAGE>

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

TABLE OF CONTENTS

PAGE
Summary.................................................................... 2
Financial Highlights....................................................... 3
Investment Objectives and Policies......................................... 4
Adviser, Sub-Advisers and Distributor...................................... 7
Purchase of Shares......................................................... 8
Telephone Privilege........................................................ 9
Exchange of Shares......................................................... 9
Redemption of Shares....................................................... 9
Determining the Price of Shares............................................ 10
Dividends and Distributions................................................ 10
Federal Income Taxes....................................................... 11
Fund Shares................................................................ 11
Performance Data........................................................... 11
Shareholder Inquiries...................................................... 12
Appendix - Quality Ratings of Debt Securities.............................. 12

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

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1998

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
Average Maturity and Mix of Securities.................................... 3
Foreign Securities........................................................ 3
When-Issued Securities.................................................... 4
Repurchase Agreements..................................................... 4
Lending Portfolio Securities.............................................. 5
Writing Covered Call Options.............................................. 5
Portfolio Transactions.................................................... 5
Federal Income Taxes...................................................... 6
Directors and Officers.................................................... 7
Directors' Compensation Schedule.......................................... 10
Certain Shareholders of the Fund.......................................... 10
Investment Advisory Services.............................................. 12
Custodian................................................................. 13
Auditors.................................................................. 13
Determining the Price of Shares........................................... 13
Reduction of Class A Sales Charges........................................ 13
Special Distribution Arrangements......................................... 15
Distribution of Fund Shares............................................... 16
Performance Data.......................................................... 17

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,
1998 AND THE CLASS Y PROSPECTUS DATED AUGUST 1, 1998. THE PROSPECTUSES MAY BE
OBTAINED FROM THE FUND.

THE FUND'S MARCH 31, 1998 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. Commodities. The Fund may not buy or sell commodities or commodity
contracts.

2. Real Estate. 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. Voting Securities. 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. Diversification. 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. Concentration. 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. Options. 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. Seasoned Issuers. 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. Investment Companies. The Fund may not buy securities issued by other
investment companies except incident to an acquisition of assets or a
merger.

9. Selling Short, Margin, Arbitrage. The Fund may not sell short, buy on
margin or engage in arbitrage transactions.

10. Investing For Control. The Fund does not invest for the purpose of
exercising control or management of other companies.

11. Borrowing. 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. Affiliated Securities. 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

2
<PAGE>

securities. This would happen if any of these individuals own 1/2 of
1% or more of the securities and all such individuals who own that
much or more own 5% of such securities.

13. Underwriting. 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. Lending. 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.

AVERAGE MATURITY AND MIX OF SECURITIES

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.

FOREIGN SECURITIES

The Fund may invest in foreign securities without limitation as to
type and country. As a matter of non-fundamental policy, the Fund will not make
such an investment if it would cause more than 5% of the value of the Fund's
net assets to be invested in foreign securities. All the Fund's investments in
foreign securities must be dollar denominated. Foreign securities will
generally be purchased on domestic exchanges but may also be purchased through
domestic brokers on major world exchanges. The Fund does not intend to
emphasize the purchase of securities related to any particular foreign nation.
Foreign investments involve certain considerations which are not typically
associated with investments in United States entities. An investment in a
foreign entity may be affected by changes in currency rates and in currency
exchange controls. There may be less publicly available information about a
foreign entity than a United States entity. Foreign entities generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to United States entities. Securities of some
foreign entities may be less liquid and more volatile than securities of
comparable United States entities. There is generally less government
regulation of stock exchanges, brokers and listed entities abroad than in the
United States. Additionally, with respect to certain foreign countries, there
is a possibility of expropriation, confiscatory taxation, social instability or
diplomatic developments which could affect investments in entities in 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

3
<PAGE>

before investing in foreign securities and will not make such investments
unless, in its opinion, the investments will be in accordance with the Fund's
objectives.

WHEN-ISSUED SECURITIES

New issues of fixed income securities of the type in which the Fund
will invest may be offered on a when-issued or delayed delivery basis (that is,
delivery and payment for the securities normally takes place more than seven
and less than 30 days after the date of the transaction). In such offerings,
the Fund's payment obligation and the interest rate the Fund will receive are
each fixed at the time the Fund enters into the commitment. Offerings on a
when-issued basis are not customary with respect to the types of securities in
which the Fund will invest, and it is expected that the Fund will infrequently
encounter offerings on such basis. The Fund does not, as a matter of
non-fundamental policy, commit to purchase securities on a when-issued basis in
an amount exceeding 5% of the total value of the Fund's assets on the date on
which a commitment is made. Additionally, the Fund will only make commitments
to purchase securities offered on a when-issued basis with the intention of
actually acquiring the securities, but may sell those securities before the
settlement date if it is deemed advisable as a matter of investment strategy.
The Fund will establish at its custodian bank a separate account consisting of
cash or liquid debt securities (or a combination thereof) equal at any given
date to the amount of the Fund's outstanding commitments, if any, to purchase
when-issued securities. For the purpose of determining the adequacy of the
securities in such account, the deposited securities will be valued at market.
If the market values of those securities decline, additional cash or securities
will be placed in the account on a daily basis so that the market value of the
account will continue to equal the amount of the Fund's outstanding
commitments. When the time comes to pay for when-issued securities, the Fund
will meet its obligations from its then available cash flow, the sale of
securities held in the separate account, the sale of other securities or,
although the Fund would not normally expect to do so, the sale of the
when-issued securities themselves (which may have a market value greater or
less than the Fund's payment obligation). Securities purchased on a when-issued
basis and the securities held in the Fund's portfolio are subject to changes in
market value based upon the public's perception of the credit worthiness of the
issuer and changes in the level of interest rates. Both types of securities
generally respond in a similar manner to these changes. That is, when interest
rates decline, both types generally appreciate in value, and when interest
rates rise, both types generally depreciate in value.

