<PAGE>
DAVIS TAX-FREE
HIGH INCOME FUND
ANNUAL REPORT
SEPTEMBER 30, 1997
DAVIS FUNDS
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
Dear Shareholder:
PERFORMANCE REVIEW
The Davis Tax-Free High Income Fund continues to provide shareholders with good
risk-adjusted performance and assets under management have enjoyed impressive
growth. While the Fund lagged behind its peer group in terms of absolute total
return during its latest fiscal year, its risk level is considerably lower than
other funds in its category.
In terms of absolute performance, the Fund's Class A shares generated a total
return on net asset value of 7.66% for the one-year period ended September 30,
1997. This compared to an average total return of 9.64% for the 48 High Yield
Muni Debt funds tracked by Lipper Analytical Services, Inc.1
At the same time, the average credit quality rating of your Fund's portfolio is
currently AA- for the securities that are rated. This investment-grade rating
is considerably higher than the quality rating of most high-yield municipal
bond funds.
Looking at risk-adjusted performance, as of September 30, 1997, the Davis
Tax-Free High Income Fund's Class B shares held Morningstar's highest rating,
***** (five stars), overall and for every time period measured--three, five and
10 years.2 This superior risk-adjusted rating was achieved, in part, by the
Fund's low level of volatility, in addition to its total return. Importantly,
the Fund has not had one year without a positive return since its inception in
March 1985.
Investors, in general, are having difficulty finding attractive investment
opportunities in all markets because prices of most investments seem high based
on historical measures. Yet the Davis Tax-Free High Income Fund has enjoyed
strong inflows of cash, particularly over the last six months, with total
assets increasing from approximately $158 million on March 31, 1997 to $227
million on September 30, 1997.3
A primary reason for this strong growth is that your Fund offers value, given
its excellent risk-adjusted performance and its high yield relative to the
portfolio's average credit rating. Furthermore, most of the Fund's return comes
from tax-free income, rather than capital gains, which is a another significant
advantage for investors in high tax brackets.
A LOW-RISK, HIGH-RETURN COMPLEMENT TO EQUITY HOLDINGS
During 1997, the yield on the Davis Tax-Free High Income Fund has generated the
equivalent of around 10% in taxable income for investors in the highest tax
bracket.4
The Fund's volatility is so low that Morningstar classifies it as a short-term
municipal fund. According to Morningstar, "Over both the trailing three- and
five-year periods, its returns have been higher than any other national
offering in the short-term category." Morningstar also notes, "There are
compelling reasons to believe that its strong performance will continue.
Manager Clark Stamper has identified a number of inefficiencies in the market
that he can take advantage of. Indeed, he has more compelling stories for the
bonds he buys than one normally hears....this fund's record is truly
impressive."5
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
A DISCIPLINED RESEARCH PROCESS
The Davis Tax-Free High Income Fund continues to employ the same investment
strategies that it used to achieve its top risk-adjusted performance rating. We
take a long-term view, concentrating primarily on evaluating the risk and
reward trade-offs of different investments through a disciplined research
process. Our objective is to obtain the best yield per credit quality--that is,
to get the most for shareholders' money given the risk taken--in order to
maximize upside potential and downside protection.
We devote considerable time to bottom-up credit analysis of municipal bond
issuers in order to minimize credit risk. Our major concern is assuring that
the credit quality of your Fund's investments does not deteriorate and that the
Fund is paid interest and principal on schedule.
In addition, we analyze each individual investment's security characteristics
in terms of upside potential and downside protection. We seek to minimize both
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).
A CONTRARIAN VALUE-ORIENTED PHILOSOPHY
To obtain maximum yield relative to credit quality, your Fund utilizes a
contrarian, value-oriented approach, investing in bonds that are out of the
spotlight and often mispriced. These include housing bonds as well as
industrial revenue bonds, which are municipal bonds backed by corporations.
While many municipal investors are not comfortable analyzing corporate credits,
Portfolio Manager B. Clark Stamper is because he also manages the Davis High
Income Fund, our high-yield taxable bond fund.
Your Fund's investment policies allow considerable flexibility to invest across
the credit quality spectrum--from investment-grade to non-investment-grade
ratings--and across the maturity spectrum--from three months to 40 years. We
take full advantage of this flexibility, fine-tuning the portfolio as market
conditions dictate.
THE IMPACT OF NARROWING CREDIT QUALITY SPREADS
Normally, bonds of lower credit quality offer investors higher interest rates
to compensate for the increased risk that interest and principal payments might
not be made on a timely basis. However, credit quality spreads in the bond
market--that is, the difference between the yields on low-quality bonds and
those on high-quality bonds--are the smallest we have ever seen.
These tight spreads have been caused by the lack of issuance of lower quality,
higher yielding municipals coupled with greater demand from investors whose
bonds have been called and who wish to reinvest in higher yielding bonds.
Because of this imbalance between supply and demand, yields have been reduced
to the point that investors are no longer compensated for the greater risk
associated with low-quality bonds.
Rather than overpaying for lower quality municipals just to obtain a slightly
larger yield, your Fund has concentrated more on higher quality municipals,
which currently offer greater value. In seeking to maximize reward relative to
risk, we are willing to give up some of the upside potential of lower rated
bonds in order to gain a more than proportionate amount of downside protection
from higher rated securities.
2
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
Sooner or later, credit quality spreads will widen to more normal
levels--probably when the economy enters recession or the demand for lower
quality municipals subsides. When that happens, lower quality bonds should
underperform higher quality issues and, at that point, should provide a buying
opportunity.
HOW NEW MONEY WAS INVESTED
One tactic we have employed in investing the inflow of new shareholder money
has been to add to positions the Fund already owns that we believe represent
good value. A recent example is the add-on investment we made in an issue of
zero-coupon housing bonds due in 2014 that are backed by first mortgages.
Zero-coupon bonds do not make periodic interest payments, but instead pay all
interest along with principal at maturity.
These zero-coupon housing bonds were issued with a high 10 7/8%
yield-to-maturity and are accruing interest at that rate, even though that rate
is somewhat higher than the interest paid by the underlying assets. As a
result, the issue's asset-to-liability ratio, which is currently just over one
times, is dropping, and the bonds have a below-investment-grade rating of
B3/BB+.
We believe bondholders, the issuer and the trustee could agree to a
restructuring of these bonds that would reduce the interest accrual rate by
25%, from 10 7/8% to around 8%--which would still represent a very high rate.
If this happens, the issue would probably be upgraded to an A rating, and the
bonds would increase dramatically in price, even though the interest rate had
been cut. In the meantime, the Fund purchased these bonds at a 10.64%
yield-to-maturity and is accruing tax-free income at that rate, which is a
higher yield than is currently offered on most taxable B-rated bonds.
While the Fund invests primarily with an eye to long-term value, it has also
taken advantage of short-term trading opportunities created by the strong
demand for low-quality municipals, despite their low yields. As an example,
your Fund recently purchased new-issue 6% electric utility industrial revenue
bonds at par ($1,000 per bond). The bonds, which are rated B2/B, mature on
September 1, 2029 and are callable in 2002 at a dollar price of 102 ($1,020 per
bond).
These bonds are an example of an issue that we think has poor upside/downside
characteristics and that we would not want to hold over the long term. However,
when we bought the bonds, we believed they would trade well in the short run.
These bonds involve both considerable credit risk because of their low credit
rating and considerable interest rate risk because of their long maturity. As a
result, the bonds are likely to drop substantially if the market declines. At
the same time, the bonds have poor upside potential in a strong market because
they are callable in 2002 at 102, only a little more than their par issuance
price. Nevertheless, investor demand for high-yield municipals is so strong
that the bonds traded up as we anticipated and we sold them a few weeks after
purchase for a solid profit.
We would like to inform you that, as a result of new monies being invested at
current market yields, there will be a reduction in the Fund's distribution in
the coming months. This will bring the Fund's distribution more in line with
similar funds in the same category.
A CORE PORTFOLIO PRUDENTLY POSITIONED FOR UNCERTAIN MARKETS
Over the past year, bond yields generally have decreased somewhat, with the
yield on the bellwether 30-year U.S. Treasury bond declining from around 6.75%
at the end of September 1996 to just below 6.40% at the end of September 1997.
At the same time, volatility has stepped up, in large part because leveraged
investors, such as arbitrageurs and hedgers who tend to trade in and out
frequently, have become a bigger factor in all the bond markets. This increased
volatility suggests that the market may be turning and rates may be heading
back up.
3
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
Given this uncertain environment, the Davis Tax-Free High Income Fund continues
to be defensively positioned with respect to credit quality and interest rate
movements, much as it has been for most of the past several years. Your Fund's
core holdings of cushion bonds are intact and have continued to contribute to
the Fund's performance. Cushion bonds are bonds that pay larger than average
interest rates and that can be purchased at relatively low prices because it is
expected that the bonds will be called in or redeemed by the issuer before
their maturity date.
Through careful research, our objective is to identify higher coupon, callable
issues that are unlikely to be called, despite the market's expectation.
Because we buy the bonds at low prices, the Fund has some protection or cushion
if the overall bond market drops. Furthermore, if the bonds remain outstanding
after the anticipated call date--as has been the case for many of the cushion
bonds the Fund owns--the Fund continues to collect high tax-free interest
income.
To lower overall risk, the portfolio also continues to be highly diversified
with approximately 365 positions in 50 states and Puerto Rico. In addition, we
are maintaining high credit quality to manage credit risk. Your Fund's credit
quality rating for the securities that are rated has generally been A+ for the
last several years, and it now stands at AA-. As a further measure of the
Fund's defensive posture, approximately 33% of the bonds in the portfolio are
backed by municipal bond insurance or a federal agency, up from approximately
26% at the end of March 1997.
The Fund's core holdings of high-coupon municipals offer lower volatility
because these bonds tend to be much less affected by interest rate increases.
At the same time, the bonds have provided investors with high levels of
tax-free income. We believe the Fund's prudent philosophy and defensive
strategies will reward our shareholders with strong performance, consistent
with our emphasis on obtaining the best yield per credit quality 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
November 14, 1997
4
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
1 All performance figures cited in this letter are calculated without
considering sales commissions. The average annual total return for the Fund's
Class A shares, including the maximum front-end sales charge of 4.75%, for the
one-year period ended September 30, 1997 and for the period December 1, 1994
through September 30, 1997 (life of Class) was 2.51% and 5.93%, respectively.
The Fund's Class B shares provided a total return of 6.89% at net asset value
for the one-year period ended September 30, 1997. The average annual total
return for the Fund's Class B shares for the 1-, 5- and 10- year periods ended
September 30, 1997, after subtracting applicable contingent deferred sales
charges was 3.89%, 6.02% and 7.62%, respectively.
