DAVIS TAX-FREE HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
- --------------------------------------------------------------------------------
Dear Shareholder:
The Davis Tax-Free High Income Fund continued to outperform its peers over the
six-month period ended March 31, 1997, posting excellent absolute and
risk-adjusted performance despite difficult bond market conditions in the first
quarter of 1997.
We are especially pleased to have the Davis Tax-Free High Income Fund singled
out by Morningstar in a recent report as "one of the best muni funds out there,
period."(1)
In particular, the Morningstar report noted that the Fund "has usually
taken on little interest-rate risk, so this fund has been one of the least
volatile muni offerings available. Yet its long-term returns have been as good
as many longer-term offerings."
YOUR FUND MANAGER'S INVESTMENT PHILOSOPHY IN BRIEF
Highly experienced. Your Fund's portfolio manager, B. Clark Stamper, has over 13
years of experience managing investments in both tax-exempt and taxable
fixed-income markets at the institutional level. As a risk manager, he focuses
primarily on evaluating the trade-offs between the risks and rewards of
different investments. His goal is to maximize yield relative to credit
quality--that is, to get the most for shareholders' money given the risk taken.
He does this by constantly focusing on the upside potential and downside
protection of each individual investment.
BOTTOM-UP CREDIT ANALYSIS.
Mr. Stamper's primary tool is bottom-up credit analysis intended to minimize
credit risk. His major concern is assuring that the credit quality of your
Fund's investments does not deteriorate and that the Fund is paid back principal
and interest on schedule. He also applies this upside/downside analysis to
minimizing interest rate risk (the risk that interest rates will rise, causing
the value of fixed-coupon bonds to decline) and call risk (the risk that bonds
will be called ahead of schedule after interest rates drop, meaning proceeds
must be reinvested at lower yields).
TOP-DOWN PORTFOLIO MANAGEMENT TECHNIQUES.
Mr. Stamper also employs top-down management techniques that review the
characteristics of the Fund's portfolio as a whole. He uses these techniques to
monitor the proportion of the Fund's stake in positions of similar type and
strategy, and to make sure the portfolio is properly diversified.
CAPITALIZING ON UNRECOGNIZED OPPORTUNITIES.
One strategy Mr. Stamper has consistently and successfully employed to obtain
more yield relative to credit quality and relative to upside potential/downside
protection is to focus on investment areas not closely followed by the
investment community. These areas include industrial revenue bonds that are
guaranteed by a company, or housing bonds, or bonds backed by a hospital or
nursing home. Mr. Stamper brings special knowledge and understanding to the
municipal industrial revenue bond market because he is also the portfolio
manager of the Davis High Income Fund--and that works to the advantage of
shareholders in the Davis Tax-Free High Income Fund.
SUPERIOR ABSOLUTE PERFORMANCE
Your Fund demonstrated the effectiveness of its strategies by generating a total
return of 3.47% (on Class A shares at net asset value) over the six-month period
ended March 31, 1997 compared to an average of 2.91% for
DAVIS TAX-FREE HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
- --------------------------------------------------------------------------------
the 48 High-Yield Muni Debt funds tracked by Lipper Analytical Services,Inc.(2)
Over the one-year period ended March 31, 1997, the Fund's Class A shares
provided a total return of 7.18% (at net asset value), and since their inception
in December 1994, the Class A shares have produced an average annual total
return of 7.65% (at net asset value).
Furthermore, in terms of absolute total return, your Fund's Class A shares
ranked first out of 525 national municipal bond funds tracked by Morningstar for
the three-month period through March 31. For the 12-month period ending that
same date, the Class A shares ranked eighth out of 506 national municipal bond
funds covered by Morningstar.3
SUPERIOR RISK-ADJUSTED PERFORMANCE
Your Fund has also continued to provide superior risk-adjusted performance. As
of March 31, 1997, the Fund's Class B shares (first offered in 1985) held
Morningstar's highest rating, ***** (five stars), overall and for every time
period measured--one, three, five and 10 years.4
In addition to a strong total
return, this superior risk-adjusted rating was achieved, in part, by the Fund's
low level of volatility.
INTEREST RATES TRENDS
Your Fund's management philosophy has been particularly effective during what
has been a fairly volatile interest rate environment. The bond market, in
general, spent the second half of 1996 gaining back losses sustained in the
first half of the year. Then, in the first quarter of 1997, bond prices declined
sharply again, with the price of the bellwether 30-year U.S. Treasury bond
dropping just under five points and its yield rising from 6.65% to 7.10%, an
increase of 45 basis points (.45%).
This decline occurred in conjunction with the Federal Reserve raising its
short-term target lending rate by 1/4% in a preemptive strike against
inflation--the first interest rate hike by the Fed in two years. We expect
interest rates, in general, to trend moderately upward for the rest of the year.
INVESTMENT STRATEGIES: MAXIMIZING REWARD RELATIVE TO RISK
Your Fund continues to employ the same investment strategies that it used to
achieve its top short- and long-term risk-adjusted performance ratings. Our
methods basically involve brick-by-brick, bottom-up credit research and analysis
of specific security characteristics (i.e., coupon rate, maturity, stated call
schedule, relative trading levels of different investments, etc.). Our objective
always is to provide maximum yield relative to credit quality, as well as
maximum upside potential with maximum downside protection.
HOW THE PORTFOLIO WAS INVESTED
After being fully defensively positioned in the first half of 1996, we sold some
of the Fund's defensive bonds in the year's second half and invested
approximately 10% of the portfolio in bonds referred to as discount market
performers. These are highly rated bonds selling at a discount price, which
means they have good upside potential. The rest of the portfolio essentially
remained invested as it had been in the first half.
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
- --------------------------------------------------------------------------------
We held those discount market performers as the bond market rebounded in the
second half of 1996 and then sold them in December and January with healthy
gains--close to what turned out to be the top of the market. Then we bought back
defensive cushion bonds and other specialty bonds, which also turned out to be a
sound move as the bond market, in general, declined in the first quarter of
1997.
Cushion bonds are bonds with larger-than-average interest coupons trading at
relatively low prices because of the expectation that the bonds will be called
in by the issuer at the earliest possible date. Through meticulous research, our
objective is to identify issues that, in reality, are unlikely to be called,
despite the market's expectation. Because the bonds are purchased at a
relatively low price given their high coupons, the Fund has some protection or
"cushion" if the overall market drops. Furthermore, if the bonds remain
outstanding after the anticipated call date, the Fund will continue collecting
the higher interest income longer than the market expected.
CONTINUED CAUTION ON THE ECONOMY AND THE MARKET
The current economic recovery, while one of the longest, is the weakest since
the U.S. government has been keeping records. By our way of thinking, if this is
the recovery, we really want to be prepared for the downturn.
Last year, we saw the first signs of economic weakness in the form of rising
delinquencies and defaults on mortgage loans and credit cards. We believe this
points to the beginning of a credit contraction that will contribute to an
economic slowdown. If that occurs, revenues and cash flow for companies,
municipalities and individuals will decline and credit quality overall will
deteriorate.
In addition, the federal government is pushing the administration and costs of
various programs down to municipal and state government levels. This shift could
cause credit quality problems for traditional municipal bond guarantors.
Furthermore, while many believe that interest rates drop with the onset of
recession, we believe that research shows that interest rates often go up early
in an economic 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.
At the same time, the municipal market has been more resilient in the recent
market downtrend than other fixed-income sectors, and we believe it is somewhat
overvalued relative to U.S. Treasury securities.
Moreover, credit quality spreads--that is, the difference in yields between
lower quality investments and higher quality investments--in the municipal
market remain tight when compared to historical levels. History also shows that,
all things being equal, when these spreads begin to widen to more normal levels,
as they inevitably will, lower quality bonds should underperform higher quality
bonds.
PRUDENTLY POSITIONED FOR UNCERTAIN MARKETS
Given this uncertain environment, your Fund is now positioned defensively with
respect to credit quality and interest rate movements, much like it has been for
most of the past several years.
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
- --------------------------------------------------------------------------------
WELL-DIVERSIFIED. To lower overall risk, the portfolio continues to be highly
diversified with approximately 280 positions in 48 states, rather than focused
on fewer, larger investments. At the same time, the portfolio is still
concentrated in the same areas that helped your Fund earn its ***** (five star)
Morningstar risk-adjusted ratings: industrial revenue bonds, housing bonds,
hospital bonds and nursing home bonds.
HIGH CREDIT QUALITY. To manage credit risk and because credit quality spreads
are tight, we have maintained your Fund's credit quality rating at A+ (for the
securities that are rated), the same level it has been for several years.
Another good measure of the Fund's defensive posture is the amount of insured
bonds it holds. As of March 31, 1997, approximately 26% of the bonds held in its
portfolio carried traditional municipal bond insurance or the backing of a
federal agency, such as the Federal National Mortgage Association.
LESS INTEREST RATE SENSITIVITY. The portfolio's core holdings are intact and
consist primarily of high coupon bonds, which tend to be much less affected by
interest rate increases. These high coupon core holdings should provide ample
income under most scenarios.
POISED TO OUTPERFORM. As a result, your Fund has the potential to outperform its
peer group in a rising or flat interest rate environment and in an environment
where credit quality stays the same or weakens--which is the environment we
expect in 1997. While our strategies provide extra yield and extra downside
protection, they would also limit the Fund's upside potential if interest rates
dropped substantially, fueling a strong bond market rally, or if the credit
quality environment improved dramatically due to a booming economy and credit
quality spreads tightened.
We believe the Fund's prudent philosophy and defensive strategies will continue
to provide our shareholders with high levels of tax-free income potential and
strong absolute and relative performance potential, consistent with our emphasis
on minimizing volatility and maximizing long-term risk-adjusted returns.
