DAVIS TAX-FREE HIGH INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
============================================================================
Dear Shareholder:
Your Fund has continued to post excellent absolute and risk-adjusted
performance. It turned in the best performance among all 513 of its
peers for 1996 through September 30th based on absolute total return
according to Morningstar1. Your Fund demonstrated its resiliency during
1996's tough bond market with an average annual total return on net asset
value of Class A shares over the period of 4.09% compared to 1.15% for
Morningstar's average.
Dividend Increase
Other good news is that your Fund's monthly dividend is being increased.
Some of the Fund's investment strategies (outlined below) have resulted
in the unusual feat of increase in income and a corresponding increase in
your Fund's dividend. As of November 1, 1996, the Class A share monthly
dividend will be $0.0485 (up from $0.045), and the Class B share dividend
will be $0.04278 (up from $0.040).
Absolute Performance
Class A shares of Davis Tax-Free High Income Fund ended their second
fiscal year with a total return of 6.33% (at net asset value), compared to
an average of 6.01% for high yield municipal bond funds 2. Since their
inception in December 1994, they have generated a net-asset-value
average annual total return of 7.80%. Class B shares of the Fund, which
originated in 1985, delivered a one-year return of 5.51% (at net asset
value).
Superior Risk-Adjusted Performance
Your Fund has continued to provide superior risk-adjusted performance
and, at September 30, 1996 it held Morningstar's highest rating, * * * * *
(five stars) , for all periods: one, three, five, and ten years 3. In
addition to a strong total return, this superior risk-adjusted rating was
achieved in part by the Fund's low level of volatility. The result is that
your Fund has the sixth highest ratio of average annual total return per
standard deviation for both the three and five year periods out of 324 and
192 municipal bond funds, respectively, tracked by Morningstar 4.
Interest Rates
The bond market in general dropped by approximately 12 percentage points
during the first half of 1996 as the market worried that lower
unemployment would cause the Federal Reserve to raise short term rates
to slow down the economy. Since then, long U.S. treasuries have rebounded
by approximately 4 percentage points; long municipals were stronger,
out-rebounding treasuries by about two to one as fears of the passage of a
flat tax (which would have diminished the tax advantages of municipal
bonds) subsided.
Investment Strategies - Maximizing Reward per Risk
The fund has continued to use the same investment strategies that it used
to achieve its top long and short term risk-adjusted performance ratings.
In general our methods revolve around brick by brick bottom up credit and
security characteristic research with a focus on maximizing the yield per
credit quality and on the upside potential and downside protection of each
individual investment. In other words, we are trying to get the most for
the money in terms of reward per risk taken and we do it by constantly
focusing on the upside potential and downside protection of each
individual investment.
Risks & Rewards
I typically look at risk in three forms: credit risk, interest rate risk, and
call risk. Credit risk is the risk that the guarantor cannot or will not pay
us our principal or interest as was agreed to. An extreme example would be
DAVIS TAX-FREE HIGH INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
============================================================================
where a guarantor's credit quality deteriorates so much that it goes into
bankruptcy and its bonds become essentially worthless. Purchasing bonds
is a lot like making a loan. There are numerous variables that should be
looked at to make sure you are going to be paid back. Accordingly, we
spend a lot of time looking at the underlying credit quality of a guarantor.
Interest rate risk is the risk that interest rates rise causing a bond's
principal value to drop; this happens because after rates rise, an investor
is not willing to pay the same price for a bond as before the drop (when
interest rates were lower). Thus, in general when interest rates rise,
bonds prices drop, and vice versa. Call risk is the risk that a bond is
called away from the owner and the funds have to be reinvested in lower
yielding securities. Call risk is a primary concern when interest rates
drop. Of course, there are other types of risk and the tradeoffs among
them can result in different positive or negative returns depending upon
the subtleties of the specific credit and bond characteristics. The reward
is yield in the form of coupon income (and/or amortization), and in the
form of capital appreciation due to improving credit quality and/or due to
falling interest rates.
Upside Potential and Downside Protection - Other Factors
Other factors influencing the upside potential and downside protection
aspects of each investment are its security characteristics including the
coupon rate, the original issue yield, the maturity date, the stated call
schedule, other potential calls, the sinking fund schedule, the guarantor,
any insurance, letters of credit, etc. In addition, the relative trading
levels of different investments are often out of line and indicate potential
investment value.
Giving Up Some Upside Potential to Pick Up Extra Downside Protection
One strategy that I use quite often is to give up some upside potential for
more than a proportionate amount of downside protection. This strategy
is usually appropriate after the market has rallied (prices have risen) and
interest rates have dropped since rallies are usually followed by market
declines. Downside protection can come in the form of increased credit
quality (generally a security with a higher credit rating) or less interest
rate risk (generally a larger coupon and/or a shorter maturity).
One tactic for implementing this strategy is to purchase high quality
"cushion bonds." A cushion bond is a bond with a large coupon that is
trading to a short call. If the bond was not callable it would, for example,
be trading at 110, but because of the call at 100, the bond trades at only
101. The cushion in this example is nine points, the difference between
where the bond would trade if it were non-callable (110) and where it is
actually trading (101). In other words, the bond market in general would
have to drop over nine points (the cushion) before the value of this
particular bond's price would drop much, if at all. An added benefit with
large coupon cushion bonds is that if they pass their call, you keep getting
that big coupon longer than the market had anticipated. It is because many
of our coupon bonds have not been called that our income level has risen
and we have been able to increase your dividend. Of course, if they are
called and we have to reinvest proceeds into lower income investments,
the dividend could have to be adjusted downward.
Purchasing Less Followed Investments
Focusing on investment areas that are not followed that closely by the
investment community is another strategy I use to get more yield per
credit quality or per upside/downside characteristics. Municipal bond
buyers are usually most comfortable purchasing traditional essential
service municipals like bonds issued to finance a water system rather
than an industrial revenue bond (IRB) that is guaranteed by a company, or a
housing bond, or a bond backed by a hospital or a nursing home. Because
these sectors are less followed, you can often find better yield per credit
quality or upside/downside characteristics. I feel we have an advantage
in these markets. For example, I am also the portfolio manager of Davis
High Income Fund, a fund that invests in high yield corporate bonds. My
focus in that market benefits my knowledge and understanding of the
municipal industrial
DAVIS TAX-FREE HIGH INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
============================================================================
revenue bond market. The result has been that we have done very well
investing in these types of securities.
Top-Down Portfolio Management Techniques
While the bread and butter of our superior risk-adjusted performance is
probably due to our experience with and use of bottom up credit research
and a continued focus on the upside potential and downside protection of
each individual investment, we also use top-down management techniques
where I look at the characteristics of the portfolio as a whole. I use
these techniques to monitor the proportion of our stake in positions of
similar type or strategy. Another important top-down method that we
continue to use is lowering the risk of the portfolio as a whole by
diversifying or spreading the risk by owning lots of smaller investments
rather than being concentrated with fewer, larger investments. At
September 30, 1996, your Fund was well diversified with 280 securities
spread throughout 48 states.
How the Portfolio Was Invested
In the first quarter the portfolio was defensively positioned with a low
proportion of market performers (bonds with lots of upside potential but
less downside protection) and lots of cushion bonds. This positioning
turned out to be appropriate since the bond market in general took a nasty
drop of about 12 percentage points from January though April. Near the
trough, some of our cushion bonds lost their cushion and were sold since
at the new market levels they no longer had downside protection and had
little upside potential. Next, I took the proceeds from the sales of those
positions and did very well purchasing market performers on the dips and
selling them on rebounds as the market cycled up and down several times
from May to September with an upward bias as discussed previously. An
important point is that the core of the portfolio hardly traded; most of the
trading volume represented a small proportion of the portfolio (probably
less than 10%) trading over and over again throughout those cycles. The
overall result was our number one absolute total return performance
during the first nine months of 1996 as discussed above.
The Economy - Continued Caution
The current economic recovery, while one of the longest, is the weakest
since our government has been keeping statistics. My thinking is that if
this is the recovery, I really want to be prepared for the downturn. Early
1996 showed the first signs of economic weakness in the form of rising
mortgage loan and credit card delinquencies and defaults. Personal
bankruptcies are at levels never seen in a recovery. To me, this points to
the beginning of a credit contraction which will contribute to an economic
slowdown. If that occurs, revenues and cash flow for companies,
municipalities, and individuals will decline and credit quality in general
will deteriorate. Also, the U.S. federal government is pushing the
administration and costs of several programs down to municipal, city, and
state levels; this shift could cause credit quality problems for traditional
municipal bond guarantors. With this in mind, I have kept the Fund
defensively positioned with respect to a downturn. The average rating (of
the securities which are rated) is A+. Many believe that interest rates
drop with the onset of a recession. I believe that research shows that
interest rates often go up early in a downturn as borrowers try to hold on.
Only later, as the downturn continues, does the demand for credit drop as
borrowers throw in the towel, finally causing interest rates to fall. With
this in mind, I have kept the Fund defensively positioned with respect to
rising interest rates.
How the Portfolio Is Invested Now
After the recent bond market rebound and even stronger performance by
the municipal market (due to dissipation of fear of passage of a flat tax),
the portfolio is now positioned much like it has been over the past several
years. The portfolio's core holdings are intact and consist primarily of
high coupon bonds. The Fund's average credit quality rating (of securities
that are rated) is A+, the same level it has been for a couple of years now.
While the
DAVIS TAX-FREE HIGH INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
============================================================================
portfolio is highly diversified with approximately 280 positions in 48
states, it is concentrated somewhat in the same areas that helped the
Fund earn its ***** (five star) Morningstar risk-adjusted rating:
industrial revenue bonds, housing bonds, hospital bonds, and nursing home
bonds. Another useful way to see how defensively the portfolio is
positioned is to look at the amount of insured bonds it holds - on
September 30, 1996, approximately 27% carried traditional municipal
bond insurance or the backing of a federal agency such as the Federal
National Mortgage Association (FNMA). Thus, your Fund is currently
defensively positioned with respect to credit quality and with respect to
interest rates with a core position of somewhat interest rate insensitive
positions. The large coupon core holdings should provide ample income
under most scenarios. Thus, the portfolio should perform very well
relative to its peer group in a rising or flat interest rate environment and
in an environment where credit quality in general stays the same or
weakens. What we are giving up with this strategy is the upside potential
that would come with a strong rally in the bond market (interest rates
dropping substantially) or by a strengthening credit quality environment
such as an economic boom. I believe that our implementation of these
strategies will continue to prove itself with superior performance in the
future as it has done over the past six years.
Respectively submitted,
/S/ B. Clark Stamper
B. Clark Stamper
Portfolio Manager
1 Source: Morningstar Principia for Mutual Funds October 1996. Total
returns were calculated by Morningstar. Category average total
return was calculated from that data.
2 Source: Lipper Analytical Service, Inc., based on NASD-reporting funds
as of 10-1-96.
3 Morningstar proprietary ratings reflect historical risk-adjusted
performance as of September 30, 1996. Subject to change every
month, Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns in excess of 90-day Treasury
bill returns, with appropriate fee adjustments and a risk factor that
reflects fund performance below 90-day T-bill returns. The fund was
rated against 1,013, 561 and 221 municipal bond funds for the respective
periods. Ten percent of the funds in an investment category receive five
stars; 22.5%, four stars; 35%, three stars; 22.5%, two stars; and 10%, one
star. Star ratings for the Fund's other classes of shares are available
only for those classes with at least three years of performance history
and may vary. Past performance is no guarantee of future results.
4 Total returns and standard deviations were calculated by
Morningstar and published in its Principia for Mutual Funds diskette
software (October 1996). Category average total return, category
average standard deviation, and individual fund total return/standard
deviation statistics were calculated from that published data.