REPURCHASE AGREEMENTS

A repurchase agreement involves a sale of securities to the Fund, with
the concurrent agreement of the seller (a member bank of the Federal Reserve
System or securities dealer which the Adviser or Sub-Adviser believes to be
financially sound) to repurchase the securities at the same price plus an
amount equal to accrued interest at an agreed-upon interest rate, within a
specified time, usually less than one week, but, on occasion, at a later time.
The repurchase obligation of the seller is, in effect, secured by the
underlying securities, which are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. In the event of a bankruptcy or
other default of a seller of a repurchase agreement, the Fund could experience
both delays in liquidating the underlying securities and losses, including (a)
possible decline in the value of the collateral during the period while the
Fund seeks to enforce its rights thereto, (b) possible loss of all or a part of
the income during this period and (c) expenses of enforcing its rights.

The Fund will enter into repurchase agreements only when the seller
agrees that the value of the underlying securities, including accrued interest
(if any), will at all times be equal to or exceed the value of the repurchase
agreement. The Fund will not enter into a repurchase agreement maturing in more
than seven days if it would cause more than 10% of the value of its total
assets to be invested in such transactions. Repurchase agreements maturing in
less than seven days are not deemed illiquid securities for the purpose of the
Fund's 15% limitation on illiquid securities.

4
<PAGE>

The Fund may enter into "tri-party repurchase agreements" either
separately or on a joint basis. A tri-party repurchase agreement is an
agreement between the Fund, the seller, and a third-party bank. Both the Fund
and the seller have accounts with the third-party bank which facilitates the
exchange of cash and securities. Tri-party repurchase agreements are subject to
the same risks and the Fund follows the same procedures as apply to regular
repurchase agreements.

LENDING PORTFOLIO SECURITIES

The Fund may lend securities to broker/dealers or institutional
investors for their use in connection with short sales, arbitrages and other
securities transactions. The Fund may earn interest on cash collateral or
receive a fee from broker/dealers for lending its portfolio securities. The
Fund will not lend portfolio securities unless the loan is secured by
collateral (consisting of any combination of cash, United States Government
securities or irrevocable letters of credit) in an amount at least equal (on a
daily market-to-market basis) to the current market value of the securities
loaned. In the event of a bankruptcy or breach of agreement by the borrower of
the securities, the Fund could experience delays and costs in recovering the
securities loaned. The Fund will not lend securities if such a loan would cause
more than 20% of the total value of its assets to then be subject to such
loans.

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

5
<PAGE>

the Fund deems that any disadvantage in the procedure is outweighed by the
increased selection available and the increased opportunity to engage in volume
transactions.

The Sub-Adviser believes that research from brokers and dealers is
desirable, although not essential, in carrying out its functions, in that such
outside research supplements the efforts of the Sub-Adviser by corroborating
data and enabling the Sub-Adviser to consider the views, information and
analyses of other research staffs. Such views, information and analyses include
such matters as communicating with persons having special expertise on certain
companies, industries, areas of the economy and/or securities prices, obtaining
written materials on these or other areas which might affect the economy and/or
securities prices, obtaining quotations on securities prices and obtaining
information on the activities of other institutional investors. The Sub-Adviser
researches, at its own expense, each security included in, or being considered
for inclusion in, the Fund's portfolio. As any particular research obtained by
the Sub-Adviser may be useful to the Fund, the Board of Directors or its
Committee on brokerage, in considering the reasonableness of the commissions
paid by the Fund, will not attempt to allocate, or require the Sub-Adviser to
allocate, the relative costs or benefits of research.

During the last three fiscal years ended March 31, 1998, 1997 and
1996, the Fund paid brokerage commissions of $4,045, $1,580, and $854,
respectively. Most of the Fund's transactions are made on a principal basis.
The price of such transactions may include profit for the dealer.

FEDERAL INCOME TAXES

The Fund intends to continue to qualify as a regulated investment
company under the Internal Revenue Code (the "Code"). As a regulated investment
company, the Fund is not subject to federal income tax on the portion of its
net investment income and realized capital gain net income that it distributes
to its shareholders provided, among other qualification requirements, the Fund
distributes at least 90% of its net investment income for the taxable year. In
addition to any federal income tax, the Fund is subject to a 4% non-deductible
excise tax if the Fund fails to distribute at least 98% of ordinary taxable
income for the calendar year and 98% of capital gain net income for the
twelve-month period ended October 31. The Fund intends to make distributions
sufficient to prevent the imposition of any federal income tax or excise tax.

If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income, including realized capital gains
and without a deduction for the dividends paid, will be subject to federal
income taxes at the regular corporate rates. Distributions from the Fund to the
fund's shareholders will be taxable as ordinary dividends to the extent of the
Fund's earnings and profits.

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 by
the Fund that do not constitute ordinary income or capital gain dividends will
be treated as a return of capital distribution and will reduce the
shareholder's tax basis in his or her shares. Any return of capital
distribution in excess of the shareholder's tax basis will be treated as a gain
from the sale of his or her Fund shares. 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

6
<PAGE>

the shareholder realizes a loss on the sale or exchange of any shares held for
six months or less and if the shareholder received a capital gain distribution
during that period, then the loss is treated as a long-term capital loss to the
extent of such distribution. No gain or loss will be recognized by shareholders
on the automatic conversion of Class B shares into Class A shares of the Fund

The Fund is required in certain cases to withhold and remit to the U.S
Treasury 31% of ordinary income dividends, capital gain distributions, and the
proceeds from the redemption of shares, paid to any shareholder who, i) has
failed to provide a tax identification number, ii) has provided an incorrect
tax identification number, iii) is subject to backup withholding for failure to
report interest or dividend income properly, or iv) has failed to certify to
the Fund that it is not subject to backup withholding or that it is an exempt
recipient (i.e. a corporation).