Sincerely,
/s/Shelby M.C. Davis /s/ B. Clark Stamper
Shelby M.C. Davis B. Clark Stamper
Chief Investment Officer Portfolio Manager
May 22, 1997
1 Morningstar Mutual Funds, March 14, 1997, page 1678.
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
- --------------------------------------------------------------------------------
2 Excluding the maximum sales charge of 4.75%. Average annual total returns for
the Fund's Class A shares, including the maximum front-end sales charge of
4.75%, for the one-year period ended March 31, 1997 and for the period of
December 1, 1994 through March 31, 1997 (life of Class A shares) were 2.13% and
5.44%, respectively. The Fund's Class B shares provided a total return of 6.33%
(at net asset value) for the one-year period ended March 31, 1997. Average
annual total returns for the Fund's Class B shares, after subtracting applicable
contingent deferred sales charges (see prospectus), for the one-, five- and
10-year periods ended March 31, 1997 were 3.33%, 6.24% and 6.64%, respectively.
3 Total return rankings were calculated by Morningstar and published in its
Principia for Mutual Funds diskette software (April 1997).
4 Morningstar proprietary ratings reflect historical risk-adjusted performance
as of March 31, 1997. Subject to change every month, Morningstar ratings are
calculated from a fund's one-, three-, five- and 10-year average annual returns
in excess of 90-day Treasury bill (T-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 1,751, 1,237, 601 and 267 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
may vary and are available only for those classes with at least three years of
performance history. Past performance is no guarantee of future results.
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
--------- ------
<S> <C> <C>
MUNICIPAL BONDS - (97.35%)
ALABAMA - (1.94%)
$ 540,000 Alabama Hsg. Fin. Auth., Sngl. Fam. Hsg. Rev. Bds. (MBIA Insured)
`82 Ser. A, 6.00%, 06/01/13................................................ $ 373,302
500,000 Anniston, AL, Reg'l Med. Ctr. Brd. Hosp. Rev. Ref. Bds. (Northeast
Alabama Reg'l Med. Ctr.) `86 Ser. A, 7.70%, 07/01/08....................... 508,330
165,000 Ozark, AL, Medical Clinic Brd. 1st Mtg. Rev. Bds. (United States Hlth. &
Hsg. Foundation, Inc. Prj.), 9.25%, 10/01/99............................... 173,067
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.. 524,710
1,000,000 The West Jefferson Amusement and Public Park Auth. (Alabama) 1st Mtg.
Rev. Bds. (Visionland Alabama Prj.) Ser. `96, 7.50%, 12/01/08.............. 994,870
500,000 The West Jefferson Amusement and Public Park Auth. (Alabama) 1st Mtg.
Rev. Bds. (Visionland Alabama Prj.) Ser. `96, 8.00%, 12/01/26.............. 494,435
---------------
3,068,714
ALASKA - (0.32%)
510,000 Alaska Hsg. Fin. Corp., Insured Mtg. Prg. Bds., '90 1st Ser., 7.80%,
12/01/30................................................................... 510,377
---------------
ARIZONA - (3.06%)
160,000 Chandler, AZ, Improvement Dist. No. 51, 7.875%, 01/01/99..................... 162,291
1,275,000 City of Tolleson Muni Fin. Corp. Rev. Bds., Ser. of '85, 9.20%, 09/01/05..... 1,303,688
230,000 Coconino & Mohave Cntys., AZ, Unified School Dist. No. 6, Cap.
Appreciation Ref. Bds., Zero Cpn., 07/01/02................................ 178,841
625,000 The IDA of the City of Casa Grande, AZ, Dev. Rev. Bds. (Five Points
Redevelopment Prj.), Sr. Bds., 8.25%, 12/01/15............................. 648,850
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.... 520,520
90,000 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.......................... 93,701
15,220,000 Phoenix, AZ, IDA Sngl. Fam. Mtg. Rev. Bds., Ser. '84, Zero Cpn.,
12/01/15................................................................... 1,941,920
---------------
4,849,811
ARKANSAS - (0.58%)
110,000 Arkansas St. Dev. Fin. Auth., Sngl. Fam. Mtg. Rev. Bds., Conventional &
FHA Insured, Ser. i85 A, 9.375%, 08/01/14.................................. 114,007
250,000 Arkansas St. Dev. Fin. Auth., Sngl. Fam. Mtg. Rev. Bds., Conventional &
FHA-MBIA Insured, Ser. i85 A, 9.375%, 08/01/14............................. 258,597
500,000 Independence Cnty., AR, PCR, (Mississippi Pwr. & Lt. Co. Prj.) '82-A
Ser. B, 9.50%, 07/01/14.................................................... 541,160
---------------
913,764
CALIFORNIA - (7.09%)
1,000,000 Anaheim, CA, Pub. Fin. Auth., Lease Rev. Improvements Prj., FSA Cap.
Appreciation, `97 Sub. Ser. C, Zero Cpn., 09/01/18......................... 275,550
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
- ---------- ------
MUNICIPAL BONDS - CONTINUED
CALIFORNIA - CONTINUED
$ 1,440,000 California Hlth. Fac. Auth. Hosp. Rev. Ref. Bds. (Valley Presbyterian Hosp.)
(FGIC Insured) '83 Ser. A, 9.00%, 05/01/12................................. $ 1,483,200
460,000 California Hlth. Fac. Auth. Hosp. Rev. Ref. Bds. (Valley Presbyterian Hosp.)
(MBIA Insured) '83 Ser. A, 9.00%, 05/01/12................................. 473,800
380,000 California Hlth. Fac. Auth. Insured Hosp. Rev. Bds. (Victor Valley
Community Hosp.) '84 Ser. A, 9.875%, 07/01/12.............................. 381,771
855,000 California Hlth. Fac. Auth. Insured Hosp. Rev. Bds. FGIC Insured (Victor
Valley Community Hosp.) '84 Ser. A, 9.875%, 07/01/12....................... 880,650
200,000 California Hsg. Fin. Agy. Rev. Bds., Cap. Appreciation Home Mtg.,
Ser. B, Zero Cpn., 02/01/99................................................ 179,442
690,000 California Hsg. Fin. Agy. Rev. Insured Hsg. Bds., Ser. B, 8.625%, 08/01/15... 722,920
2,000,000 California Hsg. Fin. Agy. Rev. Home Mtg. Bds., `87 Ser. A, 8.20%,
08/01/17................................................................... 2,063,440
500,000 California St. Veteran's Bds., Unlimited G.O., `90 Ser. BA, 6.70%, 02/01/00.. 503,880
250,000 California St. Veteran's Bds., Unlimited G.O., `90 Ser. BA, 6.80%, 02/01/00.. 251,925
100,000 The City of Los Angeles, Multi Fam. Hsg. Ref. Rev. Bds., '91 Ser. A,
7.00%, 05/01/21............................................................ 105,975
875,000 City of Napa, CA, '92, Ind. Rev. Ref. Bds. (Napa Motel and Restaurant),
8.50%, 12/01/07............................................................ 892,448
250,000 Cnty. of Marin, Mtg. Rev. Bds., Ser. '84A (FHA Insured Mtg. Loan -
Marion Park Apts. Prj.), Zero Cpn., 04/01/01............................... 168,790
1,000,000 Cnty. of Marin, Multifam. Hsg. Rev. Bds., Ser. '84B (Marion Park
Apts. Prj.), Zero Cpn., 04/01/07........................................... 370,660
100,000 Hsg. Auth. of the Cnty. of Santa Clara, Multifam. Hsg. Rev. Bds., Ser.
`85 C (Fannie Mae Prg./Amberwood Apts. Prj.), 9.375%/Adj., 10/01/07........ 97,257
75,000 Lancaster - Grand Terrace Huntington Pk., CA, Hsg. Fin. Auth. Res. Mtg.
Rev. Ref. Bds., Ser. B, 7.375%, 01/01/12................................... 78,345
230,000 Los Angeles, CA, Community Redevelopment Agy. Res. Mtg. Rev. Bds.,
'85 Ser. A, 8.875%, 05/01/18............................................... 240,214
175,000 Los Angeles, CA, Multi. Fam. Rev. (FHA Insured Multi-Fam. Hsg. Mtg.
Rev. Bds.) Park Parthenia Prj., 7.30%, 07/20/11............................ 180,526
40,000 Los Angeles, CA, Reg'l. Airports Improvement Corp. Lease Rev. Bds.
(Los Angeles West Terminal Fuel Corp.), 10.00%, 01/01/01................... 44,473
595,000 M-S-R Pub. Pwr. Agy., CA, Rev. Ref. Bds. (San Juan Prj.) `87 Ser. C,
6.625%, 07/01/13........................................................... 607,180
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.................. 714,581
95,000 Southern, CA, Home Fin. Auth., Sngl. Fam. Mtg. Rev. Bds. (GNMA
Mtg. Prg.) Issue A, Ser. `88, 8.05%/8.00%, 02/01/17........................ 96,677
395,000 Wtr. Fac. Auth. Ref. Certificates of Participation, `86 Ser. A (Agua de Legos
Prj.) The Cities of Chino, Ontario & Upland, San Bernardino Cnty. Wtr.