DAVIS TAX-FREE HIGH INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
============================================================================
Table of Key Statistics
Net Asset Value Total Returns
-----------------------------
Class A Shares 3 mos. 1.94% 6 mos. 3.58% 12 mos. 6.33%
Class B Shares 3 mos. 1.78% 6 mos. 3.14% 12 mos. 5.51%
Net Asset Value Average Annual Total Returns
--------------------------------------------
Class A Shares Since inception (December 1, 1994) 7.80%
Class B Shares 3 yrs. 4.98% 5 yrs. 6.57% 10 yrs. 6.97%
Composition of the Fund's Portfolio by quality Rating as a Percentage of
------------------------------------------------------------------------
Total Assets at September 30, 1996
----------------------------------
<TABLE>
<CAPTION>
Fund's Assessment of General Definition
Moody's/S&P Rating Category Percentage Non-rated Securities of Bond Quality
- --------------------------- ---------- -------------------- ---------------
<S> <C> <C> <C>
Aaa/AAA....................... 23.70% 0.29% Highest quality
Aa/AA......................... 11.91% 0.19% High quality
A/A........................... 14.39% 0.76% Upper medium grade
Baa/BBB....................... 10.37% 4.76% Medium grade
Ba/BB......................... 10.28% 12.04% Some speculative
elements
B/B........................... 2.97% 4.31% Speculative
Caa/CCC....................... 0.00% 0.00% More speculative
Ca, C/CC, C, D................ 0.00% 0.00% Very speculative,
may be in default
Not Rated..................... 22.35% 0.00% Not rated by
Moody's or S&P
Short-term Investments........ 4.03% 0.00%
------- ------
100.00% 22.35%
Average credit rating: A+
Weighted average maturity: 15.65 years
</TABLE>
<TABLE>
DAVIS TAX-FREE HIGH INCOME FUND
Comparison of Davis Tax-Free High Income Fund, Class B Shares
and Lehman Brothers
10 Year Revenue Bond Index
=======================================================================================================
<CAPTION>
Average Annual Total Return For the Periods ended September 30, 1996.
<S> <C>
CLASS A SHARES (This calculation includes an CLASS B SHARES (This calculation includes
initial sales charge of 4 3/4%.) applicable contingent deferred sales charges.)
One Year.............................. 1.26% One Year............................. 2.54 %
Life of class (December 1, 1994 Five Years........................... 6.42 %
through September 30, 1996)........... 5.00% Ten Years............................ 6.97 %
</TABLE>
$10,000 invested over ten years. Let's say you invested $10,000 in Davis
Tax-Free High Income Fund B shares on September 30, 1986. As the chart
below shows, by September 30, 1996 the value of your investment would
have grown to $19,632 - a 96.32% increase on your initial investment. For
comparison, the Lehman Brothers 10 Year Revenue Bond Index is also
presented on the chart below. Its value would have grown to $21,766 - a
117.66% increase. Investments cannot be made directly into an index.
The performance data for Davis Tax-Free High Income Fund contained in
this report represents past performance and assumes that all
distributions were reinvested, and should not be considered as an
indication of future performance from an investment in the Fund today.
The investment return and principal value will fluctuate so that shares
may be worth more or less than their original cost when redeemed.
DAVIS TAX-FREE HIGH INCOME FUND
Portfolio Holdings as of September 30, 1996
===============================================================================
Chart omitted. Details of chart are as follows:
<TABLE>
<CAPTION>
Portfolio Makeup % of Fund Assets
---------------- ----------------
<S> <C>
Cash & Equivalents 3.40%
Municipal Bonds 96.60%
</TABLE>
Chart omitted. Details of chart are as follows:
<TABLE>
<CAPTION>
Sector Weightings % of Portfolio
----------------- --------------
<S> <C>
Education 4.10%
General Obligations 2.50%
Health 28.10%
Housing 25.70%
Ind. Dev. Rev. 17.20%
Other 0.70%
Other Revenue Bonds 7.70%
Poll. Ctrl. Rev. 5.10%
Public Facilities 1.00%
Utilities 7.90%
</TABLE>
<TABLE>
<CAPTION>
% of
Funds
Top 10 Holdings State Assets
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Clifton Park, NY, IDA IDR Bds. (Caldor Inc. Prj.) Ser. A, 11.25%, 12/01/12 New York 1.76%
Claiborne Cnty., MS, PCR (MiddleSouth Energy, Inc. Prj.) Ser. C, 9.875%,
12/01/14 Mississippi 1.68%
Allegheny Cnty. Hosp. Dev. Auth. Hosp. Rev. Ref. Bds., Ser. '85-A
(St. Margaret Memorial Hosp. Prj.), 9.80%, 07/01/10 Pennsylvania 1.65%
Houston Hsg. Fin. Corp. Sngl. Fam. Mtg. Rev, Bds., Ser. '83B
(The Lomas & Nettleton Co. - Admin.), 10.375%, 12/15/13 Texas 1.55%
The Ind. Dev. Corp. of Port of Corpus Christi, TX, Rev. Bds.,
Valero Refng. & Mkg. Co., Ser. A, 10.25%, 06/01/17 Texas 1.43%
Berks Cnty., PA, IDA (Supermarkets General Corp. Prj.), 10.50%, 11/01/03 Pennsylvania 1.42%
City of Charleston, SC, Waterworks and Sewer Sys. Ref. Rev. Bds.,
Ser. '86A, 7.00%, 01/01/15 South Carolina 1.37%
Wisconsin Hlth. Fac. Auth. Rev. Ref. Bds., Hosp. Sisters Svcs. Sys.,
Ser. D, 9.25%, 07/01/12 Wisconsin 1.36%
The Ohio Cnty. Bldg. Comm., WV, Hlth. Sys. Rev. Ref. Bds. (Ohio Valley
Med. Ctr. Issue) Ser. '85, 9.625%, 01/01/13 West Virginia 1.34%
Phoenix, AZ, IDA Sngl. Fam. Mtg. Rev. Bds., Ser. '84, Zero Cpn., 12/01/15 Arizona 1.29%
</TABLE>
<TABLE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments
At September 30, 1996
==================================================================================================================================
<CAPTION>
Value
Principal (Note 1)
- --------- ------
<S> <C> <C>
MUNICIPAL BONDS - (96.63%)
ALABAMA - (0.48%)
$ 210,000 Ozark, AL, Medical Clinic Brd. 1st Mtg. Rev. Bds. (United States Hlth. &
Hsg. Foundation, Inc. Prj.), 9.25%, 10/01/99....................................................... $ 221,775
500,000 The Special Care Fac. Fin. Auth. of the City of Pell City, AL, 1st Mtg. Rev.
Bds. (The Village of Cook Springs, Inc. Prj.) Ser. '93-A, 8.50%, 07/01/18........................ 523,835
-------------
745,610
-------------
ALASKA - (1.03%)
1,000,000 Alaska Hsg. Fin. Corp., Insured Mtg. Prg. Bds., `90 1st Ser.,7.75%,
12/01/14......................................................................................... 1,011,810
565,000 Alaska Hsg. Fin. Corp., Insured Mtg. Prg. Bds., '90 1st Ser., 7.80%,
12/01/30......................................................................................... 571,690
-------------
1,583,500
-------------
ARIZONA - (3.22%)
180,000 Chandler, AZ, Improvement Dist. No. 51, 7.875%, 01/01/99........................................... 182,527
1,275,000 City of Tolleson Muni Fin. Corp. Rev. Bds., Ser. of '85, 9.20%, 09/01/05........................... 1,293,041
230,000 Coconino & Mohave Cntys., AZ, Unified School Dist. No. 6, Cap.
Appreciation Ref. Bds., Zero Cpn., 07/01/02...................................................... 173,507
730,000 The IDA of the City of Casa Grande, AZ, Dev. Rev. Bds. (Five Points
Redevelopment Prj.), Sr. Bds., 8.25%, 12/01/15................................................... 757,156
500,000 The IDA of the City of Sierra Vista, 1st Mtg. Nursing Home Ref. Rev. Bds.
(Sierra Vista Medical Investors, Ltd. Prj.) Ser. '94A, 8.50%, 08/01/10........................... 520,645
95,000 The IDA of the Cnty. of Pima, AZ, Sngl. Fam. Mtg. Rev. Bds.(GNMA
Mtg.-Backed Sec. Prg.) Ser. '88, 8.125%, 09/01/20................................................ 99,481
15,220,000 Phoenix, AZ, IDA Sngl. Fam. Mtg. Rev. Bds., Ser. '84,Zero Cpn.,
12/01/15......................................................................................... 1,922,438
-------------
4,948,795
-------------
ARKANSAS - (0.70%)
150,000 Arkansas St. Dev. Fin. Auth., Sngl. Fam. Mtg. Rev. Bds., Conventional &
FHA Insured, Ser. '85 A, 9.375%, 08/01/14........................................................ 155,471
345,000 Arkansas St. Dev. Fin. Auth., Sngl. Fam. Mtg. Rev. Bds., Conventional &
FHA-MBIA Insured, Ser. '85 A, 9.375%, 08/01/14................................................... 356,878
500,000 Independence Cnty., AR, PCR, (Mississippi Pwr. & Lt. Co. Prj.) '82-A
Ser. B, 9.50%, 07/01/14.......................................................................... 549,500
-------------
1,061,849
-------------
CALIFORNIA - (6.40%)
1,000,000 The Airport of the City & Cnty. of San Francisco, CA, Community Int'l
Airport Rev. Bds., Second Ser. Issue 11 '96, 6.00%, 05/01/13..................................... 1,017,430
1,440,000 California Hlth. Fac. Auth. Hosp. Rev. Ref. Bds. (Valley Presbyterian Hosp.)
'83 Ser. A, 9.00%, 05/01/12...................................................................... 1,461,600
380,000 California Hlth. Fac. Auth. Insured Hosp. Rev. Bds. (Victor Valley
Community Hosp.) '84 Ser. A, 9.875%, 07/01/12.................................................... 381,775
855,000 California Hlth. Fac. Auth. Insured Hosp. Rev. Bds. FGIC Insured (Victor
Valley Community Hosp.) '84 Ser. A, 9.875%, 07/01/12............................................. 859,181
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
MUNICIPAL BONDS - Continued
CALIFORNIA - Continued
$ 200,000 California Hsg. Fin. Agy. Rev. Bds., Cap. Appreciation Home Mtg.,
Ser. B, Zero Cpn., 02/01/99...................................................................... $ 174,276
690,000 California Hsg. Fin. Agy. Rev. Insured Hsg. Bds., Ser. B, 8.625%, 08/01/15......................... 724,686
100,000 The City of Los Angeles, Multi Fam. Hsg. Ref. Rev. Bds., '91 Ser. A,
7.00%, 05/01/21.................................................................................. 104,744
455,000 City of Modesto, CA, Econ. Dev. Rev. Bds. (FHA Insured Mtg. Loan -
Evergreen Convalescent Home Prj.), 10.50%, 08/01/19.............................................. 471,093
900,000 City of Napa, CA, '92, Ind. Rev. Ref. Bds. (Napa Motel and Restaurant),
8.50%, 12/01/07.................................................................................. 919,521
250,000 Cnty. of Marin, Mtg. Rev. Bds., Ser. '84A (FHA Insured Mtg. Loan -
Marion Park Apts. Prj.), Zero Cpn., 04/01/01..................................................... 161,070
1,000,000 Cnty. of Marin, Multifam. Hsg. Rev. Bds., Ser. '84B (Marion Park
Apts. Prj.), Zero Cpn., 04/01/07................................................................. 353,500
100,000 Hsg. Auth. of the Cnty. of Santa Clara, Multifam. Hsg. Rev. Bds., Ser. 85 C
(Fannie Mae Prg./Amberwood Apts. Prj.), 0%/9.375%, 10/01/07...................................... 94,083
160,000 Lancaster - Grand Terrace Huntington Pk., CA, Hsg. Fin. Auth. Res. Mtg.
Rev. Ref. Bds., Ser. B, 7.375%, 01/01/12......................................................... 167,894
275,000 Los Angeles, CA, Community Redevelopment Agy. Res. Mtg. Rev. Bds.,
'85 Ser. A, 8.875%, 05/01/18..................................................................... 288,448
530,000 Los Angeles, CA, Mtg. Rev. Bds., FHA Insured (Cunningham Village Apts.)
Ser. D '84, 9.70%, 08/01/25...................................................................... 546,356
1,150,000 Los Angeles, CA, Mtg. Rev. Bds., FHA Section 8 Insured Mtg. Loan
(Arleta Park Apts.) Ser. A, 9.75%, 03/01/06...................................................... 1,202,279
175,000 Los Angeles, CA, Multi. Fam. Rev. (FHA Insured Multi-Fam. Hsg. Mtg.