If a shareholder (1) incurs a sales load in purchasing shares of the
Fund, (2) by reason of such purchase acquires a reinvestment right, (3)disposes
such shares less than 91 days after they are acquired and (4) subsequently
purchases shares of the same or another fund at a reduced sales load pursuant
to the reinvestment right, then the sales load on the shares disposed of (to
the extent of the reduction in sales load pursuant to the reinvestment right)
shall not be taken into account in determining gain or loss on shares disposed
of but shall be treated as incurred in the acquisition of the shares
subsequently acquired.

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.

DIRECTORS AND OFFICERS

The names 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 Andrew
A. Davis, Christopher 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 Company and each of the Davis Funds except Davis International Series,
Inc.; President, Bass & Associates (a 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 Company and each of the Davis Funds;
Director of the Van Eck Funds; Consultant to the Adviser. 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 Company and each of the Davis Funds except Davis International Series,
Inc.; Chief Executive Officer, World Total Return Fund, L.P.; Member, Gordon,
Feinblatt, Rothman, Hoffberger and Hollander, LLC (attorneys); Director,
Mid-Atlantic Realty Trust.

JERRY D. GEIST (5/23/34), 931 San Pedro Dr. S.E., Albuquerque, NM 87108.
Director of the Company and each of the Davis Funds except Davis International
Series, Inc.; Chairman, Santa Fe Center

7
<PAGE>

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
Company 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 circuits), Cirrus Logic
Corp. (a manufacturer of semi-conductor circuits) and Alliance Technology Fund
(a mutual fund).

G. BERNARD HAMILTON (3/18/37), Avanti Partners, P.O. Box 1119, Richmond, VA
23218. Director of the Company and each of the Davis Funds; Managing General
Partner, Avanti Partners, L.P.

LEROY E. HOFFBERGER (6/8/25), The Exchange - Suite 215, 1112 Kenilworth Drive,
Towson, MD 21204. Director of the Company 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 Company 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 (5/6/30), P.O. Box 777, Tuxedo Park, NY 10987. Director of
the Company 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 banker).

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.; Director, Davis Selected Advisers-NY, Inc.; Employee of Capital
Ideas, Inc. (financial consulting firm); Consultant to Fiduciary Trust Company
International; Director, Shelby Cullom Davis Financial Consultants, Inc.

ANDREW A. DAVIS (6/25/63),* 124 East Marcy Street, Santa Fe, NM 87501. Director
and Vice President of the Company and each of the Davis Funds (except Davis
International Series, Inc.), Selected American Shares, Inc., Selected Special
Shares, Inc. and Selected Capital Preservation Trust; Director and President,
Venture Advisers, Inc.; Director and Vice President, Davis Selected
Advisers-NY, Inc.; Consultant to Capital Ideas, a private financial consultant.
Former Vice President and head of convertible security research, PaineWebber,
Incorporated.

CHRISTOPHER C. DAVIS (7/13/65),* 609 Fifth Ave, New York, NY 10017. Director
and Vice President of the Company and each of the Davis Funds; Selected
American Shares, Inc., Selected Special Shares, Inc. and Selected Capital
Preservation Trust; Director, Vice Chairman, Venture Advisers, Inc.; Director,
Chairman, Chief Executive Officer, Davis Selected Advisers-NY, Inc.; Chairman
and Director, Shelby Cullom Davis Financial Consultants, Inc.; employee of
Shelby Cullom Davis & Co., a registered broker/dealer; Director, Rosenwald,
Roditi and Company, Ltd., an offshore investment management company.

8
<PAGE>

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

CAROLYN H. SPOLIDORO (11/19/52), 124 East Marcy Street, Santa Fe, NM 87501.
Vice President of the Company and each of the Davis Funds; Vice President,
Venture Advisers, Inc.

EILEEN R. STREET (3/11/62), 124 East Marcy Street, Santa Fe, NM 87501. Vice
President, Treasurer and Assistant Secretary of the Company 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.; Vice President, Treasurer, and Assistant
Secretary, Davis Selected Advisers-NY, Inc.; Senior Vice President, Treasurer,
and Assistant Secretary, Davis Distributors, L.L.C.

SHARRA L. REED (9/25/66), 124 East Marcy Street, Santa Fe NM 87501. Assistant
Treasurer and Assistant Secretary of the Company and each of the Davis Funds,
Selected American Shares, Inc., Selected Special Shares, Inc. and Selected
Capital Preservation Trust; Vice President of Venture Advisers, Inc. Former
Unit Manager with Investors Fiduciary Trust Company.

THOMAS D. TAYS (3/7/57), 124 East Marcy Street, Santa Fe NM 87501. Vice
President and Secretary of the Company and each of the Davis Funds, Selected
American Shares, Inc. Selected Special Shares, Inc. and Selected Capital
Preservation Trust. Vice President and Secretary, Venture Advisers, Inc., Davis
Selected Advisers-NY, Inc., and Davis Distributors, L.L.C. Former Vice
President and Special Counsel of U.S. Global Investors, Inc.

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

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

The Fund does not pay salaries to any of its officers.

9
<PAGE>

DIRECTORS' COMPENSATION SCHEDULE

During the fiscal year ended March 31, 1998, the compensation paid to
the directors who are not considered to be interested persons of the Fund was
as follows:

<TABLE>
<CAPTION>
AGGREGATE FUND TOTAL
NAME COMPENSATION COMPLEX COMPENSATION*
---- ------------ ---------------------
<S> <C> <C>
Wesley E. Bass $2,725 $38,575
Marc P. Blum 2,500 35,700
Jerry D. Geist 2,450 35,550
D. James Guzy 2,500 35,700
G. Bernard Hamilton 2,450 40,550
LeRoy E. Hoffberger 2,500 35,650
Laurence W. Levine 2,500 35,650
Christian R. Sonne 2,500 35,700
Edwin R. Werner 2,050 29,425
</TABLE>

*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 June 30, 1998, 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, B, C, or Y shares. As of such date, there were
9,275,253.638 Class A shares outstanding and the directors and officers of the
Fund, as a group, owned 101,603.089 Class A shares, or approximately 1.10% of
the Fund's outstanding Class A shares. As of such date, there were
6,029,762.956 Class B shares, 890,438.216 Class C shares, and 897,094.439 Class
Y shares outstanding. The directors and officers of the Fund do not presently
own or intend to own any Class B shares, Class C shares, or Class Y shares of
the Fund.