Works Dist. No. 8 & The Monte Vista Wtr. Dist., 6.75%, 10/01/21............ 403,737
---------------
11,217,441
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
- ---------- ------
MUNICIPAL BONDS - CONTINUED
COLORADO - (0.34%)
$ 30,000 Denver (City & Cnty.), CO, Sngl. Fam. Mtg. Rev. Bds., Ser. '85A,
Zero Cpn., 09/01/16........................................................ $ 3,920
180,000 Hamilton Creek Metro. Dist., Summit Cnty., CO, G.O., 11.25%, 12/01/04<F2>.... 90,000
430,000 Mesa Cnty., CO, Sngl. Fam. Mtg. Rev. Bds., Ser. 197, 8.875%, 12/01/11........ 439,309
---------------
533,229
CONNECTICUT - (0.81%)
600,000 Connecticut Dev. Auth., Hlth. Care Rev. Bds. (Corp. for Independent Living
Prj.) Ser. '93B, 8.00%, 07/01/17........................................... 618,582
645,000 Connecticut St. Res. Recovery Auth. Bds. (Bridgeport Resco Co., L.P. Prj.)
`85 Ser. B, 8.625%, 01/01/04............................................... 656,745
---------------
1,275,327
DELAWARE - (0.72%)
830,000 Delaware Econ. Dev. Rev. Ref. Bds. (Supermarkets General Corp. Prj.)
Ser. '83, 10.875%, 12/01/03................................................ 845,811
345,000 Delaware St. Econ. Dev. Community Multi-Fam. Mtg. Rev. Bds.,
Cadis-GNMA-Chestnut Cross, 0%/9.75%, 07/20/20.............................. 297,318
---------------
1,143,129
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............................................ 259,637
---------------
FLORIDA - (7.14%)
1,335,000 Broward Cnty., FL, Hsg. Fin. Auth. Rev. Home Mtg., Ser. A, Cap.
Appreciation, Zero Cpn., 04/01/14.......................................... 238,204
460,000 Charlotte Cnty., FL, IDR Ref. Bds. (Beverly Enterprises - Florida, Inc. Prj.)
Ser. '87, 10.00%, 06/01/11................................................. 522,045
4,900,000 City of Tampa, FL, Home Mtg. Rev. Bds., '83 Ser. A, Muni Multiplier
Bds., Zero Cpn., 10/01/14.................................................. 758,030
360,000 Dade Cnty., FL, Solid Waste Sys. Special Obligation Rev. Ref. Bds.
Cap. Appreciation, Ser. i86, Zero Cpn., 04/01/08........................... 164,167
705,000 Dade Cnty., FL, Special Hsg. Rev. Bds. (City of Miami Dev. - Indenture
VIII), Ser. A, 11.00%, 07/01/12............................................ 720,630
915,000 Dade Cnty., FL, Special Hsg. Rev. Bds. (City of Miami Dev. - Indenture
VIII), Ser. A, 12.00%, 07/01/12............................................ 939,064
1,000,000 Florida Hsg. Fin. Agy. (Southlake Apartments Prj. - D), 8.10%, 10/01/02...... 1,012,320
1,050,000 Florida St. Board of Educ. Cap. Outlay Rev. Ref. Bds., Unlimited G.O.,
`87 Ser. A, 6.10%, 06/01/00................................................ 1,072,449
1,000,000 Florida St. Sr. Lien Unlimited G.O., (Jacksonville Transportation) Ser. `89,
7.00%, 07/01/13............................................................ 1,027,800
110,000 Highlands Cnty., FL, IDA (Beverly Enterprises - Florida, Inc. Prj.) Ser. '91,
9.25%, 07/01/07............................................................ 122,254
500,000 Hillsborough Cnty. IDA 1st Mtg. Rev. Bds. (Tampa Bay Christian Ctr.,
Inc. - Alafia Village Prj.) Ser. `96, 8.75%, 10/01/26...................... 499,840
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
--------- ------
MUNICIPAL BONDS - CONTINUED
FLORIDA - CONTINUED
$ 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....................... $ 246,063
105,000 Indian River Cnty., FL, Cap. Improvements Rev. Ref. Bds., (MBIA Insured)
Ser. `85, 9.125%, 09/01/05................................................. 107,002
200,000 Jacksonville Hlth. Fac. Auth. Hosp. Rev. Ref. Bds., Ser. '89A (Methodist
Hosp. Prj..), 8.00%, 10/01/06.............................................. 197,176
460,000 Jacksonville Hlth. Fac. Auth. Hosp. Rev. Ref. Bds., Ser. '89A (Methodist
Hosp. Prjs.), 8.00%, 10/01/15.............................................. 452,474
240,000 Jacksonville Hlth. Fac. Auth. Hosp. Rev. Ref. Bds., Ser. '89B (Methodist
Hosp. Prjs.), 8.00%, 10/01/15.............................................. 236,074
390,000 Manatee Cnty., FL, Hsg. Fin. Auth. Mtg. Rev. Bds., Cap. Appreciation,
'83 Ser. A, Zero Cpn., 10/01/15............................................ 56,601
75,000 Marion Cnty., FL, IDR (Midland-Ross Corp. Prj.) Ser. '81, 11.875%,
08/01/11................................................................... 75,802
250,000 Miami, FL, Special Obligation Bds. (MBIA Insured) `86 Ser. A, 7.375%,
07/01/06................................................................... 254,512
575,000 Ocean Hwy. and Port Auth. (Florida) Solid Waste/PCR Ref. Bds., Ser. `96
(Jefferson Smurfit Corp. (U.S.) Prj.), 6.50%, 11/01/06..................... 578,375
450,000 Orange Cnty., FL, IDA (Beverly Enterprises - Florida, Inc. Prj.) Ser. '91,
9.25%, 08/01/10............................................................ 500,760
2,605,000 Palm Beach Cnty., FL, Hsg. Fin. Auth. Sngl. Fam. Mtg. Rev. Bds. Cap.
Appreciation, Zero Cpn., 07/01/14.......................................... 442,902
525,000 South Indian River Wtr. Control Dist., Sect. 15A Improvement Bds. (Egret
Landing - Phase I), 8.00%, 11/01/18........................................ 558,075
470,000 Winter Garden, FL, IDR Ref. Bds. (Beverly Enterprises - Florida, Inc. Prj.)
Ser. '91, 8.75%, 07/01/12.................................................. 522,551
---------------
11,305,170
GEORGIA - (2.62%)
1,020,000 De Kalb Cnty., GA, Sngl. Fam. Hsg. Auth. Mtg. Rev. Bds., Ltd.
Intermediate Muni Obligation, Ser. i85, 0%/10.50%, 12/01/16................ 952,731
300,000 Douglas Cnty., GA, School Dist. Bds., Unlimited G.O., Ser. `86, 6.85%,
01/01/03................................................................... 306,639
200,000 Gainesville Redevelopment Auth., 1st Mtg. Rev. Bds. (Autumn Breeze
Personal Care Home, Inc. Prj.) Ser. e96A, 8.00%, 04/01/26.................. 199,620
1,305,000 Georgia St. Residential Fin. Auth., Sngl. Fam. FHA Insured Mtg., Veteran's
Assoc. Mtg. Bds., `88 Ser. C Sub. Ser. C-2, 8.30%, 12/01/19................ 1,320,973
585,000 The Hsg. Auth. of Columbus, GA, Multifamily Hsg. Rev. Bds. (Columbus
Gardens Elderly Hsg. Prj.) Ser. '94, 8.25%, 01/01/24....................... 592,289
750,000 Macon Cnty., GA, Hosp. Ref. Rev. Bds. (Flint River Comm.
Hospital - Paracelsus Healthcare Corp. Prj.) Ser. '91, 9.00%, 03/01/11..... 766,492
--------------
4,138,744
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
--------- ------
MUNICIPAL BONDS - CONTINUED
HAWAII - (0.86%)
$ 1,220,000 Dept. of Transportation of the State of HI, Special Fac. Rev. Bds., Ser. e90
(Continental Airlines, Inc.), 9.60%, 06/01/08............................. $ 1,361,642
---------------
IDAHO - (0.31%)
500,000 City of Nampa Urban Renewal Agy., ID, Rev. Allocation (Tax Increment)
Ser. e96B, 5.50%, 08/01/05................................................ 495,680
---------------
ILLINOIS - (6.79%)
320,000 Bensenville, IL, IDR Bds., Insured - Allied Roofers Supply Prj., 10.25%,
08/01/03.................................................................. 328,109
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................................................................... 200,960
185,000 Cnty. of Cook, IL, Sngl. Mtg. Rev. Bds., '83 Ser. A, Zero Cpn., 07/01/15.... 26,346
1,000,000 Des Plaines, IL, Hosp. Fac. Rev. Ref. Bds. (Holy Fam. Hosp.), 9.25%,
01/01/14................................................................... 1,035,000
450,000 Illinois Educ. Fac. Auth. Rev. Ref. Bds. (Illinois Institute of Technology)
Ser. A i87, 8.75%, 06/01/15................................................ 462,730
1,495,000 Illinois Hlth. Fac. Auth. Rev. (Hlth. Fac. Rev. Ref. Bds. Ser. A e85)
Methodist Med. Ctr. of Illinois, 9.625%, 10/01/10.......................... 1,539,850
150,000 Illinois Hlth. Fac. Auth. Rev. (Hlth. Fac. Rev. Ref. Bds. Ser. e85) Methodist
Med. Ctr. of Illinois, 8.00%, 10/01/14..................................... 150,480
395,000 Illinois Hlth. Fac. Auth. Rev. (Hlth Fac. Rev. Ref. Bds. Ser. e87) West
Suburban Hosp. Med. Ctr, 8.25%, 08/01/13................................... 407,379
100,000 Illinois Hlth. Fac. Auth. Rev. Ref. Bds. (Advocate Hlth. Care) `96 Ser. A,
4.70%, 08/15/01............................................................ 98,172
3,095,000 Illinois Hsg. Dev. Auth., Multi-Fam. Hsg. Rev. Bds., Cap. Appreciation,
Ser. `83A, Zero Cpn., 07/01/25............................................. 173,691
1,000,000 St. Clair Cnty., IL, Pub. Bldg., Community Bldg. Rev. Bds., 8.00%,
12/01/05................................................................... 1,018,490
450,000 State of Illinois Civic Ctr. Bds. (Dedicated Tax Rev. Bds.) Ser. `91,
9.15%, 12/15/99............................................................ 463,194
1,785,000 Urbana, IL, Econ. Dev. Rev. Bds. (Kroger Co. Prj.), 11.50%, 03/01/07......... 1,856,400
1,500,000 Village of Robbins, Cook Cnty., IL, Res. Recovery Rev. Bds. (Robbins
Res. Recovery Partners, L.P. Prj.), 8.375%, 10/15/16....................... 1,557,630
171,000 Village of Sauget, IL, IDR Bds. (The Pillsbury Co. Prj.) Ser. '80, 8.375%,
05/01/05................................................................... 171,226
500,000 Village of Sherman, IL, 1st Mtg. Rev. Bds. (Villa Vianney, Inc.) Ser. '95A,
8.375%, 07/01/25........................................................... 506,610
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>....................... 750,000
---------------
10,746,267
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
--------- ------
MUNICIPAL BONDS - CONTINUED
INDIANA - (2.36%)
$ 500,000 Carmel, IN, Retirement Rental Hsg. Rev. Ref. Bds. (Beverly Enterprises -
Indiana, Inc. Prj.) Ser. '92, 8.75%, 12/01/08.............................. $ 558,600
303,324 Elwood, IN, Econ. Dev. Rev. (K-Mart Co. - S. S. Kresge Co. Prj.), 8.50%,
10/15/00................................................................... 303,461
500,000 Goshen, IN, Multi-School Bldg. Corp. 1st Mtg. Bds. (MBIA Insured)
Ser. `96, 5.60%, 01/15/16.................................................. 479,220
745,000 The Hosp. Auth. of the City of Fort Wayne, IN, Hosp. Rev. Ref. Bds.