Rev. Bds.) Park Parthenia Prj., 7.30%, 07/20/11.................................................. 180,726
45,000 Los Angeles, CA, Reg'l. Airports Improvement Corp. Lease Rev. Bds.
(Los Angeles West Terminal Fuel Corp.), 10.00%, 01/01/01......................................... 50,540
700,000 San Francisco, CA, City & Cnty. Multi. Fam. Hsg. Rev. Bds. (FHA
Insured - Aspen South Hill Apts.) Ser. C, 9.00%, 12/01/26........................................ 716,464
-------------
9,875,666
-------------
COLORADO - (1.27%)
525,000 Colorado Hsg. Fin. Auth., Sngl. Fam. Mtg. Prg.-Ser.-A-2-FSA-CO.,
8.25%, 08/01/19.................................................................................. 538,813
30,000 Denver (City & Cnty.), CO, Sngl. Fam. Mtg. Rev. Bds., Ser. '85A,
Zero Cpn., 09/01/16.............................................................................. 3,755
180,000 Hamilton Creek Metro. Dist., Summit Cnty., CO, G.O., 11.25%, 12/01/04<F2>.......................... 169,200
770,000 Mesa Cnty., CO, IDR Ref. Bds. (Joy Tech. Inc. Prj.) Ser. '92, 8.50%, 09/15/06...................... 810,286
430,000 Mesa Cnty., CO, Sngl. Fam. Mtg. Rev. Bds., Ser. 197, 8.875%, 12/01/11.............................. 441,352
-------------
1,963,406
-------------
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
MUNICIPAL BONDS - Continued
CONNECTICUT _ (0.40%)
$ 600,000 Connecticut Dev. Auth., Hlth. Care Rev. Bds. (Corp. for Independent Living
Prj.) Ser. '93B, 8.00%, 07/01/17................................................................. $ 617,070
-------------
DELAWARE - (0.73%)
830,000 Delaware Econ. Dev. Rev. Ref. Bds. (Supermarkets General Corp. Prj.)
Ser. '83, 10.875%, 12/01/03...................................................................... 845,820
345,000 Delaware St. Econ. Dev. Community Multi-Fam. Mtg. Rev. Bds.,
Cadis-GNMA-Chestnut Cross, 0%/9.75%, 07/20/20.................................................... 274,517
-------------
1,120,337
-------------
DISTRICT OF COLUMBIA - (0.17%)
250,000 District of Columbia (Washington, D.C.) Rev. Bds. (The Howard University
Issue) Ser. A, 7.875%, 10/01/04.................................................................. 264,185
-------------
FLORIDA - (5.51%)
1,505,000 Broward Cnty., FL, Hsg. Fin. Auth. Rev. Home Mtg., Ser. A, Cap.
Appreciation, Zero Cpn., 04/01/14................................................................ 255,609
460,000 Charlotte Cnty., FL, IDR Ref. Bds. (Beverly Enterprises - Florida, Inc. Prj.)
Ser. '87, 10.00%, 06/01/11....................................................................... 518,245
500,000 City of Sunrise, FL, Util. Sys. Rev. Bds., Ser. `96A, 5.75%, 10/01/21.............................. 499,340
5,890,000 City of Tampa, FL, Home Mtg. Rev. Bds., '83 Ser. A, Muni Multiplier
Bds., Zero Cpn., 10/01/14........................................................................ 886,622
360,000 Dade Cnty., FL, Solid Waste Sys. Special Obligation Rev. Ref. Bds.
Cap. Appreciation, Ser. '86, Zero Cpn., 04/01/08................................................. 159,192
705,000 Dade Cnty., FL, Special Hsg. Rev. Bds. (City of Miami Dev. - Indenture
VIII), Ser. A, 11.00%, 07/01/12.................................................................. 717,902
110,000 Duval Cnty., FL, Hsg. Fin. Auth. Multi-Fam. Hsg. Rev. Bds. (Mandarin
Lake Apts.) Ser. '85 E, 9.50%, 08/01/25.......................................................... 121,237
1,100,000 Florida Hsg. Fin. Agy. (Southlake Apartments Prj. - D), 8.10%, 10/01/02<F3>........................ 1,135,706
110,000 Highlands Cnty., FL, IDA (Beverly Enterprises - Florida, Inc. Prj.) Ser. '91,
9.25%, 07/01/07.................................................................................. 120,824
245,000 The Hsg. Fin. Auth. of Dade Cnty. (Florida) Collateralized Mtg. Rev. Bds.,
'84 Ser. H (Lihud Ltd. Apts. Prj.), 10.50%, 06/01/00............................................. 246,208
205,000 Jacksonville Hlth. Fac. Auth. Hosp. Rev. Ref. Bds., Ser. '89A (Methodist
Hosp. Prj..), 8.00%, 10/01/06.................................................................... 207,622
425,000 Jacksonville Hlth. Fac. Auth. Hosp. Rev. Ref. Bds., Ser. '89A (Methodist
Hosp. Prjs.), 8.00%, 10/01/15.................................................................... 429,565
245,000 Jacksonville Hlth. Fac. Auth. Hosp. Rev. Ref. Bds., Ser. '89B (Methodist
Hosp. Prjs.), 8.00%, 10/01/15.................................................................... 247,631
460,000 Manatee Cnty., FL, Hsg. Fin. Auth. Mtg. Rev. Bds., Cap. Appreciation,
'83 Ser. A, Zero Cpn., 10/01/15.................................................................. 63,922
75,000 Marion Cnty., FL, IDR (Midland-Ross Corp. Prj.) Ser. '81, 11.875%,
08/01/11......................................................................................... 76,166
500,000 Ocean Highway & Port Auth. Solid Waste/PCR Bds. (Container Corp. of
America Prj.) Ser. '85, 9.375%, 11/01/04......................................................... 511,175
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments _ Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
MUNICIPAL BONDS - Continued
FLORIDA - Continued
$ 450,000 Orange Cnty., FL, IDA (Beverly Enterprises - Florida, Inc. Prj.) Ser. '91,
9.25%, 08/01/10.................................................................................. $ 494,744
3,210,000 Palm Beach Cnty., FL, Hsg. Fin. Auth. Sngl. Fam. Mtg. Rev. Bds. Cap.
Appreciation, Zero Cpn., 07/01/14................................................................ 522,684
725,000 South Indian River Wtr. Control Dist., Sect. 15A Improvement Bds. (Egret
Landing - Phase I), 8.00%, 11/01/18.............................................................. 772,045
470,000 Winter Garden, FL, IDR Ref. Bds. (Beverly Enterprises - Florida, Inc. Prj.)
Ser. '91, 8.75%, 07/01/12........................................................................ 516,704
-------------
8,503,143
-------------
GEORGIA - (1.92%)
1,340,000 De Kalb Cnty., GA, Sngl. Fam. Hsg. Auth. Mtg. Rev. Bds., Ltd.
Intermediate Muni Obligation, Ser. '85, 0%/10.50%, 12/01/16...................................... 1,189,866
200,000 Gainesville Redevelopment Auth., 1st Mtg. Rev. Bds.(Autumn Breeze
Personal Care Home, Inc. Prj.) Ser. `96A, 8.00%, 04/01/26........................................ 198,276
1,520,000 Gwinnett Cnty., GA, Hsg. Auth. Sngl. Fam. Mtg. Rev. Bds. Cap.
Appreciation, Zero Cpn., 04/01/16197,190
590,000 The Hsg. Auth. of Columbus, GA, Multifamily Hsg. Rev. Bds. (Columbus
Gardens Elderly Hsg. Prj.) Ser. '94, 8.25%, 01/01/24............................................. 599,245
750,000 Macon Cnty., GA, Hosp. Ref. Rev. Bds. (Flint River Comm.
Hospital - Paracelsus Healthcare Corp. Prj.) Ser. '91, 9.00%, 03/01/11........................... 773,918
-------------
2,958,495
-------------
HAWAII - (0.15%)
220,000 Dept. of Transportation of the State of HI, Special Fac. Rev. Bds., Ser. `90
(Continental Airlines, Inc.), 9.60%, 06/01/08.................................................... 233,444
-------------
IDAHO - (0.32%)
500,000 City of Nampa Urban Renewal Agy., ID, Rev. Allocation (Tax Increment)
Ser. `96B, 5.50%, 08/01/05....................................................................... 492,750
-------------
ILLINOIS - (8.13%)
320,000 Bensenville, IL, IDR Bds., Insured - Allied Roofers Supply Prj., 10.25%,
08/01/03......................................................................................... 326,573
200,000 Cook Cnty., IL, Community Cons. School Dist. No. 064 Park Ridge,
School Fire Prevention and Safety Bds., Utilities G.O., Ser. '88, 7.00%,
12/01/99......................................................................................... 201,048
235,000 Cnty. of Cook, IL, Sngl. Mtg. Rev. Bds., '83 Ser. A, Zero Cpn., 07/01/15........................... 32,000
1,000,000 Des Plaines, IL, Hosp. Fac. Rev. Ref. Bds. (Holy Fam. Hosp.), 9.25%
01/01/14......................................................................................... 1,024,440
450,000 Illinois Educ. Fac. Auth. Rev. Ref. Bds. (Illinois Institute of Technology)
Ser. A '87, 8.75%, 06/01/15...................................................................... 462,699
1,495,000 Illinois Hlth. Fac. Auth. Rev. (Hlth. Fac. Rev. Ref. Bds. Ser. A `85)
Methodist Med. Ctr. of Illinois, 9.625%, 10/01/10................................................ 1,515,048
150,000 Illinois Hlth. Fac. Auth. Rev. (Hlth. Fac. Rev. Ref. Bds. Ser. `85) Methodist
Med. Ctr. of Illinois, 8.00%, 10/01/14........................................................... 150,516
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
MUNICIPAL BONDS - Continued
ILLINOIS _ Continued
$ 395,000 Illinois Hlth. Fac. Auth. Rev. (Hlth Fac. Rev. Ref. Bds. Ser. `87) West
Suburban Hosp. Med. Ctr, 8.25%, 08/01/13......................................................... $ 414,090
400,000 Illinois Hsg. Dev. Auth. Multi Fam. Hsg. Bds., `82 Ser. C, 5.00%,
07/01/25......................................................................................... 273,240
1,100,000 Public Bldg. Commission of Chicago, Cook Cnty., IL, Bldg. Rev. Bds.,
Ser. B of '87 Cmnty. College Dist. No. 508, 8.75%, 01/01/07...................................... 1,135,057
450,000 State of Illinois Civic Ctr. Bds. (Dedicated Tax Rev. Bds.) Ser. `91,
9.15%, 12/15/99.................................................................................. 465,462
1,000,000 St. Clair Cnty., IL, Pub. Bldg., Community Bldg. Rev. Bds., 8.00%,
12/01/05......................................................................................... 1,020,160
1,410,000 Taylorville, IL, Econ. Dev. Rev. Bds. (Kroger Co. Prj.),11.75%, 04/01/07........................... 1,452,046
1,880,000 Urbana, IL, Econ. Dev. Rev. Bds. (Kroger Co. Prj.), 11.50%, 03/01/07............................... 1,898,217
700,000 Village of Riverdale, IL, Environmental Improvement Rev. Bds. (Acme
Metals Inc. Prj.) Ser. `96A, 7.90%, 04/01/24..................................................... 702,408
171,000 Village of Sauget, IL, IDR Bds. (The Pillsbury Co. Prj.) Ser. '80, 8.375%,
05/01/05......................................................................................... 171,229
500,000 Village of Sherman, IL, 1st Mtg. Rev. Bds. (Villa Vianney, Inc.) Ser. '95A,
8.375%, 07/01/25................................................................................. 505,470
1,000,000 Village of Wataga, IL, 1st Mtg. Hlth. Fac. Rev. Bds. (First Humanics Corp.