10
<PAGE>

<TABLE>
<CAPTION>
CLASS A SHARES

Name and Address Number of Percent of
---------------- Shares Owned Class Outstanding
------------ -----------------
<S> <C> <C>
National City Bank TTEE 1,013,973.208 10.93%
FBO McKeesport Hospital TR
P.O. Box 94984
Cleveland, OH 44101-4984
</TABLE>

CLASS B SHARES

<TABLE>
<CAPTION>
Name and Address Number of Percent of
---------------- Shares Owned Class Outstanding
------------ -----------------
<S> <C> <C>
MLPF&S for the sole benefit of 1,531,658.308 25.40%
its customers
Attn: Fund Administrator
4800 Deerlake Drive East
2nd Floor
Jacksonville, FL 32246-6484
</TABLE>

CLASS C SHARES

<TABLE>
<CAPTION>
Name and Address Number of Percent of
---------------- Shares Owned Class Outstanding
------------ -----------------
<S> <C> <C>
MLPF&S for the sole benefit of 366,396.001 41.15%
its customers
Attn: Fund Administrator
4800 Deerlake Drive East
2nd Floor
Jacksonville, FL 32246-6484
</TABLE>

CLASS Y SHARES

<TABLE>
<CAPTION>
Name and Address Number of Percent of
---------------- Shares Owned Class Outstanding
------------ -----------------
<S> <C> <C>
Naidot & Co. 885,444.688 98.70%
c/o Bessemer Trust Company
100 Woodbridge Center Drive
Woodbridge, NJ 07095
</TABLE>

11
<PAGE>

INVESTMENT ADVISORY SERVICES

Davis Selected Advisers, L.P. serves as investment adviser for the
Fund pursuant to an investment advisory agreement (the "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 Advisory Agreement, including
preparation of its tax returns, financial reports to regulatory authorities,
dividend determinations and transaction and accounting matters related to its
custodian bank, transfer agency, custodial and shareholder services, and
qualification of its shares under federal and state laws.

For the Adviser's services, the Fund pays the Adviser a monthly fee at
the annual rate based on average net assets as follows: 0.70% on the first $250
million of average net assets; 0.60% on the next $250 million of average net
assets; and 0.55% on average net assets in excess of $500 million. The
aggregate advisory fees paid by the Fund to the Adviser during the fiscal years
ended March 31, 1998, 1997 and 1996 were $446,682, $419,844, and $458,668,
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, 1998, 1997 and 1996 were $13,001,
$14,663, and $15,996 respectively. The reimbursable costs for qualifying the
Fund's shares for sale with state agencies for such periods were $12,000 in all
three years, and the reimbursable costs for providing shareholder services for
such periods were $11,493, $6,713, and $6,987 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

12
<PAGE>

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"), 66 Brooks Drive, Braintree, Massachusetts 02184. The
Custodian maintains all of the instruments representing the investments of the
Fund and all cash. The Custodian collects income on portfolio securities,
delivers securities against payment upon sale and pays for securities against
delivery upon purchase. The Custodian also remits Fund assets in payment of
Fund expenses, pursuant to instructions of officers or resolutions of the Board
of Directors.

AUDITORS

The independent auditors of the Fund are KPMG Peat Marwick LLP, 707
17th St. Suite 2300, Denver, Colorado 80202. They also perform other related
audit services and act as auditors for certain other funds advised by the
Adviser.

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, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

Certain brokers and certain designated intermediaries on their behalf
may accept purchase and redemption orders. The Fund will be deemed to have
received such an order when the broker or the designee has accepted the order.
Customer orders are priced at the net asset value next computed after such
acceptance. Such order may be transmitted to the Fund or its agents several
hours after the time of the acceptance and pricing.

REDUCTION OF CLASS A SALES CHARGE

There are a number of ways to reduce the sales charge imposed on the
purchase of the Fund's Class A shares, as described below. These reductions are
based upon the fact that there is less sales effort and expense involved in
respect to purchases by affiliated persons and purchases made in large
quantities.

FAMILY OR GROUP PURCHASES. Certain purchases made by or for more than
one person may be considered to constitute a single purchase, including (i)
purchases for family members, including spouses and children under 21, (ii)
purchases by trust or other fiduciary accounts and purchases by Individual
Retirement Accounts for employees of a single employer and (iii) purchases made
by an organized group of persons, whether incorporated or not, if the group has
a purpose other than buying shares of mutual funds. For further information on
group purchase reductions, contact the Adviser or your dealer.

STATEMENTS OF INTENTION. Another way to reduce the sales charge is by
signing a Statement of Intention. A Statement is included in the Application
Form included in the Prospectus. Please read it carefully before completing it.

13
<PAGE>

If you enter into a Statement of Intention you (or any "single
purchaser") may state that you intend to invest at least $100,000 in the Fund's
Class A shares over a 13-month period. The amount you say you intend to invest
may include Class A shares which you already own, valued at the offering price,
at the end of the period covered by the Statement. A Statement may be backdated
up to 90 days to include purchases made during that period, but the total
period covered by the Statement may not exceed 13 months.

Shares having a value of 5% of the amount you state you intend to
invest will be held "in escrow" to make sure that any additional sales charges
are paid. If any of the Fund's shares are in escrow pursuant to a Statement and
such shares are exchanged for shares of another Davis Fund, the escrow will
continue with respect to the acquired shares.

No additional sales charge will be payable if you invest the amount
you have indicated. Each purchase under a Statement will be made as if you were
buying at one time the total amount indicated. For example, if you indicate
that you intend to invest $100,000, you will pay a sales charge of 3 1/2% on
each purchase.