(Ancilla Sys. Inc.) Ser. `86, 7.00%, 07/01/18.............................. 787,659
490,000 Indiana Bond Bank, Ser. '85 A Bds., 9.625%, 02/01/06......................... 507,973
405,000 Indiana Bond Bank, Ser. `85 A Bds., 7.875%, 02/01/11......................... 416,170
620,000 Indiana Bond Bank, Special Program Bds., Ser. i87 A, 8.70%, 02/01/13......... 641,359
35,000 Indianapolis, IN, Econ. Dev. (GNMA Coll - Bethany Indpt. Care), 9.15%,
08/20/16................................................................... 37,788
---------------
3,732,230
IOWA - (1.05%)
312,457 Creston, IA, IDR (S.S. Kresge Co. - K-Mart Inc.), 8.50%, 08/01/00............ 312,863
1,300,000 Ottumwa, IA, Hosp. Fac. Rev. Ref. Bds. (Ottumwa Reg'l Hlth. Ctr. Inc.)
Ser. `85, 9.625%, 11/01/10................................................. 1,343,628
---------------
1,656,491
KANSAS - (1.52%)
30,000 City of Wichita, KS, Sngl. Fam. Mtg. Rev. Bds., '85 Ser. A, 9.00%,
07/01/08................................................................... 31,011
1,025,000 Kansas City, KS, Crawford Cnty., Tax-Exempt Muni Multiplier Rev. Bds.,
Zero Cpn., 04/01/16........................................................ 133,045
1,330,000 Kansas City, KS, Hosp. Rev. Bds., Ser. '74, 8.10%, 12/01/04.................. 1,364,075
325,000 Kansas City, KS, Sngl. Fam. Mtg. Rev. Bds., Ser. i83 A, Zero Cpn.,
12/01/14................................................................... 49,498
205,000 Liberal, KS, Swr. Util. Sys. Rev. Ref. Bds., 8.80%, 10/01/99................. 209,877
305,000 Liberal, KS, Swr. Util. Sys. Rev. Ref. Bds., 8.90%, 04/01/00................. 312,280
475,000 Saline Cnty., KS, Sngl. Fam. Mtg. Rev. Cap. Accumulator Bds.,
Ser. '82 A, Zero Cpn., 11/01/14............................................ 68,980
230,000 Seward Cnty., KS, Sngl. Fam. Mtg. Rev. Bds., i79 Ser. A, 7.375%,
12/01/10................................................................... 230,276
---------------
2,399,042
KENTUCKY - (0.85%)
300,000 Cntys. of Jefferson, Oldham and Bullitt, KY, Home Mtg. Rev. Bds, Ser. '84,
10.75%, 11/01/14........................................................... 311,031
250,000 Floyd, KY, Gas Sys. Rev. Ref. Bds., Ser. '91A, 8.00%, 09/01/12............... 279,382
200,000 Jefferson Cnty., KY, Cap. Prj. Corp. Rev. Bds. Lease - Ser. B, Zero Cpn.,
08/15/07................................................................... 95,922
500,000 Jefferson Cnty., KY, Cap. Prj. Corp. Rev. Muni Multi Lease Ref. Bds. -
Ser. A `87, Zero Cpn., 08/15/14............................................ 154,335
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
--------- ------
MUNICIPAL BONDS - CONTINUED
KENTUCKY - CONTINUED
$ 1,100,000 Owensboro, KY, Elec. Light & Pwr. Rev. Bds., Ser. B, Zero Cpn.,
01/01/09................................................................... $ 348,876
500,000 Owensboro, KY, Elec. Light & Pwr. Rev. Bds., Ser. B, Zero Cpn.,
01/01/09................................................................... 158,265
---------------
1,347,811
LOUISIANA - (3.33%)
165,000 Jefferson Parish, LA, Home Mtg. Rev. Bds. Cap. Appreciation, Zero Cpn.,
09/01/02.................................................................. 94,786
165,000 Jefferson Parish, LA, Home Mtg. Rev. Bds. Cap. Appreciation, Zero Cpn.,
03/01/03.................................................................. 89,805
1,000,000 Lake Charles Non-Profit Hsg. Dev. Corp. Mtg. Rev. Ref. Bds., Ser. '90A
and Ser. '90B, 7.875%, 02/15/25............................................ 1,020,500
1,500,000 Louisiana Pub. Fac. Auth. Rev. Ref. Bds., Ser. '93 (Schwegmann Westside
Expressway, Inc. Prj.), 8.00%, 10/01/09.................................... 1,578,420
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
355,000 Louisiana Pub. Fac. Auth. Supplemental Student Loan Rev. Variable Rate
Demand Bds., (Statewide Prg.) Ser. '84C, 8.125%, 12/01/99.................. 376,300
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...... 385,681
115,000 Sales Tax School Bds., Parish School Brd. of the Parish of Jefferson, State of
LA, Ser. '86A, 7.00%, 02/01/08............................................. 119,953
400,000 Shreveport, LA, Wtr. & Swr. Rev. Crossover Ref. Bds., Ser. e86C,
7.00%, 12/01/05............................................................ 408,948
1,135,000 Shreveport, LA, Wtr. & Swr. Rev. Crossover Ref. Bds., Ser. e86C,
7.125%, 12/01/14........................................................... 1,171,763
---------------
5,272,656
MAINE - (1.15%)
1,765,000 Maine Hlth. & Higher Educ. Fac., Hosp. Rev. Ref. Bds. (Eastern Maine
Med. Ctr.) Ser. i85, 9.10%, 10/01/12....................................... 1,826,334
---------------
MARYLAND - (1.36%)
15,000 Hsg. Auth. of Prince George's Cnty. (Maryland) GNMA Collateralized Sngl.
Fam. Mtg. Rev. Bds., '89 Ser. A, 8.10%, 10/01/20........................... 15,569
570,000 Maryland Econ. Dev. Corp., Nursing Fac. Mtg. Rev. Bds. (Ravenwood
Hlthcare, Inc. Fac.) Ser. e96A, 8.375%, 08/01/26........................... 572,576
495,000 Montgomery Cnty., MD, Econ. Dev. Rev. Bds. (Brink Reservoir Fac.)