- Galesburg, IL Prj.) Ser. '86, 10.00%, 09/01/16<F2>............................................. 790,000
-------------
12,539,703
-------------
INDIANA - (1.68%)
500,000 Carmel, IN, Retirement Rental Hsg. Rev. Ref. Bds. (Beverly Enterprises -
Indiana, Inc. Prj.) Ser. '92, 8.75%, 12/01/08.................................................... 549,595
333,573 Elwood, IN, Econ. Dev. Rev. (K-Mart Co. - S. S. Kresge Co. Prj.), 8.50.%,
10/15/00......................................................................................... 333,610
560,000 The Hosp. Auth. of the City of Fort Wayne, IN, Hosp. Rev. Ref. Bds.
(Ancilla Sys. Inc.) Ser. `86, 7.00%, 07/01/18.................................................... 579,404
440,000 Indiana Bond Bank, Ser. '85 A Bds., 9.625%, 02/01/06............................................. 456,262
620,000 Indiana Bond Bank, Special Program Bds., Ser. '87 A, 8.70%, 02/01/13............................... 641,415
35,000 Indianapolis, IN, Econ. Dev. (GNMA Coll - Bethany Indpt. Care), 9.15%,
08/20/16......................................................................................... 38,350
-------------
2,598,636
-------------
IOWA - (0.20%)
312,457 Creston, IA, IDR (S.S. Kresge Co. - K-Mart Inc.), 8.50%, 08/01/00.................................. 312,757
-------------
KANSAS - (1.73%)
90,000 City of Wichita, KS, Sngl. Fam. Mtg. Rev. Bds., '85 Ser. A, 9.00%,
07/01/08......................................................................................... 93,385
1,250,000 Kansas City, KS, Crawford Cnty., Tax-Exempt Muni Multiplier Rev. Bds.,
Zero Cpn., 04/01/16.............................................................................. 155,150
1,440,000 Kansas City, KS, Hosp. Rev. Bds., Ser. '74, 8.10%, 12/01/041....................................... 477,037
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
MUNICIPAL BONDS - Continued
KANSAS - Continued
$ 800,000 Kansas City, KS, Sngl. Fam. Mtg. Rev. Bds., Ser. '83 A, Zero Cpn.,
12/01/14......................................................................................... $ 116,488
205,000 Liberal, KS, Swr. Util. Sys. Rev. Ref. Bds., 8.80%, 10/01/99....................................... 209,826
305,000 Liberal, KS, Swr. Util. Sys. Rev. Ref. Bds., 8.90%, 04/01/00....................................... 312,433
575,000 Saline Cnty., KS, Sngl. Fam. Mtg. Rev. Cap. Accumulator Bds.,
Ser. '82 A, Zero Cpn., 11/01/14.................................................................. 78,482
230,000 Seward Cnty., KS, Sngl. Fam. Mtg. Rev. Bds., '79 Ser. A, 7.375%,
12/01/10......................................................................................... 230,352
-------------
2,673,153
-------------
KENTUCKY - (0.88%)
340,000 Cntys. of Jefferson, Oldham and Bullitt, KY, Home Mtg. Rev. Bds, Ser. '84,
10.75%, 11/01/14................................................................................. 353,484
250,000 Floyd, KY, Gas Sys. Rev. Ref. Bds., Ser. '91A, 8.00%, 09/01/12..................................... 281,353
200,000 Jefferson Cnty., KY, Cap. Prjs. Corp. Rev. Bds. Lease - Ser. B, Zero Cpn.,
08/15/07......................................................................................... 92,588
1,100,000 Owensboro, KY, Elec. Light & Pwr. Rev. Bds., Ser. B, Zero Cpn.,
01/01/09......................................................................................... 331,584
500,000 Owensboro, KY, Elec. Light & Pwr. Rev. Bds., Ser. B, Zero Cpn.,
01/01/09......................................................................................... 150,410
150,000 The Turnpike Auth. of Kentucky Toll Road Rev. Bds., `86 Ser. A,
8.125%, 07/01/98................................................................................. 153,522
-------------
1,362,941
-------------
LOUISIANA - (3.05%)
190,000 Jefferson Parish, LA, Home Mtg. Rev. Bds. Cap. Appreciation, Zero Cpn.,
09/01/02......................................................................................... 104,082
190,000 Jefferson Parish, LA, Home Mtg. Rev. Bds. Cap. Appreciation, Zero Cpn.,
03/01/0.......................................................................................... 398,623
1,000,000 Lake Charles Non-Profit Hsg. Dev. Corp. Mtg. Rev. Ref. Bds., Ser. '90A
and Ser. '90B, 7.875%, 02/15/25.................................................................. 1,002,980
1,085,000 Louisiana Hsg. Fin. Agy. Mtg. Rev. (Multi Fam. Mtg. Rev Bds.), Zero
Cpn., 01/01/26................................................................................... 62,474
1,500,000 Louisiana Pub. Fac. Auth. Rev. Ref. Bds., Ser. '93 (Schwegmann Westside
Expressway, Inc. Prj.), 8.00%, 10/01/09<F3>...................................................... 1,658,430
25,000 Louisiana Pub. Fac. Auth. Supplemental Student Loan Rev. Variable Rate
Demand Bds., (Statewide Prg.) Ser. '84B, 8.125%, 12/01/99........................................ 26,500
360,000 Louisiana Pub. Fac. Auth. Supplemental Student Loan Rev. Variable Rate
Demand Bds., (Statewide Prg.) Ser. '84C, 8.125%, 12/01/99........................................ 381,600
385,000 Parish of Orleans, New Orleans, LA, Hsg. Dev. Corp. of 1st Lien Rev.
Bds., Ser. `79 (Tulane Ave. Prj. - Section 8 Asst.), 7.875%, 06/01/10............................ 385,119
50,000 Sales Tax School Bds., Parish School Brd. of the Parish of Jefferson, State of
LA, Ser. '86A, 7.00%, 02/01/08................................................................... 52,182
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
MUNICIPAL BONDS - Continued
LOUISIANA - Continued
$ 400,000 Shreveport, LA, Wtr. & Swr. Rev. Crossover Ref. Bds., Ser.`86C,
7.00%, 12/01/05.................................................................................. $ 414,224
500,000 Shreveport, LA, Wtr. & Swr. Rev. Crossover Ref. Bds., Ser. `86C,
7.125%, 12/01/14................................................................................. 517,875
-------------
4,704,089
-------------
MAINE - (0.64%)
945,000 Maine Hlth. & Higher Educ. Fac., Hosp. Rev. Ref. Bds. (Eastern Maine
Med. Ctr.) Ser. '85, 9.10%, 10/01/12............................................................. 988,886
-------------
MARYLAND - (2.41%)
95,000 Cmnty. Dev. Admin. of the State of MD, FHA-Insured Hsg. Mtg. Rev. Bds.,
'80 Ser. B, 10.50%, 01/01/12..................................................................... 95,972
600,000 Cmnty. Dev. Admin. of the State of MD, FHA-Insured Hsg. Mtg. Rev. Bds.,
'80 Ser. B, 10.625%, 01/01/24.................................................................... 606,198
960,000 Cmnty. Dev. Admin. of the State of MD, Hsg. Mtg. Rev. Bds., `81 Ser. A,
14.00%, 01/01/22................................................................................. 972,576
20,000 Hsg. Auth. of Prince George's Cnty. (Maryland) GNMA Collateralized Sngl.
Fam. Mtg. Rev. Bds., '89 Ser. A, 8.10%, 10/01/20................................................. 20,854
1,000,000 Maryland Econ. Dev. Corp., Nursing Fac. Mtg. Rev. Bds. (Ravenwood
Hlthcare; Inc. Fac.) Ser. `96A, 8.375%, 08/01/26................................................. 1,000,180
1,000,000 Upper Potomac River Comm., MD, PCR Bds., Westvaco Corp. Prj.,
9.125%, 08/01/15................................................................................. 1,029,020
-------------
3,724,800
-------------
MASSACHUSETTS - (3.32%)
250,000 Lawrence, MA, IDR Bds., (New Balance Realty Trust Prj.), 10.00%,
10/01/03......................................................................................... 255,205
115,000 Massachusetts Educ. Loan Auth., Educ. Loan Rev. Bds., Issue C, Ser. '85A,
7.875%, 06/01/03................................................................................. 120,184
265,000 Massachusetts Educ. Loan Auth., Educ. Loan Rev. Bds., Issue D, Ser. '89A,
7.65%, 01/01/07.................................................................................. 282,564
125,000 Massachusetts Hlth. & Educational Fac. Auth. Rev. Bds. (New England
School of Law), 8.30%, 07/01/03.................................................................. 125,444
125,000 Massachusetts Hlth. & Educational Fac. Auth. Rev. Bds. (New England
School of Law), 8.30%, 07/01/04.................................................................. 125,444
1,000,000 Massachusetts Hlth. & Educational Fac. Auth. Rev. Bds., St. Anne's Hosp.
Issue, Ser. A, 9.375%, 07/01/14.................................................................. 1,000,150
705,000 Massachusetts Hsg. Fin. Agy. Multi-Fam. Hsg. Bds., '85 Ser. A, 0%/9.5%,
07/01/12......................................................................................... 721,109
175,000 Massachusetts Ind. Fin. Agy., IDR Bds. (Boston Beer), 11.50%, 07/15/07............................. 188,766
985,000 Massachusetts Ind. Fin. Agy. Rev. Bds., Provider Lease Prg., `89 Ser. A,
8.75%, 07/15/09.................................................................................. 1,033,689
500,000 Massachusetts Muni Wholesale Elec. Co. Pwr. Supply Rev. Ref. Bds.,
Ser. B '94, 5.00%, 07/01/17...................................................................... 458,250
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
MUNICIPAL BONDS - Continued
MASSACHUSETTS - Continued
$ 525,000 Massachusetts State G.O., 10.50%, 08/01/03......................................................... $ 535,784
280,000 Massachusetts State G.O., 9.75%, 09/01/03.......................................................... 284,155
-------------
5,130,744
-------------
MICHIGAN - (0.99%)
100,000 Cnty. of Oakland, State of Michigan Bds., Clinton-Oakland Sys., Paint
Creek Inceptor Sewage Disposal Bds., 7.00%, 05/01/01............................................. 102,250
750,000 The Econ. Dev. Corp. of the City of Westland, MI, Contract Sec'd. Rev. Bds.
(Weyerhauser Co. Contract Rev.), 9.80%, 12/01/00................................................. 755,213
55,000 Kentwood, MI, Econ. Dev. Corp. Rev. Bds. (Hanover-Kent, Inc. - K-Mart
Corp.), 7.85%, 09/01/01.......................................................................... 55,041
1,150,000 Michigan State Hsg. Dev. Auth., Section 8 Asst. Mtg. Rev. Bds., Ser. I,
Zero Cpn., 04/01/14.............................................................................. 242,248
65,000 Michigan State Hsg. Dev. Auth., Sngl.-Fam. Insured Hsg. Bds., '86 Ser. A,
8.00%, 10/01/06.................................................................................... 65,238
300,000 Monroe, MI, PCR Bds. (North Star Steel Co. Prj. - Cargill Inc.) Ser. '78,
6.875%, 07/01/08................................................................................. 301,002
-------------
1,520,992
-------------
MINNESOTA - (0.93%)
330,000 Minneapolis, MN, Community Dev. Agy. Rev. Bds. (River Bluff Prj.),
11.375%, 06/01/09................................................................................ 338,600
280,000 Minneapolis, MN, Community Dev. Agy. Rev. Bds. (West Bank
Homes Prj.), 11.75%, 10/01/08.................................................................... 288,240
250,000 Minnesota Hsg. Fin. Agy. Sngl. Fam. Mtg. Bds., '87 Ser. C, 8.40%,
08/01/01......................................................................................... 258,550
10,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. `84-N, Sunwood
Inn/Bandana Square Ltd., 10.00%, 12/01/01........................................................ 10,369
15,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. `84-N, Sunwood
Inn/Bandana Square Ltd., 10.00%, 12/01/02........................................................ 15,553
250,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. `84-N, Sunwood
Inn/Bandana Square Ltd., 10.00%, 12/01/14........................................................ 257,685
5,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. K, Jackson Str.
Shops Ltd., 9.50%, 12/01/01...................................................................... 5,180
10,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. K, Jackson Str.
Shops Ltd., 9.50%, 12/01/02...................................................................... 10,360
235,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. K, Jackson Str.