If you buy additional amounts during the period to qualify for an even
lower sales charge, you will be charged such lower charge. For example, if you
indicate that you intend to invest $100,000 and actually invest $250,000, you
will, by retroactive adjustment, pay a sales charge of 2 1/2%.

If during the 13-month period you invest less than the amount you have
indicated, you will pay an additional sales charge. For example, if you state
that you intend to invest $250,000 and actually invest only $100,000, you will,
by retroactive adjustment, pay a sales charge of 3 1/2%. The sales charge you
actually pay will be the same as if you had purchased the shares in a single
purchase.

A Statement does not bind you to buy, nor does it bind the Adviser to
sell, the shares covered by the Statement.

RIGHTS OF ACCUMULATION. Another way to reduce the sales charge is
under a right of accumulation. This means that the larger purchase entitled to
a lower sales charge need not be in dollars invested at one time. The larger
purchases that you (or any "single purchaser") make at any one time can be
determined by adding to the amount of a current purchase the value of Fund
shares (at offering price) already owned by you.

For example, if you owned $100,000 worth (at offering price) of Fund
shares (including Class A, B and C shares of all Davis Funds, except Davis
Government Money Market Fund) and invest $5,000 in additional shares, the sales
charge on that $5,000 investment would be 3 1/2, not 4 3/4%.

If you claim this right of accumulation, you or your dealer must so
notify the Distributor (or State Street, if the investment is mailed to State
Street) when the purchase is made. Enough information must be given to verify
that you are entitled to such right.

COMBINED PURCHASES WITH OTHER DAVIS FUNDS. Your ownership or purchase
of Class A shares of Davis New York Venture Fund, Inc., Davis Tax-Free High
Income Fund, Inc., Davis Series, Inc. and Davis International Series, Inc.
(collectively with the Fund, the "Davis Funds") may also reduce your sales
charges in connection with the purchase of the Fund's Class A shares. This
applies to all three situations for reduction of sales charges discussed above.

If a "single purchaser" decides to buy the Fund's Class A shares as
well as Class A shares of any of the other Davis Funds (other than shares of
Davis Government Money Market Fund) at the same time,

14
<PAGE>

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 High Income Fund, Inc. and pay a sales charge of 2 1/2%, not
3 1/2%.

Similarly, a Statement of Intention for the Fund's Class A shares and
for the Class A shares of the other Davis Funds (other than Davis Government
Money Market Fund) may be aggregated. In this connection, the Fund's Class A
shares and the Class A shares of the other Davis Funds which you already own,
valued at the current offering price at the end of the period covered by your
Statement of Intention, may be included in the amount you have stated you
intend to invest pursuant to your Statement.

Lastly, the right of accumulation applies also to the Class A, Class B
and Class C shares of the other Davis Funds (other than Davis Government Money
Market Fund) which you own. Thus, the amount of current purchases of the Fund's
Class A shares which you make may be added to the value of the Class A shares
of the other Davis Funds (valued at their current offering price) already owned
by you in determining the applicable sales charge. For example, if you owned
$100,000 worth of shares of Davis New York Venture Fund, Inc. and Davis
Financial Fund and Davis Convertible Securities Fund, (valued at the applicable
current offering price) and invest $5,000 in the Fund's shares, the sales
charge on your investment would be 3 1/2%, not 4 3/4%.

In all the above instances where you wish to claim this right of
combining the shares you own of the other Davis Funds, you or your dealer must
notify the Distributor (or State Street, if the investment is mailed to State
Street) of the pertinent facts. Enough information must be given to permit
verification as to whether you are entitled to a reduction in sales charges.

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.

SPECIAL DISTRIBUTION ARRANGEMENTS

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 or
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

15
<PAGE>

(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.

Under a program with Prudential Bache Securities, Inc. ("PruArray"),
the Distributor will not advance a 1% commission at the time of purchase, no
CDSC is assessed and the 12b-1 fee is paid directly to PruArray. Class C shares
of the Davis High Income Fund, Inc. are made available to PruArray Retirement
Plan Participants, such as 401(k) Plans, at NAV with the waiver of contingent
deferred sales charge (CDSC).

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 the Distributing Agreement, the Distributor
pays for all expenses in connection with the preparation, printing and
distribution of advertising and sales literature for use in offering the Fund's
shares to the public, including reports to shareholders to the extent they are
used as sales literature. The Distributor also pays for the preparation and
printing of prospectuses other than those forwarded to existing shareholders.
The continuance and assignment provisions of the Distributing Agreement are the
same as those of the Advisory Agreement.

During the Fund's fiscal year ended March 31, 1998, the Distributor
received total sales charges of Class A shares (which the Fund does not pay) on
the sale of Fund shares of $207,166. Of this amount, the Distributor paid
concessions to dealers of $174,693. For the two prior fiscal years ended March
31, 1997 and 1996, the Distributor received total sales charges on the sale of
the Fund shares of $123,695 and $163,366 respectively, and of those amounts
paid concessions to dealers of $104,712 and $140,825, respectively.

In addition, the Fund has adopted distribution plans with respect to
each class of its shares, except Class Y 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 each such class of 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 Fund's
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

16
<PAGE>

selection and nomination of candidates for new Independent Directors to the
sole discretion of the existing Independent Directors.

During the fiscal years ended March 31, 1998, 1997 and 1996, the
Distributor or the Adviser, in its capacity as distributor, received $101,590,
$98,840 and $100,703 under the Class A Distribution Plan, $145,416, $86,015 and
$46,899, under the Class B Distribution Plan. During the fiscal year ended
March 31, 1998, the Distributor or Adviser, in its capacity as distributor,
received $10,355 under the Class C Distribution Plan.

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, 1998, the yields for the
Fund's Class A, Class B, Class C, and Class Y shares were 7.98%, 7.65%, 7.60%
and 8.66%, 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:

17
<PAGE>

P(1+T)n = ERV

Where: P = hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value at the end of the period
of a hypothetical $1,000 payment made at the
beginning of such period

This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates and (ii) deducts (a) the
maximum front-end or applicable contingent deferred sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory fees, charged as expenses to all shareholder accounts.