Ser. `84, 10.375%, 12/15/14................................................ 509,568
1,000,000 Upper Potomac River Comm., MD, PCR Bds., Westvaco Corp. Prj.,
9.125%, 08/01/15........................................................... 1,050,000
---------------
<PAGE>
2,147,713
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
--------- ------
MUNICIPAL BONDS - CONTINUED
MASSACHUSETTS - (3.54%)
$ 250,000 Lawrence, MA, IDR Bds., (New Balance Realty Trust Prj.), 10.00%,
10/01/03................................................................... $ 250,847
110,000 Massachusetts Educ. Loan Auth., Educ. Loan Rev. Bds., Issue C, Ser. '85A,
7.875%, 06/01/03........................................................... 112,874
250,000 Massachusetts Educ. Loan Auth., Educ. Loan Rev. Bds., Issue D, Ser. '89A,
7.65%, 01/01/07............................................................ 261,698
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............................................ 1,004,790
175,000 Massachusetts Ind. Fin. Agy., IDR Bds. (Boston Beer), 11.50%, 07/15/07....... 183,381
985,000 Massachusetts Ind. Fin. Agy. Rev. Bds., Provider Lease Prg., `89 Ser. A,
8.75%, 07/15/09............................................................ 1,021,544
1,895,000 Massachusetts Muni Wholesale Elec. Co. Pwr. Supply Rev. Ref. Bds.,
Ser. B i94, 5.00%, 07/01/17................................................ 1,688,653
525,000 Massachusetts State G.O., 10.50%, 08/01/03................................... 535,773
280,000 Massachusetts State G.O., 9.75%, 09/01/03.................................... 284,155
---------------
5,594,603
MICHIGAN - (2.36%)
100,000 Cnty. of Oakland, State of Michigan Bds., Clinton-Oakland Sys., Paint
Creek Inceptor Sewage Disposal Bds., 7.00%, 05/01/01....................... 102,238
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........................... 754,778
55,000 Kentwood, MI, Econ. Dev. Corp. Rev. Bds. (Hanover-Kent, Inc. - K-Mart
Corp.), 7.85%, 09/01/01.................................................... 55,277
1,850,000 Michigan Muni Bd. Auth. Local Gov't Loan Prg. Rev. Ref. Bds.,
Ser. `92 A, 8.625%, 11/01/16............................................... 1,892,827
1,300,000 Michigan State Hsg. Dev. Auth., Section 8 Asst. Mtg. Rev. Bds., Ser. I,
Zero Cpn., 04/01/14........................................................ 285,909
345,000 Michigan State Hsg. Dev. Auth., Sngl. Fam. Mtg. Rev. Bds., `90 Ser. D,
7.75%, 12/01/19............................................................ 346,490
300,000 Monroe, MI, PCR Bds. (North Star Steel Co. Prj. - Cargill Inc.) Ser. i78,
6.875%, 07/01/08........................................................... 301,014
---------------
3,738,533
MINNESOTA - (1.62%)
880,000 Blaine, MN, IDR (Consolidated Freightways Del. Prj.) `79 Ser. B,
7.25%, 01/01/04............................................................ 884,602
330,000 Minneapolis, MN, Community Dev. Agy. Rev. Bds. (River Bluff Prj.),
11.375%, 06/01/09.......................................................... 340,171
270,000 Minneapolis, MN, Community Dev. Agy. Rev. Bds. (West Bank
Homes Prj.), 11.75%, 10/01/08.............................................. 278,254
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
--------- ------
MUNICIPAL BONDS - CONTINUED
MINNESOTA - CONTINUED
$ 500,000 Minnesota St. Hsg. Fin. Agy., Sngl. Fam. Mtg. Rev. Bds., `87 Ser. D,
8.15%, 07/01/14............................................................ $ 515,480
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.................................. 10,222
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.................................. 15,333
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.................................. 255,545
5,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. K, Jackson Str.
Shops Ltd., 9.50%, 12/01/01................................................ 5,111
10,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. K, Jackson Str.
Shops Ltd., 9.50%, 12/01/02................................................ 10,222
235,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. K, Jackson Str.
Shops Ltd., 9.50%, 12/01/14................................................ 240,217
---------------
2,555,157
MISSISSIPPI - (3.09%)
2,235,000 Claiborne Cnty., MS, PCR (Middle South Energy, Inc. Prj.) Ser. C,
9.875%, 12/01/14........................................................... 2,449,828
1,815,000 Clarksdale, MS, Ind. Rev. Bds. (BAH Pptys/Archer-Danielis), 11.75%,
06/01/11................................................................... 1,830,427
2,160,000 Mississippi Home Corp. Residual Rev. Bds., Cap. Appreciation, Ser. I i92,
Zero Cpn., 09/15/16........................................................ 603,785
---------------
4,884,040
MISSOURI - (1.44%)
980,000 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... 1,055,078
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..... 156,519
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............................................ 250,608
500,000 Little Blue Valley Swr. Dist., MO, Rev. Ref. Bds. (AMBAC Insured)
Ser. `85, 8.60%, 10/01/00.................................................. 501,845
210,000 Missouri Hsg. Dev. Commission, Hsg. Dev. Bds. (Federally Insured Mtg.
Loans) Ser. July 1, 1975, 8.00%, 07/01/17.................................. 212,997
100,000 St. Louis Cnty., MO, Sngl. Fam. Mtg. Rev. Bds., 9.25%, 10/01/16.............. 103,685
---------------
2,280,732
MONTANA - (0.03%)
40,000 Montana Brd. of Hsg., Sngl. Fam. Prg. Bds., '85 Ser. A (Federally Insured
or Gtd. Mtg. Loans), 0%/9.75%, 06/01/13.................................... 40,052
---------------
NEBRASKA - (0.04%)
70,000 Nebraska Investment Fin. Auth. Sngl. Fam. Mtg. Rev. Bds., Ltd.
Intermediate Muni Obligation, Ser. B i85, 0%/10.00%, 11/15/06.............. 70,167
---------------
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
--------- ------
MUNICIPAL BONDS - CONTINUED
NEVADA - (0.39%)
$ 500,000 State of Nevada Muni Bd. Bank Prj. No. 18 & 19, 8.40%, 09/01/01.............. $ 513,910
105,000 State of Nevada Muni Bd. Bank Prj. No. 18 & 19, 8.50%, 09/01/05.............. 107,663
---------------
621,573
NEW HAMPSHIRE - (1.13%)
500,000 New Hampshire Higher Educ. & Hlth. Fac. Auth. Rev. Bds. (NH Catholic
Charities Issue) Ser. '91, 8.40%, 08/01/11................................. 535,725
1,225,000 New Hampshire St. IDA PCR Ref. Bds. (Pub. Svc. Co. of New Hampshire
Prj.) `91 Ser. C, 7.65%, 05/01/21.......................................... 1,252,587
---------------
1,788,312
NEW JERSEY - (3.13%)
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.... 615,499
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.... 108,520
1,265,000 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.... 315,048
50,000 New Jersey Econ. Dev. Auth., Econ. Dev. Bds. (Polymeric Resources Corp.
Prj. - '94 Ser.), 9.00%, 12/01/19.......................................... 52,249
245,000 New Jersey Econ. Dev. Auth., Econ. Dev. Sr. Rev. Bds. (Lakewood of
Voorhees FHA Insured Prj.) Ser. A, 8.875%, 01/15/20........................ 259,467
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........................... 1,379,795
1,000,000 New Jersey Econ. Dev. Auth., Econ. Dev. Rev. Ref. Bds. (Holt Hauling &
Warehousing) Ser. G, 8.40%, 12/15/15....................................... 1,043,050
75,000 New Jersey Econ. Dev. Auth., Mtg. Rev. Ref. Bds. (Geriatric and Medical
Svcs., Inc. Prj.) Ser. '92, 9.00%, 07/01/97................................ 75,732
80,000 New Jersey Econ. Dev. Auth., Mtg. Rev. Ref. Bds. (Geriatric and Medical
Svcs., Inc. Prj.) Ser. '92, 9.00%, 07/01/98................................ 83,783
1,000,000 New Jersey Econ. Dev. Auth. Rev., Sr. Mtg. Bds. (Sealy Mattress Mfg. Co.),
9.50%, 10/01/02............................................................ 1,022,350
---------------
4,955,493
NEW MEXICO - (0.32%)
120,000 City of Albuquerque, NM, Hlth. Care Sys. Rev. Bds. (Lovelace Medical
Foundation Prj.), 12.00%, 03/01/11......................................... 120,709
20,000 City of Albuquerque, NM, Hlth. Care Sys. Rev. Bds. (Lovelace Medical
Foundation Prj.) Ser. '83A, 10.25%, 03/01/11............................... 20,452
325,000 Espanola, NM, Hosp. Sys. Rev. Ref. Bds. (Southwest Cmnty. Hlth Svcs.)
`85 Ser. A (MBIA Insured), 8.70%, 08/01/98................................. 329,917
55,000 New Mexico Mtg. Fin. Auth. Sngl. Fam. Mtg. Prg. Rev. Bds., 7.00%,
07/01/14................................................................... 37,469
---------------
508,547
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
- --------- ------
MUNICIPAL BONDS - CONTINUED
NEW YORK - (2.97%)
$ 300,000 Battery Park City Auth., POD III Hsg. Rev. Bds., Ser. '84 (FHA-Insured
Mtg.), 10.00%, 06/01/23.................................................... $ 315,750
500,000 City of New York, NY, Unlimited G.O., Ser. B i88, 7.20%, 08/01/01............ 546,220
500,000 City of New York, NY, Unlimited G.O., Ser. B i88, 7.40%, 12/01/01............ 510,615
2,520,000 Clifton Park, NY, IDA IDR Bds. (Caldor Inc. Prj.) Ser. A, 11.25%,
12/01/12................................................................... 2,576,977
295,000 New York State Med. Care Fac. Fin. Agy., New York Hosp. FHA Insured
Mtg. Bds., Ser. A, 6.90%, 08/15/34......................................... 322,544
120,000 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............ 122,039
300,000 Steuben Cnty., NY, IDA Rev. Bds., Ser. '84 (Corning Glass Works),
9.00%, 11/01/04............................................................ 304,272
---------------
4,698,417
NORTH CAROLINA - (0.59%)
200,000 Guilford Cnty., NC, Rev. Ref. Bds., Ser. i88, 6.50%, 02/01/99................ 202,478
200,000 North Carolina Med. Care Comm. Hosp. Rev. Ref. Bds. (Moore Memorial
Hosp. Prj.), 9.10%, 10/01/99............................................... 205,690
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..... 518,360
--------------
926,528
NORTH DAKOTA - (1.17%)
90,000 North Dakota State Hsg. Fin. Agy., Sngl. Fam. Mtg. Rev. Bds., Pacs. -
Ser. A, 0%/9.625%, 07/01/17................................................ 90,995
1,590,000 Ward Cnty., ND, Hlth Care Fac. Rev. Bds. (St. Josephis Hosp. Corp. Prj.)