Shops Ltd., 9.50%, 12/01/14...................................................................... 243,462
-------------
1,427,999
-------------
MISSISSIPPI - (3.93%)
2,235,000 Claiborne Cnty., MS, PCR (Middle South Energy, Inc. Prj.) Ser. C,
9.875%, 12/01/14................................................................................. 2,499,780
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
MUNICIPAL BONDS - Continued
MISSISSIPPI - Continued
$ 810,000 Clarksdale, MS, Ind. Rev. Bds. (BAH Pptys/Archer-Daniel's), 11.75%,
06/01/11......................................................................................... $ 817,671
240,000 Mississippi Business Fin. Corp., MS PCR Rev. Ref. Bds. (Gulf Power Co.
Prj.-AMBAC) Ser. '96, 5.50%, 02/01/26............................................................ 229,236
5,000,000 Mississippi Home Corp. Residual Rev. Bds., Cap. Appreciation, Ser. I '92,
Zero Cpn., 09/15/16.............................................................................. 1,421,500
1,000,000 Mississippi Hosp. Equip. & Fac. Auth. Rev. Bds. (Rush Medical
Foundation Prj.) Ser. '91A, 8.75%, 01/01/16...................................................... 1,092,940
-------------
6,061,127
-------------
MISSOURI - (1.18%)
1,005,000 The IDA of the City of Joplin, MO, Hosp. Fac. Ref. and Improvements Rev.
Bds. (Tri-State Osteopathic Hosp. Assoc. Prj.) Ser. '91, 8.25%, 12/15/14......................... 1,084,345
150,000 The IDA of the City of Kansas City, MO, Econ. Dev. Rev. Ref. Bds.
(Encore Nursing Ctr. Partners, Ltd.-85 Prj.) Ser. '92, 8.00%, 12/01/02........................... 154,541
250,000 The IDA of the City of West Plains, MO, IDR Ref. Bds. (Beatrice Cos., Inc.
Prj.) Ser. '84, 8.75%, 08/01/07.................................................................. 250,643
210,000 Missouri Hsg. Dev. Commission, Hsg. Dev. Bds. (Federally Insured Mtg.
Loans) Ser. July 1, 1975, 8.00%, 07/01/17........................................................ 213,284
115,000 St. Louis Cnty., MO, Sngl. Fam. Mtg. Rev. Bds., 9.25%, 10/01/16.................................... 120,610
-------------
1,823,423
-------------
MONTANA - (0.04%)
65,000 Montana Brd. of Hsg., Sngl. Fam. Prg. Bds., '85 Ser. A (Federally Insured
or Gtd. Mtg. Loans), 0%/9.75%, 06/01/13.......................................................... 56,693
-------------
NEBRASKA - (0.12%)
200,000 Nebraska Investment Fin. Auth. Sngl. Fam. Mtg. Rev. Bds., Ltd.
Intermediate Muni Obligation, Ser. B '85, Zero Cpn., 11/15/06.................................... 185,384
-------------
NEVADA - (0.41%)
500,000 State of Nevada Muni Bd. Bank Prj. No. 18 & 19, 8.40%, 09/01/01.................................... 519,300
105,000 State of Nevada Muni Bd. Bank Prj. No. 18 & 19, 8.50%,09/01/05..................................... 109,335
-------------
628,635
-------------
NEW HAMPSHIRE - (0.35%)
500,000 New Hampshire Higher Educ. & Hlth. Fac. Auth. Rev. Bds. (NH Catholic
Charities Issue) Ser. '91, 8.40%, 08/01/11....................................................... 536,480
-------------
NEW JERSEY - (4.70%)
460,000 Jersey City, NJ, Swr. Auth, Swr. Rev. Ref. Bds., 9.00%, 01/01/06................................... 471,219
300,000 The Mercer Cnty. Improvement Auth., Mercer Cnty., NJ, Insured Solid
Waste Rev. Bds. (Res. Recovery Prj., Ref. Ser. A of '92), 6.70%, 04/01/16........................ 309,060
2,135,000 The Mercer Cnty. Improvement Auth., Mercer Cnty., NJ, Solid Waste
Rev. Bds. (Res. Recovery Prj., Ref. Ser. B of '92), Zero Cpn., 04/01/14.......................... 570,878
405,000 The Mercer Cnty. Improvement Auth., Mercer Cnty., NJ, Solid Waste
Rev. Bds. (Res. Recovery Prj., Ref. Ser. B of '92), Zero Cpn., 04/01/15.......................... 100,432
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
MUNICIPAL BONDS _ Continued
NEW JERSEY _ Continued
$1,375,000 The Mercer Cnty. Improvement Auth., Mercer Cnty., NJ, Solid Waste
Rev. Bds. (Res. Recovery Prj., Ref. Ser. B of '92), Zero Cpn., 04/01/16.......................... $ 316,223
445,000 New Jersey Econ. Dev. Auth., Econ. Dev. Bds. (Polymeric Resources Corp.
Prj. - '94 Ser.), 9.00%, 12/01/19................................................................ 464,691
260,000 New Jersey Econ. Dev. Auth., Econ. Dev. Sr. Rev. Bds. (Lakewood of
Voorhees FHA Insured Prj.) Ser. A, 8.875%, 01/15/20.............................................. 270,005
1,350,000 New Jersey Econ. Dev. Auth., Econ. Dev. Rev. Bds. (Borg-Warner - Baker
Protective Svcs. Prj.) Ser. '83, 9.95%, 12/01/03................................................. 1,372,748
1,000,000 New Jersey Econ. Dev. Auth., Econ. Dev. Rev. Ref. Bds. (Holt Hauling &
Warehousing) Ser. G, 8.40%, 12/15/15............................................................. 1,039,570
75,000 New Jersey Econ. Dev. Auth., Mtg. Rev. Ref. Bds. (Geriatric and Medical
Svcs., Inc. Prj.) Ser. '92, 9.00%, 07/01/97...................................................... 77,237
80,000 New Jersey Econ. Dev. Auth., Mtg. Rev. Ref. Bds. (Geriatric and Medical
Svcs., Inc. Prj.) Ser. '92, 9.00%, 07/01/98...................................................... 85,162
300,000 New Jersey Econ. Dev. Auth. Rev., Sr. Mtg. Bds. (Holt Hauling and
Warehousing) Ser. D, 10.25%, 09/15/14............................................................ 313,326
1,000,000 New Jersey Econ. Dev. Auth. Rev., Sr. Mtg. Bds. (Sealy Mattress Mfg. Co.),
9.50%, 10/01/02.................................................................................. 1,043,950
500,000 New Jersey Econ. Dev. Auth. Sr. Mtg. Rev. Bds. (Arbor Glen of
Bridgewater Prj.) Ser. `96A, 8.00%, 05/15/12..................................................... 481,980
325,000 New Jersey Hsg. and Mtg. Fin. Agy., Home Buyer Rev. Bds., '89 Ser. D,
7.70%, 10/01/29.................................................................................. 338,679
-------------
7,255,160
-------------
NEW MEXICO - (0.78%)
120,000 Albuquerque, NM, Hlth. Care Sys. Rev. Bds., (Lovelace Medical Foundation
Prj.), 12.00%, 03/01/11.......................................................................... 120,702
20,000 City of Albuquerque, NM, Hlth. Care Sys. Rev. Bds. (Lovelace Medical
Foundation Prj.) Ser. '83A, 10.25%, 03/01/11..................................................... 20,452
1,000,000 New Mexico Fin. Auth. Rev. Bds. Pub. Prj., Revolving Fund - FSA,
Ser. A '96, 5.75%, 06/01/16...................................................................... 988,310
105,000 New Mexico Mtg. Fin. Auth. Sngl. Fam. Mtg. Prg. Rev. Bds., 7.00%,
07/01/14......................................................................................... 76,178
-------------
-------------
1,205,642
NEW YORK - (4.24%)
500,000 Battery Park City Auth., POD III Hsg. Rev. Bds., Ser. '84 (FHA-Insured
Mtg.), 10.00%, 06/01/23.......................................................................... 508,750
500,000 City of New York, NY, Unlimited G.O., Ser. B '88, 7.20%, 08/01/01.................................. 555,660
2,580,000 Clifton Park, NY, IDA IDR Bds. (Caldor Inc. Prj.) Ser. A, 11.25%,
12/01/12......................................................................................... 2,626,786
1,000,000 Dormitory Auth. of the State of NY, City University Sys. Consolidated
Third Gen'l Resolution Rev. Bds., '96 Ser. 2, 6.00%, 07/01/20.................................... 983,730
925,000 New York State Hsg. Fin. Agy., Multi-Fam. Insured Mtg. Rev. Hsg. Bds.,
'85 Ser. A, 10.00%, 11/15/25..................................................................... 941,178
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments _ Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
MUNICIPAL BONDS _ Continued
NEW YORK _ Continued
$ 395,000 New York State Med. Care Fac. Fin. Agy., New York Hosp. FHA Insured
Mtg. Bds., Ser. A, 6.90%, 08/15/34................................................................. $ 437,542
175,000 New York State Med. Care Fac. Fin. Agy., St. Luke's Roosevelt Hosp.
Ctr. FHA - Insured Mtg. Rev. Bds., `89 Ser. B, 6.875%, 02/15/99.................................. 179,302
300,000 Steuben Cnty., NY, IDA Rev. Bds., Ser. '84 (Corning Glass Works),
9.00%, 11/01/04.................................................................................. 304,188
-------------
6,537,136
-------------
NORTH CAROLINA - (0.65%)
200,000 Guilford Cnty., NC, Rev. Ref. Bds., Ser. '88, 6.50%, 02/01/99...................................... 203,480
70,000 North Carolina Eastern Muni Pwr. Agy. Sys. Rev. Bds., Ser. E '85,
6.50%, 01/01/24.................................................................................. 70,105
200,000 North Carolina Med. Care Comm. Hosp. Rev. Ref. Bds. (Moore Memorial
Hosp. Prj.), 9.10%, 10/01/99..................................................................... 206,674
500,000 Piedmont Hlth. Dev. Auth., Inc., 1st Mtg. Ref. Rev. Bds. (Nash Grove
Manor Inc. Fac., Nashville, North Carolina) Ser. '93A, 8.00%, 01/01/13........................... 519,945
-------------
1,000,204
-------------
NORTH DAKOTA - (1.19%)
135,000 North Dakota State Hsg. Fin. Agy., Sngl. Fam. Mtg. Rev. Bds., Pacs. -
Ser. A, 0%/9.625%, 07/01/17...................................................................... 111,378
1,590,000 Ward Cnty., ND, Hlth Care Fac. Rev. Bds. (St. Joseph's Hosp. Corp. Prj.)
Ser. '94, 8.875%, 11/15/14....................................................................... 1,718,663
-------------
1,830,041
-------------
OHIO - (3.13%)
865,000 Belmont Cnty., OH, Hlth. Sys. Rev. (East Ohio Reg'l Hosp.) Ser. '85,
9.50%, 01/01/05.................................................................................. 884,255
400,000 Cnty. of Cuyahoga, OH, Hosp. Rev. Ref. Bds. (Richmond Heights General
Hosp.) Ser. '85, 10.00%, 12/01/11................................................................ 401,228
1,000,000 Cnty. of Cuyahoga, OH, IDR Ref. Bds. (Joy Tech. Inc. Prj.) Ser. '92, 8.75%,
09/15/07......................................................................................... 1,067,640
1,050,000 Ohio Hsg. Fin. Agy. Sngl. Fam. Mtg. Rev. Bds. Cap. Appreciation,
Ser. '85 A, Zero Cpn., 01/15/15.................................................................. 175,382
65,000 Ohio Hsg. Fin. Agy. Sngl. Fam. Mtg. Rev. Bds. (GNMA Mtg.-Backed Sec.
Prg.) '90 Ser. C, Zero Cpn., 09/01/02............................................................ 42,061
1,800,000 Ohio Wtr. Dev. Auth., State of Ohio, Collateralized PCR Ref. Bds., Ser. '95
(The Cleveland Elec. Illuminating Co. Prj.), 7.70%, 08/01/25..................................... 1,902,744
345,000 Ohio Wtr. Dev. Auth., State of Ohio, Wtr. Dev. Rev. Ref. Bds., '85 Ref.
and Improvement Ser., 9.375%, 12/01/18........................................................... 357,827
-------------
4,831,137
-------------
OKLAHOMA - (1.01%)
1,500,000 Trustees of the Oklahoma Ordnance Works Auth. IDR Ref. Bds. (A.P.