2 Morningstar proprietary ratings reflect historical risk-adjusted performance
as of September 30, 1997. Subject to change every month, Morningstar ratings
are calculated from a fund's 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's Class B shares were rated against 1,374, 668 and 326
municipal bond funds for the three-, five- and 10-year periods, respectively.
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.
3 These figures include the Fund's total assets for all classes of shares.
4 On September 30, 1997, the tax-exempt yield on the Davis Tax-Free High Income
Fund's Class A shares was 5.84%, which is equivalent to a taxable yield of
9.67% for investors in the top 39.6% federal tax bracket.
5 Morningstar Mutual Funds, August 1, 1997.
5
<PAGE>
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. 1.97% 6 mos. 4.05% 12 mos. 7.66%
Class B Shares 3 mos. 1.78% 6 mos. 3.67% 12 mos. 6.89%
Class C Shares
- -------------------------------------------------------------------------------
NET ASSET VALUE AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
- -------------------------------------------------------------------------------
Class A Shares Since inception (December 1, 1994) 7.75%
Class B Shares 3 yrs.6.35% 5 yrs. 6.17% 10 yrs. 7.62%
Class C Shares
- -------------------------------------------------------------------------------
COMPOSITION OF THE FUND'S PORTFOLIO BY QUALITY RATING AS A PERCENTAGE OF
------------------------------------------------------------------------
TOTAL ASSETS AT SEPTEMBER 30, 1997
----------------------------------
Fund's
Assessment
of Non-rated General Definition
Moody's/S&P Rating Category Percentage Securities of Bond Quality
- --------------------------- ---------- ---------- ---------------
Aaa/AAA........................ 36.19% 0.20% Highest quality
Aa/AA.......................... 6.63% 0.41% High quality
A/A............................ 14.46% 0.56% Upper medium grade
Baa/BBB........................ 7.23% 4.72% Medium grade
Ba/BB.......................... 7.26% 10.88% Some speculative
elements
B/B............................ 0.65% 6.57% 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...................... 23.34% 0.00% Not rated by
Moody's or S&P
Short-term Investments......... 4.24% 0.00%
----- -----
100.00% 23.34%
Average credit rating: AA-
Weighted average maturity: 15.63 years
6
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND
COMPARISON OF DAVIS TAX-FREE HIGH INCOME FUND, CLASS A SHARES AND LEHMAN
BROTHERS 10 YEAR REVENUE BOND INDEX
===============================================================================
Average Annual Total Return For the Periods ended September 30, 1997.
-------------------------------------------------
CLASS A SHARES (This calculation includes an
initial sales charge of 4 3/4%.)
One Year.............................. 2.51%
Life of class (December 1, 1994
through September 30, 1997)........... 5.93%
-------------------------------------------------
$10,000 INVESTED OVER TEN YEARS. Let's say you invested $10,000 in Davis
Tax-Free High Income Fund A shares on December 1, 1994 (inception of class) and
paid a 4 3/4% sales charge. As the chart below shows, by September 30, 1997 the
value of your investment would have grown to $11,774 - a 17.74% increase on
your initial investment. For comparison, the Lehman Brothers 10 Year Revenue
Bond Index is also presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE PURPOSE OF EDGAR
FILING.]
<TABLE>
<CAPTION>
12/1/94 9/30/95 9/30/96 9/30/97
------- ------- ------- -------
<S> <C> <C> <C> <C>
Davis Tax-Free High Income Fund Class A $9,525 $10,285 $10,936 $11,774
Lehman Brothers 10 Year Revenue $10,000 $8,728 $9,309 $10,430
</TABLE>
Lehman Brothers 10 Year Revenue Bond Index is an unmanaged index and has no
specific investment objective. The index used includes gross dividends
reinvested, but does not take into account any sales charge.
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.
7
<PAGE>
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
===============================================================================
Average Annual Total Return For the Periods ended September 30, 1997.
- -------------------------------------- ----------------------------------------
CLASS B SHARES (This calculation CLASS C SHARES (This calculation
includes applicable contingent includes applicable contingent
deferred sales charges.) deferred sales charges.)
One Year...................... 3.89%
Five Years.................... 6.02% Life of Class (August 18, 1997
Ten Years..................... 7.62% through September 30, 1997.... (0.23%)
- -------------------------------------- ----------------------------------------
$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, 1987. As the chart below
shows, by September 30, 1997 the value of your investment would have grown to
$20,847 - a 108.47% increase on your initial investment. For comparison, the
Lehman Brothers 10 Year Revenue Bond Index is also presented on the chart
below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE PURPOSE OF EDGAR
FILING.]
<TABLE>
<CAPTION>
9/30/87 9/30/88 9/30/89 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94 9/30/95 9/30/96 9/30/97
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Davis Tax-Free High Income Fund Class B $10,000 $11,258 $12,229 $12,885 $14,186 $15,451 $16,857 $17,331 $18,482 $19,504 $20,847
Lehman Brothers 10 Year Revenue $10,000 $11,323 $12,218 $13,043 $14,875 $16,416 $18,589 $13,247 $15,382 $16,406 $18,381
</TABLE>
Lehman Brothers 10 Year Revenue Bond Index is an unmanaged index and has no
specific investment objective. The index used includes gross dividends
reinvested, but does not take into account any sales charge.
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.
8
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND
PORTFOLIO HOLDINGS AS OF SEPTEMBER 30, 1997
===============================================================================
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE PURPOSE OF EDGAR
FILING.]
Portfolio Makeup (% of Fund Assets) Sector Weightings (% of Portfolio)
- ----------------------------------- ----------------------------------
Cash & Equivalents 6.7% General Obligation 5.5%
Municipal Bonds 93.3% Utilities 12.9%
Education 4.0%
Health 26.3%
Public Facilities 0.9%
Housing 12.7%
Other 6.6%
Ind. Dev. Rev. 15.5%
Poll. Ctrl. Rev. 2.4%
Other Revenue Bonds 13.2%
<TABLE>
<CAPTION>
% OF
FUND
TOP 10 HOLDINGS STATE ASSETS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wisconsin Hlth. Fac. Auth. Rev. Ref. Bds., Hosp. Sisters Svcs. Sys.,
Ser. D, 9.25%, 07/01/12 Wisconsin 1.82%
Puerto Rico Commonwealth Infrastructure Fin. Auth. Special Bds.,
Ser. '88 A, 7.75%, 07/01/08 Puerto Rico 1.60%
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 1.54%
Beaver Cnty., PA, IDA PCR Bds. (J&L Specialty Steel-Formerly Known
as Colt Ind. Prj.) Ser. 19, 7.00%, 06/01/08 Pennsylvania 1.33%
Claiborne Cnty., MS, PCR (Middle South Energy, Inc. Prj.) Ser. C,
9.875%, 12/01/14 Mississippi 1.28%
New York, NY, City Muni Wtr. Fin. Auth., Wtr. & Swr. Rev. Bds.,
Ser. '97 B, 5.125%, 06/15/30 New York 1.26%
Clifton Park, NY, IDA IDR Bds. (Caldor Inc. Prj.) Ser. A, 11.25%,
12/01/12 New York 1.13%
Mississippi Home Corp. Residual Rev. Bds., Cap. Appreciation, Ser. I '92,
Zero Cpn., 09/15/16 Mississippi 1.09%
The Mahoning Valley Sanitary Dist. (Ohio) Wtr. Rev. Bds., Ser. '94,
7.750%, 05/15/19 Ohio 0.97%
Berks Cnty., PA, IDA (Supermarkets General Corp. Prj.), 10.50%, 11/01/03 Pennsylvania 0.94%
</TABLE>
9
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
At September 30, 1997
<TABLE>
<CAPTION>
===========================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
<S> <C> <C>
MUNICIPAL BONDS - (93.29%)
ALABAMA - (1.34%)
$ 335,000 Alabama Hsg. Fin. Auth., Sngl. Fam. Hsg. Rev. Bds. (MBIA Insured)
`82 Ser. A, 6.00%, 06/01/13................................................ $ 236,741
525,000 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....................... 534,020
165,000 Ozark, AL, Medical Clinic Brd. 1st Mtg. Rev. Bds. (United States Hlth. &
Hsg. Foundation, Inc. Prj.), 9.25%, 10/01/99............................... 173,027
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.. 543,620
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.............. 1,042,180
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.............. 518,415
------------
3,048,003
------------
ALASKA - (0.53%)
680,000 Alaska St. Hsg. Fin. Corp. Collateralized Home Mtg. Bds. - Ser. `89A-1,
7.625%, 12/01/13........................................................... 701,706
500,000 Alaska Student Loan Corp., Student Loan Rev. Bds. Ser. `87A,
(AMBAC Insured), 5.10%, 07/01/04........................................... 509,395
------------
1,211,101
------------
ARIZONA - (2.19%)
150,000 Chandler, AZ, Improvement Dist. No. 51, 7.875%, 01/01/99..................... 151,469
1,275,000 City of Tolleson Muni Fin. Corp. Rev. Bds., Ser. of '85, 9.20%, 09/01/05..... 1,303,050
230,000 Coconino & Mohave Cntys., AZ, Unified School Dist. No. 6, Cap.
Appreciation Ref. Bds., Zero Cpn., 07/01/02................................ 186,328
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............................. 668,219
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.... 530,715
85,000 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.......................... 88,295
14,435,000 Phoenix, AZ, IDA Sngl. Fam. Mtg. Rev. Bds., Ser. '84, Zero Cpn.,
12/01/15................................................................... 2,041,542
------------
4,969,618
------------
ARKANSAS - (0.28%)
70,000 Arkansas St. Dev. Fin. Auth., Sngl. Fam. Mtg. Rev. Bds., Conventional &
FHA Insured, Ser. i85 A, 9.375%, 08/01/14.................................. 71,723
35,000 Arkansas St. Dev. Fin. Auth., Sngl. Fam. Mtg. Rev. Bds., Conventional &
FHA-MBIA Insured, Ser. i85 A, 9.375%, 08/01/14............................. 35,881
500,000 Independence Cnty., AR, PCR, (Mississippi Pwr. & Lt. Co. Prj.) '82-A
Ser. B, 9.50%, 07/01/14................................................... 537,135
------------
644,739
------------
10
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
===========================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
CALIFORNIA - (7.71%)
$ 1,465,000 California Hlth. Fac. Auth. Hosp. Rev. Ref. Bds. (Valley Presbyterian Hosp.)
(FGIC Insured) '83 Ser. A, 9.00%, 05/01/12................................. $ 1,469,146
445,000 California Hlth. Fac. Auth. Hosp. Rev. Ref. Bds. (Valley Presbyterian Hosp.)