Ser. i94, 8.875%, 11/15/14................................................. 1,753,691
---------------
1,844,686
OHIO - (3.42%)
865,000 Cnty. of Belmont, Ohio Hlth. Sys. Rev. and Ref. Bds. (East Ohio Reg'l
Hosp. Issue) Ser. `85, 9.50%, 01/01/05..................................... 875,691
300,000 Cnty. of Belmont, Ohio Hlth. Sys. Rev. and Ref. Bds. (East Ohio Reg'l
Hosp. Issue) Ser. `85, 9.50%, 01/01/13..................................... 303,750
120,000 City of North Canton, OH, Econ. Dev. Rev. Bds., Ser. `84 (FHA Insured
Mtg. Loan - St. Luke Lutheran Home for the Aging), 12.375%, 08/01/14....... 146,233
2,000,000 Cnty. of Hamilton, OH, Multifam. Hsg. Rev. Bds., Ser. `96 (Garden
Hill/Washington Park Apts. Prj.), 7.75%, 10/01/21.......................... 1,959,240
2,255,000 Ohio Hsg. Fin. Agy. Sngl. Fam. Mtg. Rev. Bds. Cap. Appreciation,
Ser. '85 A, Zero Cpn., 01/15/15............................................ 393,430
65,000 Ohio Hsg. Fin. Agy. Sngl. Fam. Mtg. Rev. Bds. (GNMA Mtg.-Backed Sec.
Prg.) '90 Ser. C, Zero Cpn., 09/01/02...................................... 43,622
1,540,000 Ohio Wtr. Dev. Auth., State of Ohio, Collateralized PCR Ref. Bds., Ser. '95
(The Cleveland Elec. Illuminating Co. Prj.), 7.70%, 08/01/25............... 1,651,527
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
- --------- ------
MUNICIPAL BONDS - CONTINUED
OHIO - CONTINUED
$ 45,000 Ohio Wtr. Dev. Auth., State of Ohio, Wtr. Dev. Rev. Ref. Bds., '85 Ref.
and Improvement Ser., 9.375%, 12/01/18..................................... $ 46,284
---------------
5,419,777
OKLAHOMA - (0.49%)
750,000 Trustees of the Oklahoma Ordnance Works Auth. IDR Ref. Bds. (A.P.
Green Ind., Inc. Prj.) Ser. '92, 8.50%, 05/01/08........................... 782,168
---------------
PENNSYLVANIA - (6.41%)
1,000,000 Allegheny Cnty., PA, Airport Rev. Bds. (Greater Pittsburgh Int'l Airport)
`88 Ser. C (MBIA Insured), 8.25%, 01/01/16................................. 1,045,970
145,000 Allegheny Cnty., PA, Residential. Fin. Auth. Sngl. Fam. Mtg. Rev. Bds.,
'83-Ser.-B, Zero Cpn., 10/01/15............................................ 20,497
495,000 Allegheny Cnty. Hosp. Dev. Auth. Hosp. Rev. Ref. Bds., Ser. '85-A (St.
Margaret Memorial Hosp. Prj.), 9.30%, 07/01/99............................. 499,851
2,620,000 Allegheny Cnty. Hosp. Dev. Auth. Hosp. Rev. Ref. Bds., Ser. '85-A (St.
Margaret Memorial Hosp. Prj.), 9.80%, 07/01/10............................. 2,650,261
85,000 Berks Cnty., PA, IDA IDR (Borg-Warner/Baker Protection Svcs., Inc.)
Ser. '81, 11.10%, 07/01/01................................................. 85,925
2,060,000 Berks Cnty., PA, IDA (Supermarkets General Corp. Prj.), 10.50%, 11/01/03..... 2,132,100
55,000 Bucks Cnty., PA, IDA Mtg. Rev. (Geriatric and Medical Svcs., Inc. Prj.)
Ser. '92, 9.00%, 07/01/98.................................................. 57,786
175,000 Chartiers Valley, PA, IDA Nursing Home Rev. FHA Insured Mtg. Bds.
(Sun City East Prj.), 14.00%, 10/01/14..................................... 216,986
65,000 Chester Cnty., PA, IDA Mtg. Rev. Ref. Bds. (Geriatric and Medical
Svcs., Inc. Prj.) Ser. '92, 9.00%, 07/01/98................................ 67,608
400,000 Columbia Cnty. IDA, Columbia Cnty., PA, 1st Mtg. Rev. Bds., Ser. `86
(Orangeville Nursing Ctr. Associates Prj.), 9.00%, 12/01/12................ 399,952
15,000 Horsham Twp., PA, Sewer Rev. Ref. Bds., 6.00%, 01/01/98...................... 15,242
750,000 Luzerne Cnty., PA, Hsg. Corp. Rev. Bds., 8.125%, 12/01/08.................... 749,025
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........................ 343,527
100,000 Montgomery Cnty. (Pennsylvania) IDA Mtg. Rev. Ref. Bds., Ser. '92A
(Geriatric and Medical Svcs., Inc. Prj.), 9.00%, 07/01/99.................. 104,190
200,000 Pennsylvania Hsg. Fin. Agy., Moderate Rehab. Rev. Bds., 9.00%, 08/01/01...... 203,998
270,000 Pennsylvania St. Higher Educ. Fac. Auth. College & University Rev. Bds.
(Drexel University) 1st Ser. i87, 7.70%, 05/01/12.......................... 273,488
140,000 Philadelphia, PA, Redev. Auth. Sngl. Fam. Home Mtg. Rev. Ref. Bds.,
`85 Ser. A, 0%/10.25%, 06/01/17............................................ 134,823
450,000 Schuylkill Cnty. IDA Res. Recovery Ref. Bds. (Schuylkill Energy Res.,
Inc. Prj.) Ser. `93, 6.50%, 01/01/10....................................... 434,835
250,000 Warren Cnty., PA, IDA Specialized Dev. Rev. Ref. Bds. (Beverly
Enterprises - Pennsylvania, Inc. Prj.) Ser. '91, 9.00%, 11/01/12........... 277,860
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
--------- ------
MUNICIPAL BONDS - CONTINUED
PENNSYLVANIA - CONTINUED
$ 420,000 Williamsport Hsg. Fin. Corp., Williamsport, PA, Section 8 Hsg. Rev. Bds.
(Williamsport Manor/The Nat'l Hsg. Partnership Prj.) Ser. A,
8.00%, 12/01/10............................................................ $ 429,975
---------------
10,143,899
RHODE ISLAND - (0.16%)
250,000 Rhode Island Hlth & Educational Bldg. Corp. Rev. Bds., 9.50%, 07/01/16....... 252,565
---------------
SOUTH CAROLINA - (1.55%)
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...... 424,064
2,000,000 City of Charleston, SC, Waterworks and Sewer Sys. Ref. Rev. Bds.,
Ser. '86A, 7.00%, 01/01/15................................................. 2,034,320
---------------
2,458,384
SOUTH DAKOTA - (0.62%)
250,000 Aberdeen, SD, Unlimited G.O., Rev. Ref. Bds., (MBIA Insured) Ser. `87,
6.90%, 07/01/04............................................................ 251,745
30,000 South Dakota Bldg. Auth., Rev. Ref. Bds., Ser. of Feb. '84, 10.50%,
09/01/00................................................................... 33,324
675,000 South Dakota Student Loan Asst. Corp., Student Loan Rev. Bds.,
Ser. B i89, 7.45%, 08/01/00................................................ 700,859
---------------
985,928
TENNESSEE - (2.22%)
315,000 Dover, TN, Hlth. & Educ. Fac., IDR (Wessex Corp. Dover Prj.), 9.50%,
09/01/11................................................................... 325,064
388,693 Dyer Cnty., TN, Ind. Dev. Brd. IDR Bds. (S.S. Kresge Co. - K-Mart Corp.),
8.10%, 11/01/00............................................................ 388,972
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. i96 A,
7.75%, 06/01/13............................................................ 504,910
1,015,000 Lewisburg, TN, IDR Bds. (Mead Corp. Prj.), 7.875%, 02/01/00.................. 1,035,300
380,000 McMinn Cnty., TN, Ind. Dev. Brd. Rev. Bds., (S.S. Kresge Co.), 8.00%,
11/01/00................................................................... 380,384
460,000 New Tazewell, TN, Hlth. Educational & Hsg. Fac. Brd. IDR Bds. (Wessex
Corp. New Tazewell Prj.) Ser. '87, 10.00%, 06/01/17........................ 470,493
395,000 Sevier Cnty., TN, Ind. Dev. Brd. IDR Bds. (The Kroger Co. and Super X
Prj.) Ser. A, 10.25%, 11/01/06............................................. 407,838
---------------
3,512,961
TEXAS - (7.40%)
1,000,000 Brazos River Auth., TX, Rev. Ref. Collateralized Bds. (Houston L&P
Co. Prj.) `88 Ser. C, 8.10%, 05/01/19...................................... 1,056,430
1,250,000 The City of San Antonio (Texas) Hlth. Fac. Dev. Corp. Econ. Dev. Rev.
Bds. (Encore Nursing Ctr. Partners, Ltd. - 85), 8.25%, 12/01/19............ 1,368,600
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
- --------- ------
MUNICIPAL BONDS - CONTINUED
TEXAS - CONTINUED
$ 260,000 Dallas, TX, Civic Ctr. Convention Complex, Sr. Lien Rev. Bds., Ser. i85,
8.30%, 01/01/00............................................................ $ 262,740
150,000 Dallas, TX, Civic Ctr. Convention Complex, Sr. Lien Rev. Bds., Ser. i85,
8.50%, 01/01/04............................................................ 151,585
965,000 Dallas, TX, Civic Ctr. Convention Complex, Sr. Lien Rev. Bds., Ser. i85,
8.60%, 01/01/07............................................................ 980,681
275,000 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.......... 277,637
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.................... 1,411,214
30,000 Houston, TX, Hsg. Corp. No. 1 Rev. Bds., Long Drive Apartments - Section
8 Assisted, 9.00%, 02/01/20................................................ 34,119
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................................ 2,076,680
1,000,000 Jefferson Cnty., TX, Hlth. Fac. Dev. Corp. Hosp. Rev. Bds. (Baptist
Healthcare Sys. Prj.) Ser. '91, 8.875%, 06/01/21........................... 1,051,990
995,000 Southeast TX, Hsg. Fin. Corp. Multi-Fam. Hsg. Rev., 1st Mtg. Rev. Bds.