Green Ind., Inc. Prj.) Ser. '92, 8.50%, 05/01/08................................................. 1,564,935
-------------
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
MUNICIPAL BONDS _ Continued
OREGON - (0.51%)
$ 800,000 Washington Cnty., OR, Unified Sewerage Agy., Sr. LienSwr. Rev. Bds.,
Ser. `96, 5.40%, 10/01/12........................................................................ $ 789,880
-------------
PENNSYLVANIA - (5.05%)
185,000 Allegheny Cnty., PA, Residential. Fin. Auth. Sngl. Fam. Mtg. Rev. Bds.,
'83-Ser.-B, Zero Cpn., 10/01/15.................................................................. 25,386
495,000 Allegheny Cnty. Hosp. Dev. Auth. Hosp. Rev. Ref. Bds., Ser. '85-A (St.
Margaret Memorial Hosp. Prj.), 9.30%, 07/01/99................................................... 501,494
2,435,000 Allegheny Cnty. Hosp. Dev. Auth. Hosp. Rev. Ref. Bds., Ser. '85-A (St.
Margaret Memorial Hosp. Prj.), 9.80%, 07/01/10................................................... 2,464,269
85,000 Berks Cnty., PA, IDA IDR (Borg-Warner/Baker Protection Svcs., Inc.)
Ser. '81, 11.10%, 07/01/01....................................................................... 85,928
2,060,000 Berks Cnty., PA, IDA (Supermarkets General Corp. Prj.), 10.50%, 11/01/03........................... 2,111,500
55,000 Bucks Cnty., PA, IDA Mtg. Rev. (Geriatric and Medical Svcs., Inc. Prj.)
Ser. '92, 9.00%, 07/01/98........................................................................ 58,834
175,000 Chartiers Valley, PA, IDA Nursing Home Rev. FHA Insured Mtg. Bds.
(Sun City East Prj.), 14.00%, 10/01/14........................................................... 216,412
65,000 Chester Cnty., PA, IDA Mtg. Rev. Ref. Bds. (Geriatric and Medical
Svcs., Inc. Prj.) Ser. '92, 9.00%, 07/01/98...................................................... 68,544
35,000 Horsham Twp., PA, Sewer Rev. Ref. Bds., 6.00%, 01/01/98............................................ 35,863
780,000 Luzerne Cnty., PA, Hsg. Corp. Rev. Bds., 8.125%, 12/01/08.......................................... 779,836
330,000 Mercer Cnty., PA, IDA, Gumberg Assoc. - Pine Grove Square, The Kroger
Co., Ind. Dev. 1st Mtg. Rev. Bds., 13.00%, 06/01/07.............................................. 343,682
100,000 Montgomery Cnty. (Pennsylvania) IDA Mtg. Rev. Ref. Bds., Ser. '92A
(Geriatric and Medical Svcs., Inc. Prj.), 9.00%, 07/01/99........................................ 104,893
200,000 Pennsylvania Hsg. Fin. Agy., Moderate Rehab. Rev. Bds., 9.00%, 08/01/01............................ 203,338
250,000 Pennsylvania Hsg. Fin. Agy., Sngl. Fam. Mtg. Rev. Bds., Ser. O, 8.125%,
10/01/07......................................................................................... 252,190
270,000 Pennsylvania St. Higher Educ. Fac. Auth. College & University Rev. Bds.
(Drexel University) 1st Ser. '87, 7.70%, 05/01/12................................................ 276,178
250,000 Warren Cnty., PA, IDA Specialized Dev. Rev. Ref. Bds. (Beverly
Enterprises - Pennsylvania, Inc. Prj.) Ser. '91, 9.00%, 11/01/12................................. 273,003
-------------
7,801,350
-------------
RHODE ISLAND - (0.16%)
250,000 Rhode Island Hlth & Educational Bldg. Corp. Rev. Bds., 9.50%, 07/01/16............................. 253,320
-------------
SOUTH CAROLINA - (1.60%)
400,000 Certificates of Participation, Ser. '90A, South Carolina School Financing
Corp. (School Dist. No. 2 of Sumter Cnty., SC Prj.), 8.125%, 04/01/10............................ 428,672
2,000,000 City of Charleston, SC, Waterworks and Sewer Sys. Ref. Rev. Bds.,
Ser. '86A, 7.00%, 01/01/15....................................................................... 2,044,560
-------------
2,473,232
-------------
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
MUNICIPAL BONDS - Continued
SOUTH DAKOTA _ (0.48%)
$ 30,000 South Dakota Bldg. Auth., Rev. Ref. Bds., Ser. of Feb. '84,10.50%,
09/01/00......................................................................................... $ 33,717
675,000 South Dakota Student Loan Asst. Corp., Student Loan Rev. Bds.,
Ser. B '89, 7.45%, 08/01/00...................................................................... 705,038
-------------
738,755
-------------
TENNESSEE - (2.51%)
200,000 Dover, TN, Hlth. & Educ. Fac., IDR (Wessex Corp. Dover Prj.), 9.50%,
09/01/11......................................................................................... 206,380
427,419 Dyer Cnty., TN, Ind. Dev. Brd. IDR Bds. (S.S. Kresge Co. - K-Mart Corp.),
8.10%, 11/01/00.................................................................................. 427,581
500,000 The Hlth. & Educational Fac. Auth. of the City of Crossville, TN, 1st Mtg.
Ref. Rev. Bds. (Country Place Hlth. Care Ctr., Inc. Prj.) Ser. '96 A,
7.75%, 06/01/13.................................................................................. 503,440
1,185,000 Lewisburg, TN, IDR Bds. (Mead Corp. Prj.), 7.875%, 02/01/00........................................ 1,196,613
425,000 McMinn Cnty., TN, Ind. Dev. Brd. Rev. Bds., (S.S. Kresge Co.), 8.00%,
11/01/00......................................................................................... 425,234
460,000 New Tazewell, TN, Hlth. Educational & Hsg. Fac. Brd. IDR Bds. (Wessex
Corp. New Tazewell Prj.) Ser. '87, 10.00%, 06/01/17.............................................. 470,470
395,000 Sevier Cnty., TN, Ind. Dev. Brd. IDR Bds. (The Kroger Co. and Super X
Prj.) Ser. A, 10.25%, 11/01/06................................................................... 396,410
500,000 Tennessee Hsg. Dev. Agy., Cap. Appreciation (Homeownership Prg.)
Ser. L '88, Zero Cpn., 07/01/05.................................................................. 256,585
-------------
3,882,713
-------------
TEXAS - (8.33%)
500,000 Austin, TX, Util. Sys. Rev. Ref. Bds., Ser. '96 B, 5.625%, 11/15/16................................ 496,690
150,000 Dallas, TX, Civic Cntr. Convention Complex, Sr. Lien Rev. Bds., Ser. '85,
8.50%, 01/01/04.................................................................................. 151,611
280,000 Grand Prairie Hsg. Fin. Corp., Grand Prairie, TX, Sngl. Fam. Mtg. Rev.
Bds., Ser. '85, Ryan Mtg. Co. - Admin.-Servicer, 9.875%, 09/01/05................................ 283,945
500,000 Grape Creek-Pulliam Independent School Dist. Pub. Fac. Corp. School
Fac. Lease Rev. Bds., Ser. '96, 7.00%, 05/15/10.................................................. 502,785
1,400,000 Harris Cnty., TX, Hlth. Fac. Dev. Corp. Rev. Bds. (Adj. Conv. Extendible
Secs.), GTR Houston Pooled Hlth. Care, 7.375%, 12/01/25.......................................... 1,418,270
500,000 Houston, Hsg. Fin. Corp. Sngl. Fam. Mtg. Rev. Bds., Ser. `83B (The Lomas
& Nettleton Co. - Admin.), 10.25%, 12/15/03...................................................... 500,305
2,305,000 Houston Hsg. Fin. Corp. Sngl. Fam. Mtg. Rev. Bds., Ser. '83B (The Lomas
& Nettleton Co. - Admin.), 10.375%, 12/15/13..................................................... 2,306,383
185,000 Houston Hsg. Fin. Corp. Sngl. Fam. Mtg. Rev. Bds., Ser. '84A, 10.875%,
02/15/16......................................................................................... 188,003
30,000 Houston, TX, Hsg. Corp. No. 1 Rev. Bds., Long Drive Apartments - Section
8 Assisted, 9.00%, 02/01/20...................................................................... 31,804
2,000,000 The Ind. Dev. Corp. of Port of Corpus Christi, TX, Rev. Bds., Valero
Refng. & Mkg. Co., Ser. A, 10.25%, 06/01/17...................................................... 2,127,380
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
MUNICIPAL BONDS - Continued
TEXAS - Continued
$ 830,000 Irving, TX, Hosp. Auth., Hosp. Rev. Bds. (Irving Hlthcare Sys.) Ser. B '95,
5.60%, 07/01/07.................................................................................. $ 837,346
1,000,000 Jefferson Cnty., TX, Hlth. Fac. Dev. Corp. Hosp. Rev. Bds. (Baptist
Healthcare Sys. Prj.) Ser. '91, 8.875%, 06/01/21................................................. 1,058,530
1,000,000 Southeast TX, Hsg. Fin. Corp. Multi-Fam. Hsg. Rev., 1st Mtg. Rev. Bds.
(The Ridge Apartments Prj.), 8.30%, 11/01/23..................................................... 800,000
985,000 Texas Hsg. Agy., Residential Mtg. Rev. Bds., Ser. '87D, 8.40%, 01/01/21............................ 1,034,033
225,000 Texas St. Higher Educ. Coordinating Brd., College Student Loan Rev. Bds.,
7.20%, 04/01/02.................................................................................. 237,173
50,000 Texas Wtr. Res. Fin. Auth. Rev. Bds., Ser. '89, 7.625%, 08/15/08................................... 52,582
280,000 Texas Wtr. Res. Fin. Auth. Rev. Bds., Ser. '89, 7.50%, 08/15/13................................... 299,821
185,000 Thomason Hlth. Fac. Dev. Corp., Hlth. Fac. Rev. Bds. (El Paso Cnty.
Hosp. Dist. Ltd. Tax Equip. Fin. Prg.) Ser. '90, 7.20%, 08/15/98................................. 195,162
1,000,000 Tomball, TX, Independent School Dist. Cap. Appreciation Ref. Bds.,
Unlimited G.O., Zero Cpn., 02/15/13.............................................................. 339,670
-------------
12,861,493
UTAH - (0.31%)
545,000 Ogden City (Utah) Neighborhood Dev. Agy. Tax Increment .Rev. Ref. Bds.
(25th St. Prj.) Ser. `90A, Zero Cpn., 12/30/05................................................... 312,612
1,245,036 Utah State Hsg. Fin. Agy. Rev. Bds. Cap. Appreciation Residential Mtg.,
Ser. '83A, Zero Cpn., 07/01/16................................................................... 166,474
-------------
479,086
-------------
VERMONT - (0.98%)
1,500,000 Vermont Hsg. Fin. Agy. Multi-Fam. Hsg. Bds., '79 Ser. A, 8.50%,
02/15/21......................................................................................... 1,518,225
-------------
VIRGINIA - (1.07%)
460,000 IDA of the City of Norfolk, IDR Bds. (Ralston Purina Co. Prj.) Ser. '81,
11.00%, 06/01/01................................................................................. 467,176
325,000 IDA of Covington-Alleghany Cnty., VA, IDR Ref. Bds. (Beverly
Enterprises, Inc. Prj.) Ser. '91, 9.375%, 09/01/01............................................... 359,197
1,100,000 Virginia St. Hsg. Dev. Auth. Comnwlth. Mtg., Ser. A, Subser. A-1,
Zero Cpn., 01/01/01.............................................................................. 828,069
-------------
1,654,442
-------------
WASHINGTON - (0.97%)
1,000,000 King Cnty., WA, Unlimited G.O., Ser. A '78, 6.50%, 06/01/12........................................ 1,001,990
500,000 King Cnty., WA, Unlimited G.O., Ser. B '78, 6.50%, 12/01/12........................................ 500,995
-------------
1,502,985
-------------
WEST VIRGINIA - (3.09%)
140,000 Berkeley Brooke Fayette Etc. Cnty., WV, Sngl. Fam. Mtg. Rev. Bds., Ser. A,
9.10%, 08/01/11.................................................................................. 146,859
390,000 Beverly, WV, Hsg. Corp. Mtg. Rev. Bds., Ser. `81 (Beverly Manor/FHA -
Insured/Section 8 Prj.), 11.00%, 11/15/22........................................................ 452,408
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
MUNICIPAL BONDS - Continued
WEST VIRGINIA _ Continued
$ 325,000 Glasgow, WV, Hlth. Fac. Rev. Ref. Bds. (Beverly Enterprises, Inc. Prj.)