The average annual total return figures for the Fund's Class A shares
during the one, five and ten year periods ended March 31, 1998, were 5.26%,
7.60% and 6.55%, respectively.

The average annual total return figures for the Fund's Class B shares
during the year ended March 31, 1998 and the period from December 5, 1994
through March 31, 1998 (life of the Class) was 6.53% and 7.92%, respectively.

The average annual total return figures for the Fund's Class C shares
for the period from August 12, 1997 through March 31, 1998 (life of the Class)
was 4.61%.

The average annual total return figures for the Fund's Class Y shares
during the year ended March 31, 1998 and the period from March 20, 1997 through
March 31, 1998 (life of the Class) was 10.64% and 9.86%, respectively.

DISTRIBUTION RATES. Distribution rates are computed by dividing the
income dividends for a stated period by the maximum offering price on the last
day of such period. For the year ended March 31, 1998, the historical
distribution rate with respect to the Fund's Class A, Class B, Class C and
Class Y shares was 8.40%, 8.02%, 8.01%, and 9.18%, respectively.

ANNUALIZED CURRENT DISTRIBUTION RATES. Annualized current distribution
rates are computed by multiplying income dividends for a specified month by
twelve and dividing the resulting figure by the maximum offering price on the
last day of the specified period. The annualized current distribution rate with
respect to the Fund's Class A, Class B, Class C and Class Y shares for the
month ended March 31, 1998 was 8.40%, 8.02%, 8.00% and 9.13%, respectively.

ADVERTISING. In advertising and sales literature, the Fund's
performance may be compared with those of market indices and other mutual
funds. Advertisements quoting performance rankings or ratings of the Fund as
measured by financial publications or by independent organizations such as
Lipper Analytical Services, Inc., and Morningstar, Inc. and advertisements
presenting the historical performance of the Fund may also, from time to time,
be sent to investors or placed in newspapers and magazines such as The New York
Times, The Wall Street Journal, Barrons, Investor's Daily, Money Magazine,
Changing Times, Business Week and Forbes or other media on behalf of the Fund.

18
<PAGE>

In advertising and sales literature the Fund may publish various
statistics describing its investment portfolio such as the Fund's average
maturity, duration, average credit quality distribution yield, beta, standard
deviation, etc.

In reports or other communications to shareholders, and in advertising
material, the Fund may also include evaluations of the Fund published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Business Week, Forbes, Kiplinger's,
Institutional Investor and Money Magazine. Any given performance comparison
should not be considered representative of the Fund's performance for any
future period.

19
<PAGE>

FORM N-1A

DAVIS HIGH INCOME FUND, INC.

POST-EFFECTIVE AMENDMENT NO. 27 UNDER THE SECURITIES ACT OF
1933
REGISTRATION STATEMENT NO. 2-66935

AND

AMENDMENT NO. 26 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 March 31, 1998
Annual Report:

(i) Schedule of Investments at March 31, 1998.

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

(iii) Statement of Operations for the year ended March 31, 1998.

(iv) Statement of Changes in Net Assets for the years
ended March 31, 1998 and 1997.

(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., incorporated by reference to Exhibit 5(d) to
Registrant's Post Effective Amendment No. 26, File No.
2-66935

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,
incorporated by reference to Exhibit 6(b) to Registrant's
Post Effective Amendment No. 26, File No. 2-66935.

7 Not applicable.

8(a) Custodian Contract incorporated by reference to Exhibit
No. 8(a) of Registrant's Post-Effective Amendment No. 16,
File No. 2-66935.

8(b) Transfer Agency and Service Agreement incorporated by
reference to Exhibit 8(b) of Registrant's Post-Effective
Amendment No. 16, File No. 2-66935.

9 Not applicable.

10* Opinion and Consent of Counsel, (D'Ancona & Pflaum).

11(a)* Consent of Current Auditors. KPMG Peat Marwick LLP

11(b)* Consent of Former Auditors. Tait, Weller & Baker

12 Financial Statements, included in prospectus and
Statement of Additional Information.

13 Not applicable.

2
<PAGE>

14(a) Prototype Money Purchase Pension and Profit Sharing Plan,
Prototype Defined Contribution Trust and Adoption
Agreements, incorporated by reference to Exhibits 9(b)
and 9(c) to Registrant's Post-Effective Amendment No. 12,
File No. 2-66935.

14(b) Prototype Profit Sharing/401(k) Plan, Prototype Profit
Sharing/401(k) Trust and Adoption Agreements,
incorporated by reference to Exhibits 9(b) and (9)(c) to
Registrant's Post-Effective Amendment No. 12, File No.
2-66935.

14(c) 403(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, incorporated by
reference to Exhibit 15(c) to Registrant's Post Effective
Amendment No. 26, File No. 2-66935.

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 Not Applicable.

18(a)* Powers of Attorney for Registrant, Officers, and
Directors.

* Filed Herein

Item 25. Persons Controlled by or Under Common Control With Registrant

Not applicable.

Item 26. Number of Holders of Securities

<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of May 31, 1998
-------------- ------------------
<S> <C>
Common Stock
Davis High Income Fund, Inc., Class A 1,877
Davis High Income Fund, Inc., Class B 951
Davis High Income Fund, Inc., Class C 93
Davis High Income Fund, Inc., Class Y 6
</TABLE>

Item 27. Indemnification

Registrant's Articles of Incorporation indemnifies its directors,
officers and employees to the full extent permitted by Section 2-418 of the
Maryland General Corporation Law, subject only to the provisions of

3
<PAGE>

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

Information pertaining to business and other connections of
Registrant's investment adviser is incorporated by reference to the Prospectus
and Statement of Additional Information contained in Parts A and B of this
Registration Statement at the sections entitled "Adviser, Sub-Adviser, and
Distributor" in the Prospectus and "Investment Advisory Services" in the
Statement of Additional Information.