(MBIA Insured) '83 Ser. A, 9.00%, 05/01/12................................. 446,259
370,000 California Hlth. Fac. Auth. Insured Hosp. Rev. Bds. (Victor Valley
Community Hosp.) '84 Ser. A, 9.875%, 07/01/12.............................. 371,931
825,000 California Hlth. Fac. Auth. Insured Hosp. Rev. Bds. FGIC Insured (Victor
Valley Community Hosp.) '84 Ser. A, 9.875%, 07/01/12....................... 849,750
200,000 California Hsg. Fin. Agy. Rev. Bds., Cap. Appreciation Home Mtg.,
Ser. B, Zero Cpn., 02/01/99................................................ 184,692
690,000 California Hsg. Fin. Agy. Rev. Insured Hsg. Bds., Ser. B, 8.625%, 08/01/15... 722,064
320,000 California Hsg. Fin. Agy. Rev. Home Mtg. Bds., `87 Ser. A, 8.20%,
08/01/17................................................................... 327,395
190,000 California Hsg. Fin. Agy. Rev. Home Mtg. Bds., `91 Ser. C, 7.45%,
08/01/11................................................................... 194,231
285,000 California St. Veteran's Bds., `89 Ser. AY, 7.375%, 04/01/19................. 285,678
500,000 California St. Veteran's Bds., Unlimited G.O., `90 Ser. BA, 6.70%, 02/01/00.. 504,775
250,000 California St. Veteran's Bds., Unlimited G.O., `90 Ser. BA, 6.80%, 02/01/00.. 252,470
100,000 The City of Los Angeles, Multifam. Hsg. Ref. Rev. Bds., `91 Ser. A,
7.00%, 05/01/21............................................................ 105,747
875,000 City of Napa, CA, '92, Ind. Rev. Ref. Bds. (Napa Motel and Restaurant),
8.50%, 12/01/07............................................................ 898,310
1,100,000 Community Redevelopment Agy., The City of Montebello Hsg. Tax
Allocation Bds., `97 Ser. A, 5.50%, 09/01/19............................... 1,091,607
200,000 Contra Costa Cnty., CA, Ctfs. of Participation (Merrithew Memorial Hosp.
Replacement) Capital Appreciation Bds., Ser. `92, Zero Cpn., 11/01/14...... 79,012
250,000 Cnty. of Marin, Mtg. Rev. Bds., Ser. '84A (FHA Insured Mtg. Loan -
Marion Park Apts. Prj.), Zero Cpn., 04/01/01............................... 177,813
1,000,000 Cnty. of Marin, Multifam. Hsg. Rev. Bds., Ser. '84B (Marion Park
Apts. Prj.), Zero Cpn., 04/01/07........................................... 390,440
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........ 100,225
45,000 Lancaster - Grand Terrace Huntington Pk., CA, Hsg. Fin. Auth. Res. Mtg.
Rev. Ref. Bds., Ser. B, 7.375%, 01/01/12................................... 47,938
160,000 Los Angeles, CA, Community Redevelopment Agy. Res. Mtg. Rev. Bds.,
'85 Ser. A, 8.875%, 05/01/18............................................... 170,466
190,000 Los Angeles, CA, Community Redevelopment Agy. Bds., '87 Ser. G,
6.75%, 07/01/10............................................................ 194,017
130,000 Los Angeles, CA, Community Redevelopment Agy. Bds., '87 Ser. G,
6.75%, 07/01/10............................................................ 135,360
105,000 Los Angeles, CA, Community Redevelopment Agy. Bds., '87 Ser. G,
6.75%, 07/01/10............................................................ 107,308
11
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
===========================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
CALIFORNIA - CONTINUED
$ 500,000 Los Angeles, CA, Dept. Wtr. & Pwr. Elec. Plant Rev. Bds., 3rd Issue,
5.30%, 10/15/12............................................................ $ 500,255
175,000 Los Angeles, CA, Multi. Fam. Rev. (FHA Insured Multi-Fam. Hsg. Mtg.
Rev. Bds.) Park Parthenia Prj., 7.30%, 07/20/11............................ 180,700
40,000 Los Angeles, CA, Reg'l. Airports Improvement Corp. Lease Rev. Bds.
(Los Angeles West Terminal Fuel Corp.), 10.00%, 01/01/01................... 44,605
155,000 Los Angeles Cnty., CA, Public Wks. Fin. Auth. Bds. (Lease Rev. Mult. Cap.
Facs. Prj.) Ser. `97, 5.125%, 12/01/17..................................... 152,179
3,000,000 Perris, CA, Sngl. Fam. Mtg. Rev. Bds., Ser. `88 A, Zero Cpn., 06/01/23....... 700,080
100,000 San Bernardino Assoc. Comm. Fin. Auth. Hlth. Care Ref. and Improvement
Certificates of Participation (Granada Hills Community Hosp. Prj.)
`97 Ser. A, 6.90%, 05/01/27................................................ 106,570
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.................. 710,465
1,500,000 San Joaquin Hills, CA, Transn. Corridor Agy. Toll Rd. Rev. Ref. Bds.,
Ser. `97 A, Zero Cpn., 01/15/28............................................ 278,550
2,215,000 San Joaquin Hills, CA, Transn. Corridor Agy. Toll Rd. Rev. Ref. Bds.,
Ser. `97 A, Zero Cpn., 01/15/29............................................ 388,733
4,000,000 San Joaquin Hills, CA, Transn. Corridor Agy. Toll Rd. Rev. Ref. Bds.,
Ser. `97 A, Zero Cpn., 01/15/30............................................ 663,400
5,000,000 San Joaquin Hills, CA, Transn. Corridor Agy. Toll Rd. Rev. Ref. Bds.,
Ser. `97 A, Zero Cpn., 01/15/31............................................ 783,600
5,000,000 San Joaquin Hills, CA, Transn. Corridor Agy. Toll Rd. Rev. Ref. Bds.,
Ser. `97 A, Zero Cpn., 01/15/32............................................ 740,450
5,000,000 San Joaquin Hills, CA, Transn. Corridor Agy. Toll Rd. Rev. Ref. Bds.,
Ser. `97 A, Zero Cpn., 01/15/34............................................ 661,000
5,000,000 San Joaquin Hills, CA, Transn. Corridor Agy. Toll Rd. Rev. Ref. Bds.,
Ser. `97 A, Zero Cpn., 01/15/35............................................ 624,450
5,000,000 San Joaquin Hills, CA, Transn. Corridor Agy. Toll Rd. Rev. Ref. Bds.,
Ser. `97 A, Zero Cpn., 01/15/36............................................ 589,900
170,000 Santa Clara Cnty., CA, Mtg. Rev. Insured Multiplier Rev. Bds., (Terman
Apt. Prj.) Ser. `84 A, Zero Cpn., 10/01/99................................. 149,029
90,000 Torrance, CA, Hosp. Rev. Bds. (Torrance Mem. Hosp.) Ser. `87, 6.75%,
01/01/12................................................................... 91,996
250,000 University, CA, Rev. Bds. (Faculty Residential Mtg.) Ser. `79, 7.20%,
09/01/12................................................................... 250,433
790,000 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%, 10/01/11............ 801,913
------------
17,524,942
------------
12
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
===========================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
COLORADO - (0.47%)
$ 1,000,000 Denver (City & Cnty.), CO, Airport Rev. Ref. Bds., Ser. `97E, 5.25%,
11/15/23................................................................... $ 973,600
30,000 Denver (City & Cnty.), CO, Sngl. Fam. Mtg. Rev. Bds., Ser. '85A,
Zero Cpn., 09/01/16........................................................ 4,239
180,000 Hamilton Creek Metro. Dist., Summit Cnty., CO, G.O., 11.25%, 12/01/04*....... 90,000
------------
1,067,839
------------
CONNECTICUT - (1.52%)
250,000 Connecticut Dev. Auth., Aquarium Prj. Rev. Bds. (Mystic Marine Life
Aquarium Prj. - `97 Series A), 6.875%, 12/01/17............................ 260,228
600,000 Connecticut Dev. Auth., Hlth. Care Rev. Bds. (Corp. for Independent Living
Prj.) Ser. '93B, 8.00%, 07/01/17........................................... 640,962
2,000,000 Connecticut St. Hlth. & Educ. Facs. Auth. Rev. Ref. Bds. (Middlesex Hosp.)
Ser. `97H, 5.125%, 07/01/27................................................ 1,901,820
645,000 Connecticut St. Res. Recovery Auth. Bds. (Bridgeport Resco Co., L.P. Prj.)
`85 Ser. B, 8.625%, 01/01/04............................................... 657,049
------------
3,460,059
------------
DELAWARE - (0.37%)
830,000 Delaware Econ. Dev. Rev. Ref. Bds. (Supermarkets General Corp. Prj.)
Ser. '83, 10.875%, 12/01/03................................................ 842,467
------------
DISTRICT OF COLUMBIA - (0.11%)
250,000 District of Columbia (Washington, D.C.) Rev. Bds. (The Howard University
Issue) Ser. A, 7.875%, 10/01/04............................................ 259,785
------------
FLORIDA - (6.16%)
1,265,000 Broward Cnty., FL, Hsg. Fin. Auth. Rev. Home Mtg., Ser. A, Cap.
Appreciation, Zero Cpn., 04/01/14.......................................... 243,032
435,000 Charlotte Cnty., FL, IDR Ref. Bds. (Beverly Enterprises - Florida, Inc. Prj.)