Ser. '91, 9.50%, 09/01/01........................................................................ $ 362,359
2,000,000 The Ohio Cnty. Bldg. Comm., WV, Hlth. Sys. Rev. Ref. Bds. (Ohio
Valley Med. Ctr. Issue) Ser. `85, 9.625%, 01/01/13............................................... 2,003,020
25,000 Putnam Cnty., WV, IDR (IDR Bds.) Rite Aid West Virginia Inc., 10.375%,
11/01/02......................................................................................... 25,276
845,000 West Virginia Hsg. Dev. Fd., Hsg. Fin. Bds., `76 Ser. A, 7.25%, 11/01/18........................... 855,639
915,000 West Virginia Hsg. Dev. Fd., Rental Dev. Prg. Bds., Ser. C (Section 8
Assisted Dev.), 10.00%, 07/01/15................................................................. 923,574
-------------
4,769,135
-------------
WISCONSIN - (3.58%)
300,000 Clear Lake, WI, Sewer Sys. Mtg. Rev. Bds., 8.00%, 08/01/11......................................... 325,218
950,000 Milwaukee, WI, Res. Recovery Rev. Bds. (American Can Co. Prj.-AMBAC)
Ser. '77, 6.00%, 10/01/07........................................................................ 950,485
665,000 Wisconsin Hlth. & Educ. Fac. Auth. Rev. Bds. (Gundersen Clinic - La
Crosse Inc.) Ser. '96, 5.375%, 12/01/09.......................................................... 654,174
1,000,000 Wisconsin Hlth. Fac. Auth. Rev. Bds., Ser. `85 (Riverview Hosp.
Assoc. Prj.), Wisconsin Rapids, WI, 9.00%, 05/01/11.............................................. 1,024,360
170,000 Wisconsin Hlth. Fac. Auth. Rev. Ref. Bds., Hosp. Sisters Svcs. Sys.,
Ser. D, 9.125%, 07/01/05......................................................................... 172,392
2,000,000 Wisconsin Hlth. Fac. Auth. Rev. Ref. Bds., Hosp. Sisters Svcs. Sys.,
Ser. D, 9.25%, 07/01/12.......................................................................... 2,028,340
355,000 Wisconsin St., Unlimited G.O., Ser. B, 7.60%, 01/01/20............................................. 368,721
-------------
5,523,690
--------------
Total Municipal Bonds - (identified cost $147,406,526)........................................ 149,117,253
--------------
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1996
==================================================================================================================================
Value
Principal (Note 1)
- --------- ------
SHORT TERM - (0.49%)
$ 755,000 State Street Bank & Trust Co. Repurchase Agreement, 5.20%,
10/01/96, dated 9/30/96, repurchase value of $755,109
(collateralized by $770,000 par value U.S. Treasury Note,
5.875%, 8/15/98, Market Value $772,887) - (identified cost $755,000)............................. $ 755,000
-------------
Total investments - (identified cost $148,161,526)(97.12%) <F1>............................. 149,872,253
Other assets less liabilities - (2.88%)..................................................... 4,444,654
-------------
Net assets - (100%)......................................................................... $ 154,316,907
=============
<FN>
<F1> Aggregate cost for Federal income tax purposes is $148,161,526.
At September 30, 1996 unrealized appreciation (depreciation) of
securities for Federal income tax purposes was as follows:
Unrealized appreciation..................................................................................... $ 3,076,972
-------------
Unrealized depreciation..................................................................................... (1,366,245)
-------------
Net unrealized appreciation............................................................................ $ 1,710,727
=============
<F2> Security is paying less than stated interest rate.
<F3> Represents securities valued at fair value in good faith by the Board of Directors.
</FN>
</TABLE>
See Notes to Financial Statements
<TABLE>
DAVIS TAX-FREE HIGH INCOME FUND
Statement of Assets and Liabilities
At September 30, 1996
==================================================================================================================================
<S> <C>
ASSETS:
Investments in securities, at value (identified cost $148,161,526) (Note 1).................................... $ 149,872,253
Cash........................................................................................................... 22,019
Receivables:
Interest..................................................................................................... 3,352,107
Capital stock sold........................................................................................... 501,183
Investment securities sold................................................................................... 3,760,745
Prepaid expenses............................................................................................... 13,996
-------------
Total assets........................................................................................... 157,522,303
-------------
LIABILITIES:
Payables:
Capital stock reacquired..................................................................................... 289,621
Investment securities purchased.............................................................................. 2,550,432
Commissions payable to distributor (Note 4).................................................................... 164,288
Accrued expenses............................................................................................... 201,055
-------------
Total liabilities...................................................................................... 3,205,396
-------------
NET ASSETS (Note 5).............................................................................................. $ 154,316,907
=============
CLASS A SHARES
Net assets................................................................................................... $ 44,828,415
Shares outstanding4,898,420
Net asset value and redemption price per share (net assets/shares outstanding)............................... $ 9.15
======
Maximum offering price per share (100/95.25 of $9.15)........................................................ $ 9.61
======
CLASS B SHARES
Net assets................................................................................................... $ 109,488,492
Shares outstanding........................................................................................... 12,001,843
Net asset value, offering and redemption price per share (net assets/shares
outstanding)............................................................................................... $ 9.12
======
Net assets consist of:
Undistributed net income....................................................................................... $ 1,022,368
Unrealized appreciation on investments......................................................................... 1,710,727
Accumulated net realized gain.................................................................................. 217,542
Paid-in capital................................................................................................ 151,366,270
-------------
Net assets..................................................................................................... $ 154,316,907
=============
</TABLE>
See Notes to Financial Statements
<TABLE>
DAVIS TAX-FREE HIGH INCOME FUND
Statement of Operations
For the Year Ended September 30, 1996
==================================================================================================================================
INVESTMENT INCOME:
<S> <C>
Income:
Interest..................................................................................................... $ 12,956,006
-------------
Expenses:
Management fees (Note 3)..................................................................................... 1,149,436
Custodian fees............................................................................................... 178,521
Transfer agent fees.......................................................................................... 155,678
Audit fees................................................................................................... 36,988
Legal fees................................................................................................... 22,197
Accounting fees (Note 3)..................................................................................... 45,000
Reports to shareholders...................................................................................... 65,755
Directors fees and expenses.................................................................................. 62,564
Registration and filing fees................................................................................. 64,302
Miscellaneous................................................................................................ 34,143
Commissions paid under distribution plan (Note 4)
Class A.................................................................................................... 95,000
Class B.................................................................................................... 1,160,529
-------------
Total expenses......................................................................................... 3,070,113
-------------
Net investment income................................................................................ 9,885,893
-------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions................................................................. 419,913
Net decrease in unrealized appreciation of investments during the period....................................... (1,166,075)
-------------
Net realized and unrealized gain (loss) on investments...................................................... (746,162)
-------------
Net increase in net assets resulting from operations......................................................... $ 9,139,731
=============
</TABLE>
See Notes to Financial Statements
<TABLE>
DAVIS TAX-FREE HIGH INCOME FUND
Statement of Changes in Net Assets
==================================================================================================================================
<CAPTION>
Year ended September 30,
------------------------
1996 1995
---- ----
<S> <C> <C>
Operations:
Net investment income............................................................. $ 9,885,893 $ 9,954,694
Net realized gain from investment transactions.................................... 419,913 1,053,761
Net increase (decrease) in unrealized appreciation
of investments.................................................................. (1,166,075) 991,288
------------ ------------
Net increase in net assets resulting from
operations.................................................................. 9,139,731 11,999,743
Distributions to shareholders from:
Distribution from net investment income
Class A ($0.54 and $0.40 per share, respectively)............................... (2,654,081) (1,972,849)
Class B ($0.48 and $0.48 per share, respectively)............................... (6,209,444) (7,981,845)
Distribution from gains from investment transactions
Class A ($0.06 and $0.01 per share, respectively)................................. (290,460) (39,640)
Class B ($0.06 and $0.01 per shares, respectively)................................ (814,882) (111,149)
Distribution in excess of net investment income
Class B ($0.01 per share)......................................................... _ (235,293)
Capital share transactions (Note 5)................................................. (17,041,893) (18,344,618)
------------ ------------
Total decrease in net assets.................................................... (17,871,029) (16,685,651)
Net Assets:
Beginning of year................................................................. 172,187,936 188,873,587
------------ ------------
End of year....................................................................... $154,316,907 $172,187,936
============ ============
</TABLE>
See Notes to Financial Statements
DAVIS TAX-FREE HIGH INCOME FUND
Notes to Financial Statement
September 30, 1996
===============================================================================
Note 1 - Summary of Significant Accounting Policies
Davis Tax-Free High Income Fund (formerly Venture Muni (+) Plus,
Inc.) is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company. The Fund's
investment objective is to provide current income free from federal
income tax by investing in municipal obligations. The Fund may invest in
high yield, high risk, low rated and unrated bonds commonly referred to as
"junk bonds." Such securities are speculative and subject to greater
market fluctuations and risk of loss of income and principal than higher
rated bonds. On December 1, 1994, the Company commenced the offering
of shares in two classes, Class A and Class B. The Class A shares are sold
with a front-end sales charge and the Class B shares are sold at net asset
value and may be subject to a contingent deferred sales charge upon
redemption. All classes have identical rights with respect to voting
(exclusive of each Class's distribution arrangement), liquidation and
distributions. The following is a summary of significant accounting
policies followed by the Fund in the preparation of its financial
statements.
Security Valuation
Municipal bonds are normally valued on the basis of prices provided
by a pricing service. Securities not priced in this manner are priced at the
last sales price if traded on that day and, if not traded, at the mean
between the most recent quoted bid and ask prices provided by investment
dealers. Short-term obligations are valued at amortized cost, which
approximates value. The pricing service and valuation procedures are
reviewed and subject to approval by the Board of Directors.
Federal Income Taxes
It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its tax-exempt and taxable income to
shareholders. Therefore, no provision for federal income tax is required.
Securities Transactions
Securities transactions are accounted for on the trade date (date the
order to buy or sell is executed) with gain or loss on the sale of securities
being determined based upon identified cost.
Investment Income and Distributions to Shareholders
Interest income is recorded on the accrual basis. Dividends and
distributions to shareholders are recorded on the ex-dividend date.
Premiums on tax-exempt securities, original issue discounts and market
discounts are amortized to investment income for financial reporting and
tax purposes. Premiums are amortized over the life of the respective
securities or to the earliest call date, if applicable.
Note 2 - Purchases and Sales of Securities
Purchases and sales of investment securities (excluding short-term
securities) during the year ended September 30, 1996, were $168,112,898
and $184,318,435, respectively.
Note 3 - Investment Advisory Fees and Other Transactions with Affiliates
The Fund pays advisory fees for investment management and
advisory services under a management agreement with Davis Selected
Advisers, L.P. (formerly Selected/Venture Advisers, L.P.) (the "Adviser").
The agreement provides for a monthly fee of .054167 of 1% (equivalent to
.65 of 1% per annum) of the first $250 million of average daily net
assets of the Fund.