Item 29. Principal Underwriter

(a) Davis Distributors, LLC, a wholly owned subsidiary of the
Adviser, located at 124 East Marcy Street, Santa Fe, NM 87501, is the principal
underwriter for the Registrant and also acts as principal underwriter for Davis
Tax-Free High Income Fund, Inc., Davis 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 Principal Underwriters:

NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- ---------------- ---------------- ---------------

Kenneth C. Eich President Vice President
124 East Marcy Street
Santa Fe, NM 87501

4
<PAGE>

Eileen R. Street Senior Vice President, Assistant Vice President,
124 East Marcy Street Treasurer and Secretary Treasurer and Assistant
Santa Fe, NM 87501 Secretary

Thomas D. Tays Senior Vice President Vice President and
124 East Marcy Street and Secretary Secretary
Santa Fe, NM 87501

Russell O. Wiese Senior Vice President None
124 East Marcy Street
Santa Fe, NM 87501

Sharra Reed Assistant Treasurer Assistant Treasurer and
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501

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 at the
offices of the Registrant's custodian, State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02107, and the Registrant's
transfer agent State Street Bank and Trust, c/o Service Agent, BFDS, Two
Heritage Drive, 7th Floor, North Quincy, Massachusetts 02107.

Item 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

Registrant certifies that this Amendment meets all of the
requirements for effectiveness pursuant to Rule 485(b).

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 28th day of
July, 1998.

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 indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Shelby M.C. Davis* President, (Chief Executive Officer) July 28, 1998
Sharra Reed Chief Financial Officer and Chief
Accounting Officer July 28, 1998
</TABLE>

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

*Sheldon R. Stein signs this document on behalf of (i) the Registrant, (ii) the
foregoing officers pursuant to the power of attorney filed on Exhibit 18 to
this Post Effective Amendment No. 27 to Registrant's 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 28, 1998 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

Andrew A. Davis* Director
- -----------------------------
Andrew A. Davis

Christopher C. Davis* Director
- -----------------------------
Christopher C. Davis

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

*Sheldon R. Stein signs this document on behalf of each of the
foregoing directors pursuant to the power of attorney filed on Exhibit 18 to
this Post Effective Amendment No. 27 to Registrant's Registration Statement.

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

<PAGE>

EXHIBIT 1(B)

DAVIS HIGH INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION PURSUANT
TO SECTIONS 2-208 AND 2-208.1 OF THE MARYLAND
GENERAL CORPORATION LAW

Davis High Income Fund, Inc., a Maryland corporation, having its
principal office in Baltimore, Maryland, hereby certifies to the State
Department of Assessments and Taxation of Maryland that:

FIRST: Prior to the designation and reclassification of the common
stock of the corporation, the corporation had a total of 1,000,000,000
shares, $.05 par value per share, 200,000,000 of which are
unclassified, 350,000,000 of which are classified as Class A Common
Stock, 350,000,000 of which are classified as Class B Common Stock,
and 100,000,000 of which are classified as Class C Common Stock, each
with a par value of $.05 per share. The aggregate par value of all of
the authorized stock is $50,000,000 of which $10,000,000 is
unclassified and $40,000,000 is classified.

SECOND: The Articles of Incorporation are hereby supplemented by (i)
changing the description of certain terms and conditions under which
the classes of Common Stock may be issued; (ii) reclassifying
50,000,000 shares of the authorized and unissued shares of each of the
Class A Common Stock and Class B Common Stock as Class Y Common Stock;
and (iii) designating 50,000,000 shares of the authorized and unissued
stock as Class Y Common Stock, all with $.05 par value per share.

THIRD: The Class A Common Stock, Class B Common Stock, Class C Common
Stock and Class Y Common Stock shall represent investment in the same
pool of assets and shall have the same preferences, conversion and
other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption
except as set forth in the Articles of Incorporation of the
Corporation and as set forth below:

(i) Expenses related to the distribution of each
class of stock and such other expenses as may be permitted by
rule or order of the Securities and Exchange Commission and
as the Board of Directors shall deem appropriate shall be
borne solely by each class, and the bearing of such expenses
shall be appropriately reflected (in the manner determined by
the Board of Directors) in the net asset value, dividends,
distribution and liquidation rights of the shares of such
Class;

(ii) The Class A Common Stock may be subject to a
front-end load and a Rule 12b-1 distribution fee as
determined by the Board of Directors from time to

<PAGE>

time prior to issuance of such stock and, in addition, the
Class A Common Stock issued after filing of these Articles
may also be subject to a contingent deferred sales charge,
as determined by the Board of Directors from time to time
prior to issuance of such stock;

(iii) The Class B Common Stock may be sold without a
front-end sales load and may be subject to a contingent
deferred sales charge and a Rule 12b-1 distribution fee as
determined by the Board of Directors from time to time prior
to issuance of such stock and shall be converted to Class A
Common Shares at the end of eight (8) years after purchase or
such earlier period as determined by the Board of Directors
giving effect to reciprocal exchange privileges;

(iv) The Class C Common Stock may be sold without a
front-end sales load and may be subject to a contingent
deferred sales charge and to a Rule 12b-1 distribution fee as
determined by the Board of Directors from time to time prior
to issuance of such stock;

(v) The Class Y Common Stock may be sold without a
front-end sales load or contingent deferred sales charge and
without a Rule 12b-1 distribution fee;

(vi) Each class shall vote separately on matters
pertaining only to that class, as the Board of Directors
shall from time to time determine; and

(vii) Nothing herein shall prohibit the imposition
of a redemption fee or exchange fee upon any Class.

FOURTH: Immediately following the designation and reclassification of
stock, the Corporation will have a total of 1,000,000,000 shares, $.05
par value per share, 150,000,000 of which will be unclassified,
300,000,000 of which shall be classified as Class A Common Stock,
300,000,000 of which shall be classified as Class B Common Stock,
100,000,000 of which shall be classified as Class C Common Stock and
150,000,000 of which shall be classified as Class Y Common Stock, each
with a par value of $.05 per share. The aggregate par value of all of
the shares is $50,000,000 of which $7,500,000 is unclassified and
$42,500,000 is classified.