Ser. '87, 10.00%, 06/01/11................................................. 496,753
6,170,000 City of Tampa, FL, Home Mtg. Rev. Bds., '83 Ser. A, Muni Multiplier
Bds., Zero Cpn., 10/01/14.................................................. 1,047,666
690,000 Dade Cnty., FL, Special Hsg. Rev. Bds. (City of Miami Dev. - Indenture
VIII), Ser. A, 11.00%, 07/01/12............................................ 701,426
890,000 Dade Cnty., FL, Special Hsg. Rev. Bds. (City of Miami Dev. - Indenture
VIII), Ser. A, 12.00%, 07/01/12............................................ 904,703
170,000 Florida Hsg. Fin. Agy. Multifam. Bds. (Pickwick Apts.) Ser. `84A,
Zero Cpn., 01/01/07........................................................ 92,390
1,000,000 Florida Hsg. Fin. Agy. (Southlake Apartments Prj. - D), 8.10%, 10/01/02...... 1,020,490
35,000 Florida St. Board of Educ. Cap. Outlay Bds., Ser. `89B, 7.50%, 06/01/05...... 37,908
105,000 Highlands Cnty., FL, IDA (Beverly Enterprises - Florida, Inc. Prj.) Ser. '91,
9.25%, 07/01/07............................................................ 117,737
500,000 Hillsborough Cnty. IDA 1st Mtg. Rev. Bds. (Tampa Bay Christian Ctr.,
Inc. - Alafia Village Prj.) Ser. `96, 8.75%, 10/01/26...................... 511,770
13
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
===========================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
FLORIDA - CONTINUED
$ 235,000 The Hsg. Fin. Auth. of Dade Cnty. (Florida) Collateralized Mtg. Rev. Bds.,
'84 Ser. H (Lihud Ltd. Apts. Prj.), 10.50%, 06/01/00....................... $ 236,126
1,000,000 Jacksonville, FL, Hlth. Fac. Auth. Hosp. Rev. Bds., Charity Obligation
Group, Ser. `97 A, 5.125%, 08/15/27........................................ 955,100
200,000 Jacksonville Hlth. Fac. Auth. Hosp. Rev. Ref. Bds., Ser. '89A (Methodist
Hosp. Prj.), 8.00%, 10/01/06............................................... 204,058
460,000 Jacksonville Hlth. Fac. Auth. Hosp. Rev. Ref. Bds., Ser. '89A (Methodist
Hosp. Prj.), 8.00%, 10/01/15............................................... 469,333
300,000 Jacksonville Hlth. Fac. Auth. Hosp. Rev. Ref. Bds., Ser. '89B (Methodist
Hosp. Prj.), 8.00%, 10/01/15............................................... 306,087
330,000 Manatee Cnty., FL, Hsg. Fin. Auth. Mtg. Rev. Bds., Cap. Appreciation,
'83 Ser. A, Zero Cpn., 10/01/15............................................ 51,708
75,000 Marion Cnty., FL, IDR (Midland-Ross Corp. Prj.) Ser. '81, 11.875%,
08/01/11................................................................... 76,484
230,000 Miami, FL, Special Obligation Bds. (MBIA Insured) `86 Ser. A, 7.375%,
07/01/06................................................................... 234,244
435,000 Orange Cnty., FL, IDA (Beverly Enterprises - Florida, Inc. Prj.) Ser. '91,
9.25%, 08/01/10............................................................ 488,557
2,140,000 Palm Beach Cnty., FL, Hsg. Fin. Auth. Sngl. Fam. Mtg. Rev. Bds. Cap.
Appreciation, Zero Cpn., 07/01/14.......................................... 391,834
1,440,000 Pasco Cnty., FL, Hsg. Fin Auth. Multifam. Rev. Ref. Bds., (Cypress Trail
Apts. Prj.) Ser. `97 B, 5.55%, 06/01/27.................................... 1,452,571
500,000 Pinellas Cnty. Educ. Fac. Auth. Rev. Bds., Ser. `97 B (College Harbor Prj.)
(Junior Lien Bds.), 6.75%, 12/01/32........................................ 514,715
100,000 Pinellas Park, FL, Wtr. & Swr. Rev. Bds., Ser. `84 A, 10.00%, 10/01/02....... 103,000
1,000,000 Reedy Creek, FL, Impt. Dist. FL Util. Rev. Bds., Ser. `87-1, 8.90%,
10/01/03................................................................... 1,020,140
450,000 South Indian River Wtr. Control Dist., Sect. 15A Improvement Bds. (Egret
Landing - Phase I), 8.00%, 11/01/18........................................ 491,702
1,300,000 Tamarac, FL, IDR Bds., (Sun Belt Precision Prods. Inc.) Ser. `97,
6.50%, 08/01/17............................................................ 1,304,433
470,000 Winter Garden, FL, IDR Ref. Bds. (Beverly Enterprises - Florida, Inc. Prj.)
Ser. '91, 8.75%, 07/01/12.................................................. 530,057
------------
14,004,024
------------
GEORGIA - (1.90%)
300,000 Douglas Cnty., GA, School Dist. Bds., Unlimited G.O., Ser. `86, 6.85%,
01/01/03................................................................... 306,720
200,000 Gainesville Redevelopment Auth., 1st Mtg. Rev. Bds. (Autumn Breeze
Personal Care Home, Inc. Prj.) Ser. e96A, 8.00%, 04/01/26.................. 208,192
1,160,000 Georgia Muni Elec. Auth. Pwr. Rev., `92 Ser. O, 8.125%, 01/01/17........ 1,194,614
585,000 The Hsg. Auth. of Columbus, GA, Multifamily Hsg. Rev. Bds. (Columbus
Gardens Elderly Hsg. Prj.) Ser. '94, 8.25%, 01/01/24....................... 625,868
14
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
===========================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
GEORGIA - CONTINUED
$ 200,000 Liberty Cnty., IDA, Ind. Rev. Ref. Bds., Ser. `92 (LeConte Properties,
Inc. Prj.), 7.875%, 12/01/14............................................... $ 219,156
750,000 Macon Cnty., GA, Hosp. Ref. Rev. Bds. (Flint River Comm.
Hospital - Paracelsus Healthcare Corp. Prj.) Ser. '91, 9.00%, 03/01/11..... 766,800
1,000,000 Savannah, GA, Econ. Dev. Auth. Rev. Bds. (First Mtg.-Coastal Care)
Ser. `97 A, 7.75%, 09/01/27................................................ 1,003,410
------------
4,324,760
------------
HAWAII - (0.19%)
220,000 Dept. of Transportation of the State of HI, Special Fac. Rev. Bds., Ser. e90
(Continental Airlines, Inc.), 9.60%, 06/01/08............................. 246,413
200,000 Hawaii St., Ser. `97-CN (FGIC Insured), 5.25%, 03/01/17...................... 196,882
------------
443,295
------------
ILLINOIS - (6.00%)
1,000,000 Chicago, IL, Bldg. Acquisition Ctfs. (FSA) Ser. `97, 5.40%, 01/01/19......... 982,550
750,000 Chicago, IL, Wtr. Rev. Bds., Ser. `97, 4.00%, 11/01/98....................... 750,480
160,000 Cnty. of Cook, IL, Sngl. Mtg. Rev. Bds., '83 Ser. A, Zero Cpn., 07/01/15.... 24,272
1,000,000 Des Plaines, IL, Hosp. Fac. Rev. Ref. Bds. (Holy Fam. Hosp.), 9.25%,
01/01/14................................................................... 1,035,250
125,000 Hoffman Estates IL, Tax Increment Rev. Bds. (Hoffman Estates Econ.)
Ser. `97, 7.625%, 11/15/09................................................. 135,701
450,000 Illinois Educ. Fac. Auth. Rev. Ref. Bds. (Illinois Institute of Technology)
Ser. A i87, 8.75%, 06/01/15................................................ 460,467
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.......................... 1,495,239
150,000 Illinois Hlth. Fac. Auth. Rev. (Hlth. Fac. Rev. Ref. Bds. Ser. e85) Methodist
Med. Ctr. of Illinois, 8.00%, 10/01/14..................................... 150,477
100,000 Illinois Hlth. Fac. Auth. Rev. Ref. Bds. (Advocate Hlth. Care) `96 Ser. A,
4.70%, 08/15/01............................................................ 100,908
3,095,178 Illinois Hsg. Dev. Auth., Multi-Fam. Hsg. Rev. Bds., Cap. Appreciation,
Ser. `83A, Zero Cpn., 07/01/25............................................. 213,842
185,000 St. Clair Cnty., IL, Certificates of Participation Bds., Ser. `97 A, 5.25%,
10/01/11................................................................... 184,456
300,000 St. Clair Cnty., IL, Certificates of Participation Bds., Ser. `97 A, 5.30%,
10/01/12................................................................... 299,325
1,000,000 St. Clair Cnty., IL, Pub. Bldg., Community Bldg. Rev. Bds., 8.00%,
12/01/05................................................................... 1,038,740
890,000 State of Illinois Civic Ctr. Bds. (Dedicated Tax Rev. Bds.) Ser. `91,
9.15%, 12/15/99............................................................ 916,033
1,785,000 Urbana, IL, Econ. Dec. Rev. Bds. (Kroger Co. Prj.) ,11.50%, 03/01/07......... 1,866,218
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....................... 1,577,340
1,000,000 Village of Robbins, Cook Cnty., IL, Res. Recovery Rev. Ref. Bds., Ser. `97
(Robbins Res. Recovery Partners, L.P. Prj.), 4.90%, 10/15/17............... 1,003,080
15
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
===========================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
ILLINOIS - CONTINUED
$ 151,000 Village of Sauget, IL, IDR Bds. (The Pillsbury Co. Prj.) Ser. '80, 8.375%,
05/01/05................................................................... $ 151,270
500,000 Village of Sherman, IL, 1st Mtg. Rev. Bds. (Villa Vianney, Inc.) Ser. '95A,
8.375%, 07/01/25........................................................... 522,410
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*.......................... 740,000
-------------
13,648,058
-------------
INDIANA - (1.65%)
500,000 Carmel, IN, Retirement Rental Hsg. Rev. Ref. Bds. (Beverly Enterprises -
Indiana, Inc. Prj.) Ser. '92, 8.75%, 12/01/08.............................. 567,555
268,754 Elwood, IN, Econ. Dev. Rev. (K-Mart Co. - S. S. Kresge Co. Prj.), 8.50%,
10/15/00................................................................... 269,030
525,000 Indiana Bond Bank, Ser. '85 A Bds., 9.625%, 02/01/06......................... 542,745
405,000 Indiana Bond Bank, Ser. `85 A Bds., 7.875%, 02/01/11......................... 414,064
80,000 Indiana Bond Bank, Ser. '85 C Bds., 9.25%, 02/01/07.......................... 81,758
1,000,000 Indiana Bond Bank, Ser. '88 C Bds., 8.125%, 02/01/17......................... 1,033,200
515,000 Indiana Bond Bank, Special Program Bds., Ser. i87 A, 8.70%, 02/01/13......... 527,921
85,000 Indianapolis, IN, Econ. Dev. (GNMA Coll. - Bethany Indpt. Care), 9.15%,
08/20/16................................................................... 90,650
250,000 Indianapolis, IN, Gas Util. Rev. Ref. Bds., Ser. `86 B, 4.00%, 06/01/09...... 226,435
-------------
3,753,358
-------------
IOWA - (0.84%)
244,806 Creston, IA, IDR (S.S. Kresge Co. - K-Mart Inc.), 8.50%, 08/01/00............ 245,266
1,300,000 Ottumwa, IA, Hosp. Fac. Rev. Ref. Bds. (Ottumwa Reg'l Hlth. Ctr. Inc.)