DAVIS TAX-FREE HIGH INCOME FUND
Notes to Financial Statements - Continued
September 30, 1996
Note 3 - Investment Advisory Fees and Other Transactions with Affiliates
- - (continued)
Regardless of the above provision, the Adviser will pay or refund to the
Fund all expenses borne by the Fund in any fiscal year (including the
advisory fee, but excluding interest, taxes, brokerage fees, payments made
to the Distributor under any Rule 12b-1 Distribution Plan adopted by the
Fund and, where permitted, extraordinary expenses) that exceed
limitations imposed by the most restrictive state securities laws or
regulations. The Adviser must reimburse the Fund for any such excess at
least annually, up to the amount of its advisory fee. The Adviser believes
that the most restrictive expense limitations presently applicable are 2
1/2% for the first $30 million of average net assets, 2% for the next $70
million of average net assets and 1 1/2% for any additional average net
assets. The Adviser is paid for registering Fund shares for sale in various
states. The fee for the year ended September 30, 1996 amounted to
$12,000. The Adviser is paid for certain transfer agent services. The fee
for the year ended September 30, 1996 amounted to $12,245. The Adviser
is also paid for certain accounting services. The fee for the year ended
September 30, 1996 amounted to $45,000. Certain directors and the
officers of the Fund are also officers and directors of the general partner
of the Adviser.
Note 4 - Distribution and Underwriting Fees
Class A Shares
Class A shares of the Fund are sold at net asset value plus a sales
charge and are redeemed at net asset value (without a contingent deferred
sales charge).
During the year ended September 30, 1996, the Fund's Underwriter,
Davis Selected Advisers, L.P., received $37,029 from commissions earned
on sales of Class A shares of the Fund of which $5,771 was retained by
the Underwriter and the remaining $31,258 was reallowed to investment
dealers. Davis Selected Advisers, L.P. paid the costs of prospectuses in
excess of those required to be filed as part of the Fund's registration
statement, sales literature and other expenses assumed or incurred by it
in connection with such sales.
The Underwriter is reimbursed for amounts paid to dealers as a
maintenance fee with respect to Class A shares sold by dealers and
remaining outstanding during the period. The maintenance fee is paid at
the annual rate of 1/4 of 1% of the average net assets maintained by the
responsible dealers. The Underwriter is not reimbursed for accounts in
which the Underwriter pays no service fees to other firms. The
maintenance fee for Class A shares of the Fund for the year ended
September 30, 1996 was $95,000.
Class B Shares
Class B shares of the Fund are sold at net asset value and are
redeemed at net asset value less a contingent deferred sales charge if
redeemed within six years of purchase.
The Fund compensates the Distributor with a 4% commission on the
proceeds from the sale of the Fund's Class B shares (subject to the limits
described below) and the Distributor pays 4% to the qualified dealer
responsible for the sale of the shares. A rule implemented by the National
Association of Securities Dealers, Inc., ("NASD") limits the percentage of
the Fund's annual average net assets attributable to Class B shares which
may be paid to the Distributor in connection with the distribution of its
shares. The limit is 1%, of which 0.75% may be used to pay distribution
expenses and 0.25% may be used to pay shareholder service fees.
DAVIS TAX-FREE HIGH INCOME FUND
Notes to Financial Statements - Continued
September 30, 1996
Note 4 - Distribution and Underwriting Fees - (Continued)
Class B Shares - (Continued)
The NASD rule also limits the aggregate amount the Fund may pay for
distribution-related services to 6.25% of gross Fund sales since inception
of the Rule 12b-1 plan plus interest at 1% over the prime rate on unpaid
amounts. The Distributor intends to seek full payment (plus interest at
prime plus 1%) of distribution charges that exceed the new 1% annual
limit in some future period or periods when the plan limits have not been
reached.
During the year ended September 30, 1996, Class B shares of the
Fund made distribution plan payments which included commissions of
$878,833 and maintenance fees of $281,696.
Commissions earned by the Distributor during the year ended
September 30, 1996 on the sale of Class B shares of the Fund amounted to
$294,738 of which $265,116 was reallowed to qualified selling dealers.
The Distributor intends to seek payment from Class B shares of the
Fund in the amount of $2,181,621, representing the cumulative
commissions earned by the Distributor on the sale of the Fund's Class B
shares, plus interest, reduced by cumulative commissions paid by the Fund
and cumulative contingent deferred sales charge paid by redeeming
shareholders. The Fund has no contractual obligation to pay any such
distribution charges and the amount, if any, timing and condition of such
payment are solely within the discretion of the Directors who are not
interested persons of the Fund or the Distributor.
A contingent deferred sales charge is imposed upon redemption of
certain Class B shares of the Fund within six years of the original
purchase. The charge is a declining percentage starting at 4% of the
lesser of net asset value of the shares redeemed or the total cost of such
shares. During the year ended September 30, 1996 the Distributor
received contingent deferred sales charges from Class B shares of the
Fund of $234,927. (Prior to December 1, 1994, the charge was a declining
percentage starting at 4% of the lesser of net asset value of the shares
redeemed or the total cost of such shares. The charge was imposed upon
redemption of certain Class B shares of the Fund within four calendar
years of the original purchase.)
Note 5 - Capital Stock
At September 30, 1996, there were 1,000,000,000 shares of capital
stock ($0.01 par value per share) authorized. Transactions in capital stock
were as follows:
<TABLE>
DAVIS TAX-FREE HIGH INCOME FUND
Notes to Financial Statements - Continued
Note 5 - Capital Stock - (Continued)
For the Year Ended For the Ten Months Ended
Class A September 30, 1996 September 30, 1995
--------------------------- ---------------------------
<CAPTION>
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold.................... 773,907 $ 7,021,638 5,537,144 $ 49,420,038
Shares issued to shareholders
in connection with
reinvestment of
distributions................ 177,168 1,612,514 115,852 1,057,589
------------ ------------ ------------ ------------
951,075 8,634,152 5,652,996 50,477,627
Shares reacquired.............. (1,001,194) (9,115,251) (704,457) (6,432,629)
------------ ------------ ------------ ------------
Net increase (decrease)... (50,119) $ (481,099) 4,948,539 $ 44,044,998
============ ============ ============ ============
</TABLE>
<TABLE>
For the Year Ended For the Year Ended
Class B September 30, 1996 September 30, 1995
--------------------------- ---------------------------
<CAPTION>
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold.................... 1,020,583 $ 9,284,218 2,538,110 $ 22,901,839
Shares issued to shareholders
in connection with
reinvestment of
distributions................ 392,264 3,564,753 453,075 4,103,609
------------ ------------- ------------- -------------
1,412,847 12,848,971 2,991,185 27,005,448
Shares reacquired.............. (3,234,911) (29,409,765) (9,952,705) (89,395,064)
------------ ------------- ------------- -------------
Net decrease.............. (1,822,064) $ (16,560,794) (6,961,520) $ (62,389,616)
============ ============= ============= =============
</TABLE>
<TABLE>
DAVIS TAX-FREE HIGH INCOME FUND
FINANCIAL HIGHLIGHTS
================================================================================================================================
The following financial information represents selected data for
each share of capital stock outstanding throughout each period:
-------------------Class A------------
<CAPTION>
Year Ten Months
Ended Ended
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
Net Asset Value, Beginning of Period........................................ $ 9.19 $ 8.90
-------- --------
Income From Investment Operations
- ---------------------------------
Net Investment Income..................................................... .61 .40
Net Gains or Losses on
Securities (both realized
and unrealized)......................................................... (.05) .30
-------- --------
Total From Investment Operations........................................ .56 .70
-------- --------
Less Distributions
- ------------------
Dividends (from net
investment income)...................................................... (.54) (.40)
Distribution from gains from
investment transactions................................................. (.06) (.01)
-------- --------
Total Distributions..................................................... (.60) (.41)
-------- --------
Net Asset Value,
End of Period............................................................. $ 9.15 $ 9.19
======== ========
Total Return <F1>........................................................... 6.33% 7.93%
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000 omitted)........................................................... $ 44,828 $ 45,461
Ratio of Expenses to
Average Net Assets ..................................................... 1.36% 1.43%<F2>
Ratio of Net Income to
Average Net Assets...................................................... 6.64% 5.95%<F2>
Portfolio Turnover Rate................................................... 106.55% 127.80%
<FN>
<F1> Sales charges are not reflected in calculation.
<F2> Annualized
</FN>
</TABLE>
<TABLE>
DAVIS TAX-FREE HIGH INCOME FUND
FINANCIAL HIGHLIGHTS - CONTINUED
================================================================================================================================
---------------------Class B-------------------
<CAPTION>
Year ended September 30,
--------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................................ $ 9.17 $ 9.09 $ 9.65 $ 9.49 $ 9.41
------- ------ ------ ------ ------
Income From Investment Operations
- ---------------------------------
Net Investment Income............................................. .54 .48 .44 .54 .54
Net Gains or Losses on
Securities (both realized
and unrealized.................................................. (.05) .10 (.18) .29 .27
------- ------ ------ ------ ------
Total From Investment Operations................................ .49 .58 .26 .83 .81
------- ------ ------ ------ ------
Less Distributions
- ------------------
Dividends (from net
investment income).............................................. (.48) (.48) (.44) (.54) (.54)
Distribution from gains from
investment transactions......................................... (.06) (.01) (.28) _ _
Distribution in excess
of net investment income........................................ _ (.01) (.07) (.10) (.12)
Tax Return of capital
distributions................................................... _ _ (.03) (.03) (.07)
------ ------ ------ ------ ------
Total Distributions............................................. (.54) (.50) (.82) (.67) (.73)
------ ------ ------ ------ ------
Net Asset Value,
End of Period..................................................... $ 9.12 $ 9.17 $ 9.09 $ 9.65 $ 9.49
======= ====== ====== ====== ======
Total Return<F1>.................................................... 5.51% 6.64% 2.81% 9.10% 8.89%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000 omitted)................................................... $109,488 $126,727 $188,874 $164,018 $124,227
Ratio of Expenses to
Average Net Assets.............................................. 2.10% 2.14% 2.07% 2.26% 2.41%
Ratio of Net Income to
Average Net Assets.............................................. 5.89% 5.37% 4.59% 5.50% 5.53%
Portfolio Turnover Rate............................................. 106.55% 127.80% 113.46% 107.80% 47.31%
<FN>
<F1> Sales charges are not reflected in calculation.
</FN>
</TABLE>
DAVIS TAX-FREE HIGH INCOME FUND
Report of Independent Certified Public Accountants
===============================================================================
To the Shareholders and Board of Directors
of Davis Tax-Free High Income Fund
We have audited the accompanying statement of assets and
liabilities of Davis Tax-Free High Income Fund (formerly Venture Muni (+)
Plus, Inc.), including the schedule of portfolio investments, as of
September 30, 1996, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Company's management.
Our responsibility is to express an opinion on these fi-nancial statements
and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1996, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and signifi-cant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Davis Tax-Free High Income Fund as of September 30, 1996,
the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
November 1, 1996
DAVIS TAX-FREE HIGH
INCOME FUND
124 East Marcy Street Santa Fe, New Mexico 87501
==============================================================================
Directors Officers
Wesley E. Bass Jeremy H. Biggs
Jeremy H. Biggs Chairman
Marc P. Blum Shelby M.C. Davis
Shelby M.C. Davis President
Eugene M. Feinblatt Carl R. Luff
Jerry D. Geist Vice President, Treasurer
D. James Guzy & Assistant Treasurer
G. Bernard Hamilton Raymond O. Padilla
LeRoy E. Hoffberger Vice President, Secretary
Laurence W. Levine & Assistant Treasurer
Christian R. Sonne Carolyn H. Spolidoro
Edwin R. Werner Vice President
Andrew A. Davis
Vice President
Christopher C. Davis
Vice President
Eileen R. Street
Assistant Treasurer
& Assistant Secretary
Investment Adviser & Distributor
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
Transfer Agent & Custodian
State Street Bank and Trust Company
c/o The Davis Funds
P.O. Box 8406
Boston, MA 02266-8406
Counsel
D'Ancona & Pflaum
30 North LaSalle Street
Chicago, Illinois 60602
Auditors
Tait, Weller & Baker
Two Penn Center, Suite 700
Philadelphia, Pennsylvania 19102-1707
==============================================================================
For more information about Davis Tax-Free High Income Fund including
management fee, charges and expenses, see the current prospectus which
must precede or accompany this report.
==============================================================================
9611-15 DTF80