(The Ridge Apartments Prj.), 8.30%, 11/01/23............................... 845,750
945,000 Texas Hsg. Agy., Residential Mtg. Rev. Bds., Ser. '87D, 8.40%, 01/01/21...... 986,656
210,000 Texas St. Higher Educ. Coordinating Brd., College Student Loan Rev. Bds.,
7.20%, 04/01/02............................................................ 220,103
50,000 Texas Wtr. Res. Fin. Auth. Rev. Bds., Ser. '89, 7.625%, 08/15/08............. 51,957
380,000 Texas Wtr. Res. Fin. Auth. Rev. Bds., Ser. '89, 7.50%, 08/15/13.............. 403,066
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........... 192,690
1,000,000 Tomball, TX, Independent School Dist. Cap. Appreciation Ref. Bds.,
Unlimited G.O., Zero Cpn., 02/15/13........................................ 348,270
---------------
11,720,168
UTAH - (1.14%)
1,675,000 Intermountain Pwr. Agy., UT, Pwr. Supply Rev. Bds. (FGIC Insured)
`87 Ser. B, 7.00%, 07/01/15................................................ 1,720,275
545,036 Utah State Hsg. Fin. Agy. Rev. Bds. Cap. Appreciation Residential Mtg.,
Ser. '83A, Zero Cpn., 07/01/16............................................. 76,567
---------------
1,796,842
VERMONT - (0.96%)
1,500,000 Vermont Hsg. Fin. Agy. Multi-Fam. Hsg. Bds., '79 Ser. A, 8.50%,
02/15/21................................................................... 1,552,500
---------------
VIRGINIA - (0.22%)
325,000 IDA of Covington-Alleghany Cnty., VA, IDR Ref. Bds. (Beverly
Enterprises, Inc. Prj.) Ser. '91, 9.375%, 09/01/01......................... 356,967
---------------
WASHINGTON - (0.63%)
1,000,000 King Cnty., WA, Unlimited G.O., Ser. A i78, 6.50%, 06/01/12.................. 1,001,840
---------------
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
- --------- ------
MUNICIPAL BONDS - CONTINUED
WEST VIRGINIA - (3.08%)
$ 125,000 Berkeley Brooke Fayette Etc. Cnty., WV, Sngl. Fam. Mtg. Rev. Bds., Ser. A,
9.10%, 08/01/11............................................................ $ 129,440
385,000 Beverly, WV, Hsg. Corp. Mtg. Rev. Bds., Ser. `81 (Beverly Manor/FHA -
Insured/Section 8 Prj.), 11.00%, 11/15/22.................................. 440,475
325,000 Glasgow, WV, Hlth. Fac. Rev. Ref. Bds. (Beverly Enterprises, Inc. Prj.)
Ser. '91, 9.50%, 09/01/01................................................. 354,776
950,000 The Ohio Cnty. Bldg. Comm., WV, Hlth. Sys. Rev. Ref. Bds. (Ohio
Valley Med. Ctr. Issue) Ser. `85, 9.50%, 01/01/05.......................... 951,682
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......................... 2,040,000
25,000 Putnam Cnty., WV, IDR (IDR Bds.) Rite Aid West Virginia Inc., 10.375%,
11/01/02................................................................... 25,232
915,000 West Virginia Hsg. Dev. Fd., Rental Dev. Prg. Bds., Ser. C (Section 8
Assisted Dev.), 10.00%, 07/01/15........................................... 930,958
---------------
4,872,563
WISCONSIN - (2.86%)
300,000 Clear Lake, WI, Sewer Sys. Mtg. Rev. Bds., 8.00%, 08/01/11................... 320,676
170,000 Wisconsin Hlth. Fac. Auth. Rev. Ref. Bds., Hosp. Sisters Svcs. Sys.,
Ser. D, 9.125%, 07/01/05................................................... 172,113
3,565,000 Wisconsin Hlth. Fac. Auth. Rev. Ref. Bds., Hosp. Sisters Svcs. Sys.,
Ser. D, 9.25%, 07/01/12.................................................... 3,663,038
355,000 Wisconsin St., Unlimited G.O., Ser. B, 7.60%, 01/01/20....................... 365,597
---------------
4,521,424
Total Municipal Bonds - (identified cost $152,819,290)..................... 154,086,035
---------------
Total investments - (identified cost $152,819,290)(97.35%) <F1>......... 154,086,035
Other assets less liabilities - (2.65%)............................. 4,202,070
---------------
Net assets - (100%)............................................... $ 158,288,105
===============
<FN>
<F1> Aggregate cost for Federal income tax purposes is $152,819,290.
At March 31, 1997 unrealized appreciation (depreciation) of securities for
Federal income tax purposes was as follows:
Unrealized appreciation...................................................... $ 2,637,616
Unrealized depreciation...................................................... (1,370,871)
---------------
Net unrealized appreciation............................................ $ 1,266,745
===============
<F2> Security is paying less than stated interest rate.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value (identified cost $152,819,290) (Note 1)............. $ 154,086,035
Cash.................................................................................... 2,421,116
Receivables:
Interest............................................................................ 3,728,770
Capital stock sold.................................................................. 284,462
Investment securities sold.......................................................... 3,593,596
Prepaid expenses........................................................................ 13,928
--------------
Total assets............................................................... 164,127,907
--------------
LIABILITIES:
Payables:
Capital stock reacquired............................................................ 277,734
Investment securities purchased.................................................... 5,190,382
Commissions to distributor (Note 4)................................................. 159,087
Accrued expenses........................................................................ 212,599
--------------
Total liabilities.......................................................... 5,839,802
--------------
NET ASSETS (NOTE 5).......................................................................... $ 158,288,105
===============
CLASS A SHARES
Net assets.......................................................................... $ 50,491,603
Shares outstanding.................................................................. 5,510,608
Net asset value and redemption price per share (net assets/shares outstanding)...... $ 9.16
========
Maximum offering price per share (100/95.25 of $9.16)............................... $ 9.62
========
CLASS B SHARES
Net assets.......................................................................... $ 107,796,502
Shares outstanding.................................................................. 11,803,127
Net asset value, offering and redemption price per share (net assets/
shares outstanding)............................................................... $ 9.13
========
NET ASSETS CONSIST OF:
Undistributed net income................................................................ $ 1,309,530
Unrealized appreciation on investments.................................................. 1,266,745
Accumulated net realized gain........................................................... 555,699
Paid-in capital......................................................................... 155,156,131
--------------
Net assets................................................................. $ 158,288,105
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
STATEMENT OF OPERATIONS
<TABLE>
For the six months ended March 31, 1997 (Unaudited)
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest............................................................................ $ 6,296,038
---------------
Expenses:
Management fees (Note 3).......................................... $ 504,271
Custodian fees.................................................... 94,271
Transfer agent fees............................................... 81,123
Audit fees........................................................ 20,720
Legal fees....................................................... 14,906
Accounting fees (Note 3).......................................... 22,500
Reports to shareholders........................................... 37,542
Directors fees and expenses....................................... 37,016
Registration and filing fees...................................... 46,895
Miscellaneous..................................................... 26,377
Commissions paid under distribution plan (Note 4)
Class A...................................................... 59,700
Class B...................................................... 532,005
---------------
Total expenses........................................................ 1,477,326
Fee Reduction (Note 7).............................................................. (1,439)
---------------
Net Expenses................................................................... 1,475,887
---------------
Net investment income.................................................. 4,820,151
---------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions............................................... 595,601
Net decrease in unrealized appreciation of investments during the period..................... (443,982)
--------------
Net realized and unrealized gain on investments................................ 151,619
--------------
Net increase in net assets resulting from operations........................... $ 4,971,770
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, 1997 SEPTEMBER 30,
OPERATIONS:
- ----------- (UNAUDITED) 1996
--------- ----
<S> <C> <C>
Net investment income........................................... $ 4,820,151 $ 9,885,893
Net realized gain from investment transactions................. 595,601 419,913
Net increase (decrease) in unrealized appreciation
of investments......................................... (443,982) (1,166,075)
---------------- ----------------
Net increase in net assets resulting
from operations............................... 4,971,770 9,139,731
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Distribution from net investment income
Class A ($0.29 and $0.54 per share, respectively). (1,513,866) (2,654,081)
Class B ($0.25 and $0.48 per share, respectively). (3,019,123) (6,209,444)
Distribution from gains from investment transactions
Class A ($0.02 and $0.06 per share, respectively). (78,623) (290,460)
Class B ($0.02 and $0.06 per share, respectively). (178,821) (814,882)
CAPITAL SHARE TRANSACTIONS (Note 4)............................. 3,789,861 (17,041,893)
---------------- -----------
Total increase (decrease) in net assets................ 3,971,198 (17,871,029)
NET ASSETS:
Beginning of year .............................................. 154,316,907 172,187,936
---------------- ----------------
End of year (including undistributed net investment
income of $1,309,530 and $1,022,368, respectively) ... $ 158,288,105 $ 154,316,907
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND
NOTES TO FINANCIAL STATEMENT
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Davis Tax-Free High Income Fund 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 six months ended March 31, 1997, were $88,392,697 and
$83,927,287, 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. (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.