Ser. `85, 9.625%, 11/01/10................................................. 1,344,304
315,000 Salix, IA, PCR Bds., (Iowa-Illinois Gas & Elec. Prj.), 5.75%, 06/01/03....... 316,077
-------------
1,905,647
-------------
KANSAS - (0.91%)
5,000 City of Wichita, KS, Sngl. Fam. Mtg. Rev. Bds., '85 Ser. A, 9.00%,
07/01/08................................................................... 5,221
910,000 Kansas City, KS, Crawford Cnty., Tax-Exempt Muni Multiplier Rev. Bds.,
Zero Cpn., 04/01/16........................................................ 127,810
1,330,000 Kansas City, KS, Hosp. Rev. Bds., Ser. '74, 8.10%, 12/01/04.................. 1,362,359
205,000 Liberal, KS, Swr. Util. Sys. Rev. Ref. Bds., 8.80%, 10/01/99................. 209,900
305,000 Liberal, KS, Swr. Util. Sys. Rev. Ref. Bds., 8.90%, 04/01/00................. 312,314
400,000 Saline Cnty., KS, Sngl. Fam. Mtg. Rev. Cap. Accumulator Bds.,
Ser. '82 A, Zero Cpn., 11/01/14............................................ 62,652
-------------
2,080,256
-------------
KENTUCKY - (1.63%)
185,000 Cntys. of Jefferson, Oldham and Bullitt, KY, Home Mtg. Rev. Bds, Ser. '84,
10.75%, 11/01/14........................................................... 194,566
1,800,000 Elizabethtown, KY, IDR Bds. (Colt Industries Inc.), 9.875%, 10/01/10......... 1,841,580
16
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
===========================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
KENTUCKY - CONTINUED
$ 250,000 Floyd, KY, Gas Sys. Rev. Ref. Bds., Ser. '91A, 8.00%, 09/01/12............... $ 281,933
200,000 Jefferson Cnty., KY, Cap. Prj. Corp. Rev. Bds. Lease - Ser. B, Zero Cpn.,
08/15/07................................................................... 98,838
550,000 Jefferson Cnty., KY, Cap. Prj. Corp. Rev. Muni Multi Lease Ref. Bds. -
Ser. A `87, Zero Cpn., 08/15/14............................................ 174,130
395,000 Kentucky, St. Tpk. Auth. Res. Rec. Rd. Rev. Ref. Bds., Ser. `85 A,
6.00%, 07/01/09............................................................ 395,383
175,000 Morehead, KY, Ind. Bldg. Rev. Bds. (Emerson Elec.) Ser. `76, 6.30%,
04/01/01................................................................... 179,230
1,150,000 Owensboro, KY, Elec. Light & Pwr. Rev. Bds., Ser. B, Zero Cpn.,
01/01/09................................................................... 378,684
500,000 Owensboro, KY, Elec. Light & Pwr. Rev. Bds., Ser. B, Zero Cpn.,
01/01/09................................................................... 164,645
-------------
3,708,989
-------------
LOUISIANA - (2.57%)
140,000 Jefferson Parish, LA, Home Mtg. Rev. Bds. Cap. Appreciation, Zero Cpn.,
09/01/02.................................................................. 85,418
140,000 Jefferson Parish, LA, Home Mtg. Rev. Bds. Cap. Appreciation, Zero Cpn.,
03/01/03.................................................................. 80,795
1,000,000 Lake Charles Non-Profit Hsg. Dev. Corp. Mtg. Rev. Ref. Bds., Ser. '90A
and Ser. '90B, 7.875%, 02/15/25............................................ 1,012,500
1,500,000 Louisiana Pub. Fac. Auth. Rev. Ref. Bds., Ser. '93 (Schwegmann Westside
Expressway, Inc. Prj.), 8.00%, 10/01/09.................................... 1,618,995
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
370,000 New Orleans, LA, Hsg. Dev. Corp. First Lien Rev. Bds. (Tulane Ave. Prj.)
Ser. `79, 7.875%, 06/01/10................................................. 370,799
140,000 Sales Tax School Bds., Parish School Brd. of the Parish of Jefferson, State of
LA, Ser. '86A, 7.00%, 02/01/08............................................. 149,528
75,000 Sales Tax School Bds., Parish School Brd. of the Parish of Jefferson, State of
LA, Ser. '86A, 7.00%, 02/01/08............................................. 79,081
355,000 Shreveport, LA, Wtr. & Swr. Rev. Crossover Ref. Bds., Ser. e86C,
7.00%, 12/01/05............................................................ 363,985
1,635,000 Shreveport, LA, Wtr. & Swr. Rev. Crossover Ref. Bds., Ser. e86C,
7.125%, 12/01/14........................................................... 1,676,709
-------------
5,840,610
-------------
MAINE - (0.80%)
1,765,000 Maine Hlth. & Higher Educ. Fac., Hosp. Rev. Ref. Bds. (Eastern Maine
Med. Ctr.) Ser. i85, 9.10%, 10/01/12....................................... 1,826,528
-------------
17
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
============================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
MARYLAND - (1.69%)
$ 700,000 Allegany Cnty., MD, IDR Bds. (Moran Manor Care Ctr.) Ser. `84,
12.45%, 02/01/27........................................................... $ 873,719
10,000 Hsg. Auth. of Prince George's Cnty. (Maryland) GNMA Collateralized Sngl.
Fam. Mtg. Rev. Bds., '89 Ser. A, 8.10%, 10/01/20........................... 10,611
570,000 Maryland Econ. Dev. Corp., Nursing Fac. Mtg. Rev. Bds. (Ravenwood
Hlthcare, Inc. Fac.) Ser. e96A, 8.375%, 08/01/26........................... 595,958
495,000 Montgomery Cnty., MD, Econ. Dev. Rev. Bds. (Brink Reservoir Fac.)
Ser. `84, 10.375%, 12/15/14................................................ 506,336
1,770,000 Upper Potomac River Comm., MD, PCR Bds., Westvaco Corp. Prj.,
9.125%, 08/01/15........................................................... 1,856,730
---------------
3,843,354
---------------
MASSACHUSETTS - (2.87%)
250,000 Lawrence, MA, IDR Bds., (New Balance Realty Trust Prj.), 10.00%,
10/01/03................................................................... 250,965
110,000 Massachusetts Educ. Loan Auth., Educ. Loan Rev. Bds., Issue C, Ser. '85A,
7.875%, 06/01/03........................................................... 112,872
240,000 Massachusetts Educ. Loan Auth., Educ. Loan Rev. Bds., Issue D, Ser. '89A,
7.65%, 01/01/07............................................................ 251,155
435,000 Massachusetts Hlth. & Educational Fac. Auth. Rev. Bds., (Malden Hosp. Prj.)
Ser. `82 A, 9.50%, 08/01/08................................................ 436,492
125,000 Massachusetts Hlth. & Educational Fac. Auth. Rev. Bds. (New England
School of Law), 8.30%, 07/01/03............................................ 125,456
125,000 Massachusetts Hlth. & Educational Fac. Auth. Rev. Bds. (New England
School of Law), 8.30%, 07/01/04............................................ 125,456
1,000,000 Massachusetts Hlth. & Educational Fac. Auth. Rev. Bds., St. Anne's Hosp.
Issue, Ser. A, 9.375%, 07/01/14............................................ 1,003,310
965,000 Massachusetts Ind. Fin. Agy. Rev. Bds., Provider Lease Prg., `89 Ser. A,
8.75%, 07/15/09............................................................ 1,001,110
450,000 Massachusetts State G.O., 10.50%, 08/01/03................................... 456,935
240,000 Massachusetts State G.O., 9.75%, 09/01/03.................................... 242,357
1,500,000 Massachusetts State, Ind. Fin. Agy., Rev. Bds., Ser. `94, 7.75%, 04/01/19.... 1,572,030
4,000,000 Massachusetts State, Tpk. Auth. Met. Hwy. Sys., Rev. Bds., Ser. `97 A,
Zero Cpn., 01/01/24........................................................ 950,400
---------------
6,528,538
---------------
MICHIGAN - (2.18%)
100,000 Cnty. of Oakland, State of Michigan Bds., Clinton-Oakland Sys., Paint
Creek Inceptor Sewage Disposal Bds., 7.00%, 05/01/01....................... 102,260
750,000 Detroit, MI, Swr. Disp. Rev. Bds., `97 Ser. A, 5.00%, 07/01/12............... 739,178
1,090,000 The Econ. Dev. Corp. of the City of Westland, MI, Contract Sec'd. Rev. Bds.
(Weyerhauser Co. Contract Rev.), 9.80%, 12/01/00........................... 1,098,077
55,000 Kentwood, MI, Econ. Dev. Corp. Rev. Bds. (Hanover-Kent, Inc. - K-Mart
Corp.), 7.85%, 09/01/01.................................................... 55,429
18
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
=============================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
MICHIGAN - CONTINUED
$ 570,000 Michigan Muni Bd. Auth. Local Gov't Loan Prg. Rev. Ref. Bds.,
Ser. `92 A, 8.625%, 11/01/16............................................... $ 583,498
130,000 Michigan State Hsg. Dev. Auth., Sngl. Fam. Mtg. Rev. Bds., `90 Ser. D,
7.75%, 12/01/19............................................................ 131,456
500,000 Michigan State Strategic Fd. Ltd. Oblig. Rev. Environmental Impt. Bds.,
Crown- Ser. `97 A, 6.50%, 08/01/21......................................... 503,020
340,000 Michigan State Strategic Fd. Ltd. Oblig. Rev. Environmental Impt. Bds,
Crown- Ser. `97 B, 6.25%, 08/01/12......................................... 341,176
200,000 Munising, MI, Pub. Schools, Alger & Schoolcraft Cntys. Rev. Bds., Ser. `89,
7.05%, 05/01/99............................................................ 202,542
250,000 Muskegon, MI, Hosp. Fin. Auth. Rev. Bds. (Hackley Hosp.) Ser. `88 A,
8.00%, 02/01/08............................................................ 257,713
450,000 Northern, MI, Univ. Rev. Bds., Ser. `97, 5.00%, 12/01/13..................... 443,106
180,000 River Dist., MI, Community Hosp. Auth. Hosp. Rev. Ref. Bds., Ser. `89,
7.20%, 05/01/99............................................................ 182,853
100,000 River Dist., MI, Community Hosp. Auth. Hosp. Rev. Ref. Bds., Ser. `89,
7.40%, 05/01/01............................................................ 102,151
210,000 University, MI, Univ. Rev. Ref. Bds. (Student Fee) Ser. `87, 6.00%,
04/01/09................................................................... 214,425
---------------
4,956,884
---------------
MINNESOTA - (1.55%)
880,000 Blaine, MN, IDR (Consolidated Freightways Del. Prj.) `79 Ser. B,
7.25%, 01/01/04............................................................ 884,734
320,000 Minneapolis, MN, Community Dev. Agy. Rev. Bds. (River Bluff Prj.),
11.375%, 06/01/09.......................................................... 329,203
270,000 Minneapolis, MN, Community Dev. Agy. Rev. Bds. (West Bank
Homes Prj.), 11.75%, 10/01/05.............................................. 278,710
1,000,000 Minneapolis & St. Paul, MN, Hsg. and Redev. Auth. Hlth. Care Sys.