FIFTH. The stock of the Corporation has been classified by the Board
of Directors of the Corporation in accordance with and pursuant to
Article FIFTH, Section (b) of the Articles of Incorporation of the
Corporation.

SIXTH: The Corporation is registered as an open-end investment
company with the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940.

2
<PAGE>

SEVENTH: The Board of Directors duly adopted a resolution (i)
redesignating the preferences of the classes of Common Stock issued
after the filing of these articles; (ii) reclassifying 50,000,000
shares of the authorized and unissued shares of each of the Class A
Common Stock and Class B Common Stock as Class Y Common Stock; and
(iii) designating 50,000,000 shares of the authorized and unissued
stock of the corporation as Class Y Common Stock on July 29, 1996.

EIGHTH: The effective date of these Articles Supplementary shall be
September 1, 1996.

IN WITNESS WHEREOF, Davis High Income Fund, Inc. has caused these presents to
be signed in its name and on its behalf by its Vice President and witnessed by
its Secretary on August 28, 1996.

DAVIS HIGH INCOME FUND, INC.

By:
--------------------------------
Carl R. Luff, Vice President

ATTEST:

- -----------------------------
Raymond O. Padilla, Secretary

THE UNDERSIGNED, the Vice President of DAVIS HIGH INCOME FUND, INC.,
who executed on behalf of said Corporation the foregoing Articles Supplementary
to the Charter, of which this certificate is made a part, hereby acknowledges,
in the name and on behalf of said Corporation, the foregoing Articles
Supplementary to the Charter to be the corporate act of said Corporation, and
further certifies that, to the best of his knowledge, information and belief,
the matters and facts set forth therein with respect to the approval thereof
are true in all material respects under the penalties of perjury.

DATED: August 28, 1996

--------------------------------
Carl R. Luff, Vice President

<PAGE>

EXHIBIT 10

[LETTERHEAD OF D'ANCONA & PFLAUM]

April 22, 1998

Davis Series, Inc.
124 East Marcy Street
Santa Fe, New Mexico 87501

Ladies and Gentlemen:

We have acted as counsel for Davis Series, Inc. (the "Company") in
connection with the registration under the Securities Act of 1933 (the "Act")
of an indefinite number of shares of beneficial interest of the series of the
Company designated as Davis Growth Opportunity Fund, Davis Financial Fund,
Davis Real Estate Fund, Davis Convertible Securities Fund, Davis Government
Bond Fund, Davis Government Money Market Fund, (collectively, the "Shares") in
registration statement No. 2-57209 on Form N1A (the "Registration Statement").

In this connection we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate and
other records, certificates and other papers as we deemed it necessary to
examine for the purpose of this opinion, including the Articles of
Incorporation and bylaws of the Company, actions of the Board of Directors
authorizing the issuance of Shares and the Registration Statement.

Based on the foregoing examination, we are of the opinion that upon
the issuance and delivery of the Shares in accordance with the Articles of
Incorporation and the actions of the Board of Directors authorizing the
issuance of the Shares, and the receipt by the Company of the authorized
consideration therefor, the Shares so issued will be validly issued, fully paid
and nonassessable.

We consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under section 7 of the Act.

Very truly yours,

D'ANCONA & PFLAUM

By
------------------------------
SHELDON R. STEIN, PARTNER

<PAGE>

EXHIBIT 11(A)

CONSENT OF INDEPENDENT ACCOUNTANTS

The Shareholders and Board of Directors

We consent to the use of our reports dated May 1, 1998, on the financial
statements of the Davis High Income Fund, Inc., incorporated herein by
reference and to the references to our firm under the headings "Financial
Highlights" in the prospectus and "Independent Auditors" in the statement of
additional information.

----------------------------------
/s/ KPMG Peat Marwick LLP

<PAGE>

EXHIBIT 11(B)

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 22, 1998

<PAGE>

DAVIS HIGH INCOME FUND, INC.

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
constitutes and appoints Sheldon R. Stein and Arthur Don, and each of them, as
the undersigned's attorneys-in-fact, each with the power of substitution, for
him or her in any and all capacities, to sign any post-effective amendments to
the registration statement under the Securities Act of 1933 (Registration No.
2-266935) 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 other applicable state or
federal regulatory authorities. Each of the undersigned hereby ratifies and
confirms all that each of the aforenamed attorneys-in-fact, or his substitute
or substitutes, may do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney as of the date listed below.

REGISTRANT:

Davis High Income Fund, Inc. (Registrant)

By: Date:
------------------------------------ ------------------------------
Jeremy H. Biggs
Chairman of the Board of Directors

OFFICERS:

Date:
- --------------------------------------- ------------------------------
Shelby M.C. Davis
President

Date:
- --------------------------------------- ------------------------------
Sharra L. Reed
Vice President
Treasurer, Chief Financial Officer
and Chief Accounting Officer

<PAGE>

DIRECTORS:

Date:
- --------------------------------------- ------------------------------
Wesley E. Bass, Jr.

Date:
- --------------------------------------- ------------------------------
Jeremy H. Biggs

Date:
- --------------------------------------- ------------------------------
Marc P. Blum

Date:
- --------------------------------------- ------------------------------
Andrew A. Davis

Date:
- --------------------------------------- ------------------------------
Christopher C. Davis

Date:
- --------------------------------------- ------------------------------
Jerry D. Geist

Date:
- --------------------------------------- ------------------------------
D. James Guzy

Date:
- --------------------------------------- ------------------------------
G. Bernard Hamilton

Date:
- --------------------------------------- ------------------------------
LeRoy E. Hoffberger

Date:
- --------------------------------------- ------------------------------
Laurence W. Levine

Date:
- --------------------------------------- ------------------------------
Christian R. Sonne