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND NOTES TO FINANCIAL STATEMENTS - CONTINUED At
March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
(CONTINUED)
The Adviser is paid for registering Fund shares for sale in various states. The
fee for the six months ended March 31, 1997 amounted to $6,249. The Adviser is
paid for certain transfer agent services. The fee for the six months ended March
31, 1997 amounted to $4,186. The Adviser is also paid for certain accounting
services. The fee for the six months ended March 31, 1997 amounted to $22,500.
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 six months ended March 31, 1997, the Fund's Underwriter, Davis
Selected Advisers, L.P., received $50,347 from commissions earned on sales of
Class A shares of the Fund of which $7,739 was retained by the Underwriter and
the remaining $42,608 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 six months ended March 31, 1997 was $59,700.
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. 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 six months ended March 31, 1997, Class B shares of the Fund
made distribution plan payments which included commissions of $406,461 and
maintenance fees of $125,544.
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND NOTES TO FINANCIAL STATEMENTS - CONTINUED At
March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - DISTRIBUTION AND UNDERWRITING FEES - (CONTINUED)
CLASS B SHARES - (CONTINUED)
Commissions earned by the Distributor during the six months ended March
31, 1997 on the sale of Class B shares of the Fund amounted to $287,705 of which
$202,762 was reallowed to qualified selling dealers.
The Distributor intends to seek payment from Class B shares of the Fund
in the amount of $2,060,756, 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 six months ended
March 31, 1997 the Distributor received contingent deferred sales charges from
Class B shares of the Fund of $100,905,
NOTE 5 - CAPITAL STOCK
At March 31, 1997, 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>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31, 1997
CLASS A (UNAUDITED)
-----------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares sold.......................................................... 855,100 $ 7,828,666
Shares issued to shareholders in connection with
reinvestment of distributions.................................. 100,724 919,906
------------- ---------------
955,824 8,748,572
Shares reacquired.................................................... (343,636) (3,145,504)
------------- ---------------
Net increase................................................. 612,188 $ 5,603,068
============= ===============
FOR THE YEAR ENDED
SEPTEMBER 30, 1996
--------------------------
SHARES AMOUNT
------ ------
Shares sold.......................................................... 773,907 $ 7,021,638
Shares issued to shareholders in connection with
reinvestment of distributions.................................. 177,168 1,612,514
------------- ---------------
951,075 8,634,152
Shares reacquired.................................................... (1,001,194) (9,115,251)
-------------- ---------------
Net decrease................................................. (50,119) $ (481,099)
============= ===============
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
At March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 5 - CAPITAL STOCK - (CONTINUED)
FOR THE SIX MONTHS
ENDED MARCH 31, 1997
CLASS B (UNAUDITED)
-----------------------
SHARES AMOUNT
------ ------
Shares sold.......................................................... 883,996 $ 8,072,225
Shares issued to shareholders in connection with
reinvestment of distributions.................................. 178,871 1,629,664
------------- --------------
1,062,867 9,701,889
Shares reacquired.................................................... (1,261,583) (11,515,096)
------------- --------------
Net decrease................................................. (198,716) $ (1,813,207)
============= ==============
FOR THE YEAR ENDED
SEPTEMBER 30, 1996
------------------------
SHARES AMOUNT
------ ------
Shares sold.......................................................... 1,020,583 $ 9,284,218
Shares issued to shareholders in connection with
reinvestment of distributions.................................. 392,264 3,564,753
------------- --------------
1,412,847 12,848,971
Shares reacquired.................................................... (3,234,911) (29,409,765)
------------- --------------
Net decrease................................................. (1,822,064) $ (16,560,794)
============= ==============
</TABLE>
NOTE 6 - MATTERS SUBMITTED TO A VOTE OF SHAREHOLDERS
An annual meeting of shareholders was held on March 25, 1997. Matters
submitted for approval included consideration of a Sub-Advisory Agreement
between Davis Selected Advisers, L.P., the Investment Adviser of the Fund, and
Davis Selected Advisers-NY, Inc., an affiliate of the Adviser and election of
Christian R. Sonne, LeRoy E. Hoffberger and Jeremy H. Biggs as directors of the
Fund. With respect to consideration of the Sub-Advisory Agreement, 10,033,542
votes were cast in favor, 174,902 votes were cast against and 1,061,223 votes
abstained. With respect to election of Mr. Sonne, 10,567,948 votes were cast in
favor, 701,721 votes were withheld. With respect to the election of Mr.
Hoffberger, 10,560,253 votes were cast in favor and 709,416 votes were withheld.
With respect to the election of Mr. Biggs, 10,541,838 votes were cast in favor
and 727,830 votes were withheld. The terms of office of Wesley E. Bass, Jr.,
Marc P. Blum, Shelby M.C. Davis, Eugene M. Feinblatt, Jerry D. Geist, D. James
Guzy, G. Bernard Hamilton, Laurence W. Levine and Edwin R. Werner also continued
after the meeting.
NOTE 7 - CUSTODY FEES
Under an agreement with the custodian bank, custody fees are
reduced by credits for cash balances. Such reductions amounted to $1,439 during
the six months ended March 31, 1997.
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following financial information represents financial highlights for each
share of capital stock outstanding throughout each period:
<TABLE>
CLASS A
<CAPTION>
SIX MONTHS
ENDED YEAR TEN MONTHS
MARCH 31, ENDED ENDED
1997 SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 1996 1995
--------- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period....................................... $ 9.15 $ 9.19 $ 8.90
------ ------ ------
Income From Investment Operations
- ----------------------------------
Net Investment Income........................... .30 .61 .40
Net Gains or Losses on Securities (both
realized and unrealized)...................... .02 (.05) .30
------ ------ ------
Total From Investment Operations......... .32 .56 .70
------ ------ ------
Less Distributions
- ------------------
Dividends (from net
investment income)............................ (.29) (.54) (.40)
Distribution from gains from investment
transactions.................................. (.02) (.06) (.01)
------ ------ ------
Total Distributions....................... (.31) (.60) (.41)
------ ------ ------
Net Asset Value, End of Period..................... $ 9.16 $ 9.15 $ 9.19
====== ====== ======
Total Return<F1>..................................... 3.47% 6.33% 7.93%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000 omitted)................................. $50,492 $44,828 $45,461
Ratio of Expenses to
Average Net Assets............................ 1.40%<F2> 1.36% 1.43%<F2>
Ratio of Net Income to
Average Net Assets............................ 6.74%<F2> 6.64% 5.95%<F2>
Portfolio Turnover Rate......................... 55.40% 106.55% 127.80%
<FN>
<F1> Sales charges are not reflected in calculation.
<F2> Annualized
</FN>
</TABLE>
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
CLASS B
<CAPTION>
SIX MONTHS
ENDED
MARCH 31,
1997 YEAR ENDED SEPTEMBER 30,
--------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period........................ $ 9.12 $ 9.17 $ 9.09 $ 9.65 $ 9.49 $ 9.41
------ ------ ------ ------- ------ ------
Income From Investment Operations
- ----------------------------------
Net Investment Income............ .27 .54 .48 .44 .54 .54
Net Gains or Losses on Securities
(both realized and unrealized). .01 (.05) .10 (.18) .29 .27
------ ------ ------ ------- ------ ------
Total From Invest-
ment Operations............ .28 .49 .58 .26 .83 .81
------ ------ ------ ------- ------ ------
Less Distributions
- ------------------
Dividends (from net
investment income)............. (.25) (.48) (.48) (.44) (.54) (.54)
Distribution from gains from
investment transactions........ (.02) (.06) (.01) (.28) - -
Distribution in excess
of net investment income....... - - (.01) (.07) (.10) (.12)
Tax Return of capital
distributions................. - - - (.03) (.03) (.07)
------ ------ ------ ------- ------ ------
Total Distributions.......... (.27) (.54) (.50) (.82) (.67) (.73)
------ ------ ------ ------- ------ ------
Net Asset Value, End of Period...... $ 9.13 $ 9.12 $ 9.17 $ 9.09 $ 9.65 $ 9.49
====== ====== ====== ======= ====== ======
Total Return<F1>...................... 3.10% 5.51% 6.64% 2.81% 9.10% 8.89%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000 omitted).................. $107,797 $109,488 $126,727 $188,874 $164,018 $124,227
Ratio of Expenses to
Average Net Assets............. 2.13%<F2> 2.10% 2.14% 2.07% 2.26% 2.41%
Ratio of Net Income to
Average Net Assets............. 5.97%<F2> 5.89% 5.37% 4.59% 5.50% 5.53%
Portfolio Turnover Rate.......... 55.40% 106.55% 127.80% 113.46% 107.80% 47.31%
<FN>
<F1> Sales charges are not reflected in calculation.
<F1> Annualized
</FN>
</TABLE>
<PAGE>
DAVIS TAX-FREE HIGH
INCOME FUND, INC.
124 East Marcy Street Santa Fe, New Mexico 87501
DIRECTORS OFFICERS
Wesley E. Bass, Jr Jeremy H. Biggs
Jeremy H. Biggs. Chairman
Marc P. Blum Shelby M.C. Davis
Shelby M.C. Davis President
Eugene M. Feinblatt Eileen R. Street
Jerry D. Geist Vice President,Treasurer
D. James Guzy & Assistant Secretary
G. Bernard Hamilton Samuel P. Ynzunza
LeRoy E. Hoffberger Vice President & Secretary
Laurence W. Levine Andrew A. Davis
Christian R. Sonne Vice President
Edwin R. Werner Christopher C. Davis
Vice President
Carolyn H. Spolidoro
Vice President
Sharra L. Reed
Assistant Treasurer
& Assistant Secretary
INVESTMENT ADVISER & DISTRIBUTOR
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
TRANSFER AGENT & CUSTODIAN
State Street Bank 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