Rev. Bds., Ser. `93 A, 4.75%, 11/15/18..................................... 915,090
365,000 Minnesota St. Hsg. Fin. Agy., Sngl. Fam. Mtg. Rev. Bds., `87 Ser. D,
8.15%, 07/01/14............................................................ 375,297
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.................................. 10,235
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.................................. 15,353
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.................................. 255,873
5,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. K, Jackson Str.
Shops Ltd., 9.50%, 12/01/01................................................ 5,118
10,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. K, Jackson Str.
Shops Ltd., 9.50%, 12/01/02................................................ 10,236
235,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. K, Jackson Str.
Shops Ltd., 9.50%, 12/01/14................................................ 240,534
19
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
==============================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
MINNESOTA - CONTINUED
$ 200,000 Spring Lake Park, MN, Independent School Dist. No. 016 Rev. Bds.,
6.10%, 04/01/02............................................................ $ 201,514
---------------
3,521,897
---------------
MISSISSIPPI - (3.18%)
2,685,000 Claiborne Cnty., MS, PCR (Middle South Energy, Inc. Prj.) Ser. C,
9.875%, 12/01/14........................................................... 2,921,012
1,815,000 Clarksdale, MS, Ind. Rev. Bds. (BAH Pptys./Archer-Danielis), 11.75%,
06/01/11................................................................... 1,832,533
7,815,000 Mississippi Home Corp. Residual Rev. Bds., Cap. Appreciation, Ser. I i92,
Zero Cpn., 09/15/16........................................................ 2,473,995
---------------
7,227,540
---------------
MISSOURI - (1.81%)
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..... 159,138
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............................................ 250,473
1,000,000 Independence, MO, Elec. Util. Rev. Ref. Bds., `89 Ser. A & B,
7.10%, 06/01/04............................................................ 1,035,110
550,000 Little Blue Valley Swr. Dist., MO, Rev. Ref. Bds. (AMBAC Insured)
Ser. `85, 8.60%, 10/01/00.................................................. 552,090
210,000 Missouri Hsg. Dev. Commission, Hsg. Dev. Bds. (Federally Insured Mtg.
Loans) Ser. July 1, 1975, 8.00%, 07/01/17.................................. 213,114
555,000 Missouri School Bds. Association Ctfs. (Partner Pool) Ser. A, 7.375%,
03/01/06................................................................... 573,692
1,200,000 Missouri St. Hlth. & Educ. Fac. Auth. Rev. Bds. (St. Louis Univ.) Ser. `87A,
7.75%, 06/01/07............................................................ 1,231,440
90,000 St. Louis Cnty., MO, Sngl. Fam. Mtg. Rev. Bds., 9.25%, 10/01/16.............. 95,081
---------------
4,110,138
---------------
MONTANA - (0.02%)
35,000 Montana Brd. of Hsg., Sngl. Fam. Prg. Bds., '85 Ser. A (Federally Insured
or Gtd. Mtg. Loans), 0%/9.75%, 06/01/13.................................... 35,314
---------------
NEBRASKA - (0.03%)
200,000 Nebraska Higher Educ. Loan Prg. Capital Appreciation Rev. Bds.,
Ser. `89 A, Zero Cpn., 12/15/15............................................ 65,412
10,000 Nebraska Investment Fin. Auth. Sngl. Fam. Mtg. Rev. Bds., Ltd.
Intermediate Muni Obligation, Ser. B i85, 0%/10.00%, 11/15/06.............. 9,941
---------------
75,353
---------------
NEVADA - (0.28%)
500,000 State of Nevada Muni Bd. Bank Prj. No. 18 & 19, 8.40%, 09/01/01.............. 514,820
105,000 State of Nevada Muni Bd. Bank Prj. No. 18 & 19, 8.50%, 09/01/05.............. 111,309
---------------
626,129
---------------
20
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
==============================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
NEW HAMPSHIRE - (0.83%)
$ 500,000 New Hampshire Higher Educ. & Hlth. Fac. Auth. Rev. Bds. (NH Catholic
Charities Issue) Ser. '91, 8.40%, 08/01/11................................. $ 584,250
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.......................................... 1,298,892
---------------
1,883,142
---------------
NEW JERSEY - (2.49%)
220,000 Camden Cnty., NJ, Muni Utilities Auth. Swr. Rev. Cap. Appreciation Bds.,
Ser. `90B, Zero Cpn., 09/01/17............................................. 71,124
100,000 Essex Cnty., NJ, Improvement Auth. Bds., (GTD Lease - Sportsplex Prj.)
`97 Ser. A, 5.45%, 10/01/22................................................ 99,729
50,000 New Jersey Econ. Dev. Auth., Econ. Dev. Bds. (Polymeric Resources Corp.
Prj. - `94 Ser.), 9.00%, 12/01/19.......................................... 53,719
1,000,000 New Jersey Econ. Dev. Auth., Econ. Dev. Rev. Ref. Bds. (Holt Hauling &
Warehousing) Ser. G, 8.40%, 12/15/15....................................... 1,088,400
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........................... 1,374,408
240,000 New Jersey Econ. Dev. Auth., Econ. Dev. Sr. Rev. Bds. (Lakewood of
Voorhees FHA Insured Prj.) Ser. A, 8.875%, 01/15/20........................ 266,309
1,000,000 New Jersey Econ. Dev. Auth. Ind. & Econ. Dev. Rev. Bds. (Owens-Ill Inc.
Vineland Prj.), 5.85%, 09/01/07............................................ 984,090
80,000 New Jersey Econ. Dev. Auth., Mtg. Rev. Ref. Bds. (Geriatric and Medical
Svcs., Inc. Prj.) Ser. '92, 9.00%, 07/01/98................................ 82,582
625,000 New Jersey Econ. Dev. Auth., Natural Gas Facs. Rev. Bds. (Elizabethtown
Gas Co. Prj.) Ser. `91 A, 6.75%, 10/01/21.................................. 631,300
1,000,000 New Jersey Econ. Dev. Auth. Rev., Sr. Mtg. Bds. (Sealy Mattress Mfg. Co.),
9.50%, 10/01/02............................................................ 1,004,050
---------------
5,655,711
---------------
NEW MEXICO - (0.22%)
120,000 City of Albuquerque, NM, Hlth. Care Sys. Rev. Bds. (Lovelace Medical
Foundation Prj.), 12.00%, 03/01/11......................................... 120,767
20,000 City of Albuquerque, NM, Hlth. Care Sys. Rev. Bds. (Lovelace Medical
Foundation Prj.) Ser. '83A, 10.25%, 03/01/11............................... 20,503
325,000 Espanola, NM, Hosp. Sys. Rev. Ref. Bds. (Southwest Cmnty. Hlth Svcs.)
`85 Ser. A (MBIA Insured), 8.70%, 08/01/98................................. 330,216
45,000 New Mexico Mtg. Fin. Auth. Sngl. Fam. Mtg. Prg. Rev. Bds., 7.00%,
07/01/14................................................................... 31,163
---------------
502,649
---------------
NEW YORK - (5.83%)
300,000 Battery Park City Auth., POD III Hsg. Rev. Bds., Ser. '84 (FHA-Insured
Mtg.), 10.00%, 06/01/23.................................................... 313,950
500,000 City of New York, NY, Unlimited G.O., Ser. B i88, 7.20%, 08/01/01............ 543,770
21
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
==============================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
NEW YORK - CONTINUED
$ 2,520,000 Clifton Park, NY, IDA IDR Bds. (Caldor Inc. Prj.) Ser. A, 11.25%,
12/01/12................................................................... $ 2,563,470
200,000 New York City, Ser. `86 B, FGIC Insured Bds., 7.30%, 08/15/99................ 205,288
300,000 New York City, Ser. `86 C, FGIC Insured Bds., 7.25%, 02/01/06................ 306,654
105,000 New York City, Ser. `86 C, FGIC Insured Bds., 7.25%, 02/01/08................ 127,290
60,000 New York City, Ser. `88 B, FGIC Insured Bds., 7.50%, 12/01/03................ 60,300
140,000 New York City, Ser. `89 B, FGIC Insured Bds., 7.00%, 10/01/19................ 147,592
520,000 New York City, Ser. `90 I, FGIC Insured Bds., 7.75%, 12/01/03................ 603,746
280,000 New York City, Ser. `90 I, FGIC Insured Bds., 7.25%, 08/15/14................ 297,223
3,000,000 New York, NY, City Muni Wtr. Fin. Auth., Wtr. & Swr. Rev. Bds.,
Ser. `97 B, 5.125%, 06/15/30............................................... 2,860,440
825,000 New York State Dorm Auth., Rev. Ref. Bds., (Rochester Inst. Tech.)
Ser. `97, 5.30%, 07/01/17.................................................. 819,935
500,000 New York State Energy Research & Dev. Auth., Gas Fac. Rev. Ref. Bds.
(Brooklyn Union Gas Co.) Ser. `96 A, 5.50%, 01/01/21....................... 501,510
2,000,000 New York State Local Gov't Asst. Corp., Rev. Bds., Ser. `93 D, 5.00%,
04/01/23................................................................... 1,874,160
180,000 New York State Med. Care Fac. Fin. Agy., Rev. Bds., Hosp. & Nursing
Home Mtg., Ser. `87 A, 8.00%, 02/15/27..................................... 184,174
295,000 New York State Med. Care Fac. Fin. Agy., New York Hosp. FHA Insured
Mtg. Bds., Ser. A, 6.90%, 08/15/34......................................... 334,079
1,400,000 New York State Med. Care Fac. Fin. Agy., Rev. Ref. Bds., Mental Hlth.
Svcs. Fac., Ser. `87 A, 8.25%, 02/15/99.................................... 1,432,732
70,000 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............ 71,607
---------------
13,247,920
NORTH CAROLINA - (1.02%)
200,000 Guilford Cnty., NC, Rev. Ref. Bds., Ser. i88, 6.50%, 02/01/99................ 202,434
700,000 Iredell Cnty., NC, (Iredell Memorial Hosp.) Rev. Ref. Bds., Ser. `87,
6.625%, 10/01/13........................................................... 715,470
660,000 North Carolina Med. Care Comm. Hosp. Rev. Ref. Bds. (High Point
Regional Hosp.) Ser. `87, 6.50%, 10/01/13.................................. 667,940
200,000 North Carolina Med. Care Comm. Hosp. Rev. Ref. Bds. (Moore Memorial
Hosp. Prj.), 9.10%, 10/01/99............................................... 207,202
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..... 516,630
---------------
2,309,676
---------------
NORTH DAKOTA - (0.51%)
120,000 University, ND, Univ. Rev. Ref. Bds. (Hsg. & Auxiliary Fac.)
Ser. `88 A, 7.85%, 04/01/14................................................ 125,858
22
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
==============================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
NORTH DAKOTA - CONTINUED
$ 900,000 Ward Cnty., ND, Hlth Care Fac. Rev. Bds. (St. Josephis Hosp. Corp. Prj.)
Ser. i94, 8.875%, 11/15/14................................................. $ 1,025,955
---------------
1,151,813
---------------
OHIO - (3.13%)
500,000 Cleveland, OH, Waterworks Rev. Bds., Ser. A, 6.125%, 01/01/08................ 503,285
1,165,000 Cnty. of Belmont, Ohio Hlth. Sys. Rev. and Ref. Bds. (East Ohio Reg'l
Hosp. Issue) Ser. `85, 9.50%, 01/01/05..................................... 1,175,136
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..................................... 302,730
680,000 Hamilton Cnty., Ohio Hosp. Facs. Rev. Bds. (Bethesda Hosp. Inc.)
Ser. `86A, 7.00%, 01/01/09................................................. 691,825
440,000 Hamilton Cnty., Ohio Hosp. Facs. Rev. Bds. (Bethesda Hosp. Inc.)
Ser. `86A, 7.00%, 01/01/09................................................. 447,652
2,000,000 The Mahoning Valley Sanitary Dist. (Ohio) Wtr. Rev. Bds., Ser. `94,
7.750%, 05/15/19........................................................... 2,215,860
2,020,000 Ohio Hsg. Fin. Agy. Sngl. Fam. Mtg. Rev. Bds. Cap. Appreciation,
Ser. '85 A, Zero Cpn., 01/15/15............................................ 379,316
60,000 Ohio Hsg. Fin. Agy. Sngl. Fam. Mtg. Rev. Bds. (GNMA Mtg.-Backed Sec.
Prg.) '90 Ser. C, Zero Cpn., 09/01/02...................................... 42,347
1,100,000 Ohio St. Solid Waste Rev. Ref. Bds. (CSC Ltd. Prj.) Ser. `97 B, 8.50%,
08/01/22................................................................... 1,122,902
225,000 Student Loan Funding Corp. Cincinnati, OH, Student Loan Rev. Bds.,
Ser. `93 A, 6.10%, 08/01/08................................................ 229,955
---------------
7,111,008
---------------
OKLAHOMA - (0.20%)
420,000 Trustees of the Oklahoma Ordnance Works Auth. IDR Ref. Bds. (A.P.
Green Ind., Inc. Prj.) Ser. '92, 8.50%, 05/01/08........................... 454,906
---------------
OREGON - (0.25%)
550,000 Oregon St. Vet. Welfare Rev. Bds., Ser. `82 LXIX, 8.00%, 11/01/12............ 565,912
---------------
PENNSYLVANIA - (6.11%)
1,250,000 Allegheny Cnty., PA, Airport Rev. Bds. (Greater Pittsburgh Int'l Airport)
`88 Ser. C (MBIA Insured), 8.25%, 01/01/16................................. 1,288,650
110,000 Allegheny Cnty., PA, Residential. Fin. Auth. Sngl. Fam. Mtg. Rev. Bds.,
'83-Ser.-B, Zero Cpn., 10/01/15............................................ 16,800
3,000,000 Beaver Cnty., PA, IDA PCR Bds. (J&L Specialty Steel-Formerly Known
as Colt Ind. Prj.) Ser. 19, 7.00%, 06/01/08................................ 3,029,100
85,000 Berks Cnty., PA, IDA IDR (Borg-Warner/Baker Protection Svcs., Inc.)
Ser. '81, 11.10%, 07/01/01................................................. 86,040
2,075,000 Berks Cnty., PA, IDA (Supermarkets General Corp. Prj.), 10.50%, 11/01/03..... 2,148,248
30,000 Bucks Cnty., PA, IDA Mtg. Rev. (Geriatric and Medical Svcs., Inc. Prj.)
Ser. '92, 9.00%, 07/01/98.................................................. 31,032
23
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
==============================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
PENNSYLVANIA - CONTINUED
$ 925,000 Charters Valley Ind. & Comm. Dev. Auth. Allegheny Cnty., PA, Nursing
Home Rev. Ref. Bds. - Ser. of `86 (FHA Insured Mtg., Woodhaven
Convalescent Ctr. Prj.), 7.375%, 10/01/06.................................. $925,093
175,000 Chartiers Valley, PA, IDA Nursing Home Rev. FHA Insured Mtg. Bds.
(Sun City East Prj.), 14.00%, 10/01/14..................................... 224,180
35,000 Chester Cnty., PA, IDA Mtg. Rev. Ref. Bds. (Geriatric and Medical
Svcs., Inc. Prj.) Ser. '92, 9.00%, 07/01/98................................ 35,977
400,000 Columbia Cnty. IDA, Columbia Cnty., PA, 1st Mtg. Rev. Bds., Ser. `86
(Orangeville Nursing Ctr. Associates Prj.), 9.00%, 12/01/12................ 400,920
250,000 Emmaus, PA, Gen'l Auth. Rev. Loc. Gov. Bds. (Bd. Pool Prog.) Ser. F,
7.90%, 05/15/18............................................................ 262,945
100,000 Hempfield, PA, School Dist., Lancaster Cnty. Ref. Bds. Ser. `90,
6.90%, 10/15/01............................................................ 100,204
15,000 Horsham Twp., PA, Sewer Rev. Ref. Bds., 6.00%, 01/01/98...................... 15,085
750,000 Luzerne Cnty., PA, Hsg. Corp. Rev. Bds., 8.125%, 12/01/08.................... 749,970
200,000 McKean Cnty, PA, Ind. Dev. Auth. Rev. Bds., Ser. `80 (Corning Glass
Wks. Prj.), 7.75%, 06/01/05................................................ 200,980
315,000 Mercer Cnty., PA, IDA, Gumberg Assoc. - Pine Grove Square, The Kroger
Co., Ind. Dev. 1st Mtg. Rev. Bds., 13.00%, 06/01/07........................ 325,937
100,000 Montgomery Cnty. (Pennsylvania) IDA Mtg. Rev. Ref. Bds., Ser. '92A
(Geriatric and Medical Svcs., Inc. Prj.), 9.00%, 07/01/99.................. 104,093
160,000 Pennsylvania Hsg. Fin. Agy., Moderate Rehab. Rev. Bds., 9.00%, 08/01/01...... 163,699
305,000 Philadelphia, PA, Hosp. & Higher Educ. Fac. Auth. Rev. Ref. Bds.
(The Philadelphia Protestant Home Prj.) Ser. `97 A, 5.60%, 07/01/04........ 306,232
315,000 Philadelphia, PA, Hosp. & Higher Educ. Fac. Auth. Rev. Ref. Bds.
(The Philadelphia Protestant Home Prj.) Ser. `97 A, 5.70%, 07/01/05........ 316,266
260,000 Philadelphia, PA, Hosp. & Higher Educ. Fac. Auth. Rev. Ref. Bds.
(The Philadelphia Protestant Home Prj.) Ser. `97 A, 5.80%, 07/01/06........ 261,365
245,000 Philadelphia, PA, Hosp. & Higher Educ. Fac. Auth. Rev. Ref. Bds.
(The Philadelphia Protestant Home Prj.) Ser. `97 A, 5.85%, 07/01/07........ 246,083
900,000 Philadelphia, PA, Hosp. & Higher Educ. Fac. Auth. Rev. Ref. Bds.
(The Philadelphia Protestant Home Prj.) Ser. `97 A, 6.50%, 07/01/23........ 903,375
140,000 Philadelphia, PA, Redev. Auth. Sngl. Fam. Home Mtg. Rev. Ref. Bds.,
`85 Ser. A, 0%/10.25%, 06/01/17............................................ 141,707
500,000 Pennsylvania St. Higher Educ. Fac. Auth. College & Univ. Rev. Bds.,
(Temple Univ.) Ser. `86, 7.40%, 10/01/10................................... 508,630
400,000 Pennsylvania St. Higher Educ. Fac. Auth. College & Univ. Rev. Bds.,
(Temple Univ.) Ser. `86, 7.40%, 10/01/10................................... 407,108
165,000 Pittsburgh, PA, Urban Redevelopment Auth. Home Improvement Loan,
Rev. Bds., Ser. `87 A, 7.125%, 08/01/04.................................... 169,963
250,000 Warren Cnty., PA, IDA Specialized Dev. Rev. Ref. Bds. (Beverly
Enterprises - Pennsylvania, Inc. Prj.) Ser. '91, 9.00%, 11/01/12........... 280,875
24
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
==============================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
PENNSYLVANIA - CONTINUED
$ 250,000 York City, PA, Solid Waste & Refuse Auth. IDR Bds. (Res. Recovery Prj.)
Ser. A, 8.20%, 12/01/14.................................................... $ 258,748
---------------
13,909,305
---------------
PUERTO RICO - (1.74%)
3,475,000 Puerto Rico Commonwealth Infrastructure Fin. Auth. Special Bds.,
Ser. `88 A, 7.75%, 07/01/08................................................ 3,645,588
300,000 Puerto Rico Ind. Med. & Environmental PCR Fac. Fin. Auth. Rev. Bds.,
(Abbott Chemical Inc. Prj.), 6.50%, 07/01/09............................... 302,280
---------------
3,947,868
---------------
RHODE ISLAND - (0.15%)
100,000 Rhode Island Hlth. & Educational Bldg. Corp. Hosp. Fin. Rev. Bds.,
(Roger Williams Gen. Hosp. Issue) Ser. `85, 9.375%, 07/01/04............... 100,383
250,000 Rhode Island Hlth. & Educational Bldg. Corp. Rev. Bds., 9.50%, 07/01/16...... 250,948
---------------
351,331
---------------
SOUTH CAROLINA - (1.13%)
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...... 430,736
2,100,000 City of Charleston, SC, Waterworks and Sewer Sys. Ref. Rev. Bds.,
Ser. '86A, 7.00%, 01/01/15................................................. 2,143,575
---------------
2,574,311
---------------
SOUTH DAKOTA - (0.13%)
250,000 Aberdeen, SD, Unlimited G.O., Rev. Ref. Bds., (MBIA Insured) Ser. `87,
6.90%, 07/01/04............................................................ 251,843
30,000 South Dakota Bldg. Auth., Rev. Ref. Bds., Ser. of Feb. '84, 10.50%,
09/01/00................................................................... 33,234
---------------
285,077
---------------
TENNESSEE - (1.50%)
305,000 Dover, TN, Hlth. & Educ. Fac., IDR (Wessex Corp. Dover Prj.), 9.50%,
09/01/11................................................................... 311,838
349,966 Dyer Cnty., TN, Ind. Dev. Brd. IDR Bds. (S.S. Kresge Co. - K-Mart Corp.),
8.10%, 11/01/00............................................................ 350,418
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............................................................ 522,045
1,015,000 Lewisburg, TN, IDR Bds. (Mead Corp. Prj.), 7.875%, 02/01/00.................. 1,036,823
335,000 McMinn Cnty., TN, Ind. Dev. Brd. Rev. Bds., (S.S. Kresge Co.), 8.00%,
11/01/00................................................................... 335,549
450,000 New Tazewell, TN, Hlth. Educational & Hsg. Fac. Brd. IDR Bds. (Wessex
Corp. New Tazewell Prj.) Ser. '87, 10.00%, 06/01/17........................ 455,972
395,000 Sevier Cnty., TN, Ind. Dev. Brd. IDR Bds. (The Kroger Co. and Super X
Prj.) Ser. A, 10.25%, 11/01/06............................................. 407,561
---------------
3,420,206
---------------
25
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
==============================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
TEXAS - (5.99%)
$12,525,000 Austin, TX, Hsg. Fin. Corp., Sngl. Fam. Mtg. Rev. Bds., Ser. `84,
Zero Cpn., 02/01/16........................................................ $ 1,499,368
1,000,000 Brazos River Auth., TX, Rev. Ref. Collateralized Bds. (Houston L&P
Co. Prj.) `88 Ser. C, 8.10%, 05/01/19...................................... 1,043,460
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............ 1,392,700
260,000 Dallas, TX, Civic Ctr. Convention Complex, Sr. Lien Rev. Bds., Ser. i85,
8.30%, 01/01/00............................................................ 262,831
150,000 Dallas, TX, Civic Ctr. Convention Complex, Sr. Lien Rev. Bds., Ser. i85,
8.50%, 01/01/04............................................................ 151,709
965,000 Dallas, TX, Civic Ctr. Convention Complex, Sr. Lien Rev. Bds., Ser. i85,
8.60%, 01/01/07............................................................ 972,942
250,000 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.......... 253,378
1,525,000 Harris Cnty., TX, Hlth. Fac. Dev. Corp. Rev. Bds. (Adj. Conv. Extendible
Secs.), GTR Houston Pooled Hlth. Care, 7.375%, 12/01/25.................... 1,542,050
30,000 Houston, TX, Hsg. Corp. No. 1 Rev. Bds., Long Drive Apartments - Section
8 Assisted, 9.00%, 02/01/20................................................ 33,957
985,000 Jefferson Cnty., TX, Hlth. Fac. Dev. Corp. Hosp. Rev. Bds. (Baptist
Healthcare Sys. Prj.) Ser. '91, 8.875%, 06/01/21........................... 1,043,017
140,000 North, TX, Hlth. Fac. Dev. Corp. Hosp., Rev. Ref. Bds., (Bethania Reg'l.
Hlth. Care) Ser. `87, 7.20%, 03/01/13...................................... 143,088
995,000 Southeast TX, Hsg. Fin. Corp. Multi-Fam. Hsg. Rev., 1st Mtg. Rev. Bds.
(The Ridge Apartments Prj.), 8.30%, 11/01/23+.............................. 597,000
180,000 Tarrant Cnty., TX, Hlth. Fac. Dev. Corp. Hlth. Sys. Rev. Bds. (Harris
Methodist Hlth. Sys.) Ser. `87 A, 6.875%, 09/01/12......................... 184,001
100,000 Terrell, TX, Pub. Hosp. Corp. Rev. Bds. (American Med. Int'l Inc.)
Ser. `76, 7.375%, 02/01/06................................................. 102,518
915,000 Texas Hsg. Agy., Residential Mtg. Rev. Bds., Ser. '87D, 8.40%, 01/01/21...... 960,192
195,000 Texas St. Higher Educ. Coordinating Brd., College Student Loan Rev. Bds.,
7.20%, 04/01/02............................................................ 205,054
2,000,000 Texas St. Tax & Rev. Anticipation Rev. Notes, Ser. A, 4.75%, 08/31/98........ 2,017,380
45,000 Texas Wtr. Res. Fin. Auth. Rev. Bds., Ser. '89, 7.625%, 08/15/08............. 47,201
380,000 Texas Wtr. Res. Fin. Auth. Rev. Bds., Ser. '89, 7.50%, 08/15/13.............. 402,359
255,000 Tomball, TX, Independent School Dist. Cap. Appreciation Ref. Bds.,
Unlimited G.O., Zero Cpn., 02/15/13........................................ 94,567
745,000 Tomball, TX, Independent School Dist. Cap. Appreciation Ref. Bds.,
Unlimited G.O., Zero Cpn., 07/01/22........................................ 267,775
400,000 Tyler Hlth. Fac. Dev. Corp. Hosp. Rev. Bds. (East TX Med. Ctr. Reg'l
Healthcare Sys. Prj.) Ser. `97 B, 5.50%, 11/01/17.......................... 401,028
---------------
13,617,575
---------------
26
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
==============================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
UTAH - (1.40%)
$ 2,020,000 Intermountain Pwr. Agy., UT, Pwr. Supply Rev. Bds. (FGIC Insured)
`87 Ser. B, 7.00%, 07/01/15................................................ $ 2,065,288
700,000 Intermountain Pwr. Agy., UT, Pwr. Supply Rev. Bds., Cap. Appreciation,
`87 Ser. D, Zero Cpn., 07/01/20............................................ 115,213
1,000,000 Utah Hsg. Fin. Agy. Rev. Bds. (RHA Community Services of Utah,
Inc. Prj.) Ser. `97 A, 6.875%, 07/01/27.................................... 999,850
---------------
3,180,351
---------------
VERMONT - (0.68%)
1,500,000 Vermont Hsg. Fin. Agy. Multi-Fam. Hsg. Bds., '79 Ser. A, 8.50%,
02/15/21................................................................... 1,552,500
---------------
VIRGINIA - (0.18%)
270,000 IDA of Covington-Alleghany Cnty., VA, IDR Ref. Bds. (Beverly
Enterprises, Inc. Prj.) Ser. '91, 9.375%, 09/01/01......................... 295,431
115,000 Virginia St. Res. Auth. Wtr. & Swr. Sys. Rev. Bds. (Pooled Loan Prg.)
Ser. `97 A, 7.50%, 11/01/17................................................ 116,510
---------------
411,941
---------------
WASHINGTON - (2.19%)
400,000 King Cnty., WA, Unlimited G.O., Ser. A i78, 6.50%, 12/01/12.................. 400,924
700,000 Washington St. Hsg. Fin Comm. Sngl. Fam. Rev. Bds., Ser. `97 A,
5.75%, 12/01/28 ........................................................... 698,929
2,000,000 Washington St. Public Pwr. Supply Sys. Rev. Ref. Bds. (Nuclear Prj. No. 1)
Ser. `97 B, 5.125%, 07/01/16 .............................................. 1,937,760
2,000,000 Washington St. Public Pwr. Supply Sys. Rev. Ref. Bds. (Nuclear Prj. No. 1)
Ser. `97 B, 5.125%, 07/01/17 .............................................. 1,931,180
---------------
4,968,793
---------------
WEST VIRGINIA - (2.84%)
385,000 Beverly, WV, Hsg. Corp. Mtg. Rev. Bds., Ser. `81 (Beverly Manor/FHA -
Insured/Section 8 Prj.), 11.00%, 11/15/22.................................. 448,964
270,000 Glasgow, WV, Hlth. Fac. Rev. Ref. Bds. (Beverly Enterprises, Inc. Prj.)
Ser. '91, 9.50%, 09/01/01................................................. 294,254
300,000 The Ohio Cnty. Bldg. Comm., WV, Hlth. Sys. Rev. Ref. Bds. (Ohio
Valley Med. Ctr. Issue) Ser. `85, 9.40%, 01/01/00.......................... 303,624
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.......................... 955,634
3,440,000 The Ohio Cnty. Bldg. Comm., WV, Hlth. Sys. Rev. Ref. Bds. (Ohio
Valley Med. Ctr. Issue) Ser. `85, 9.625%, 01/01/13......................... 3,508,800
65,000 Putnam Cnty., WV, IDR (IDR Bds.) Rite Aid West Virginia Inc., 10.375%,
11/01/02................................................................... 65,105
870,000 West Virginia Hsg. Dev. Fd., Rental Dev. Prg. Bds., Ser. C (Section 8
Assisted Dev.), 10.00%, 07/01/15........................................... 870,835
---------------
6,447,216
---------------
27
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
SCHEDULE OF INVESTMENTS - CONTINUED
At September 30, 1997
==============================================================================================================
VALUE
PRINCIPAL (NOTE 1)
--------- --------
MUNICIPAL BONDS - CONTINUED
WISCONSIN - (3.95%)
$ 300,000 Clear Lake, WI, Sewer Sys. Mtg. Rev. Bds., 8.00%, 08/01/11................... $ 322,479
170,000 Wisconsin Hlth. Fac. Auth. Rev. Ref. Bds., Hosp. Sisters Svcs. Sys.,
Ser. D, 9.125%, 07/01/05................................................... 170,704
4,040,000 Wisconsin Hlth. Fac. Auth. Rev. Ref. Bds., Hosp. Sisters Svcs. Sys.,
Ser. D, 9.25%, 07/01/12.................................................... 4,147,046
1,440,000 Wisconsin Hsg. & Econ. Dev. Auth. Home Ownership Rev. Bds.,
Ser. `88 D, 7.90%, 09/01/05................................................ 1,480,651
1,595,000 Wisconsin St. Hlth. & Educational Fac. Auth. Rev. Bds. (RFDF Inc. Prj.)
Ser. `97, 7.375%, 07/15/27................................................. 1,581,443
1,000,000 Wisconsin St. Hlth. & Educational Fac. Auth. Rev. Ref. Bds. (Aurora
Healthcare Inc.) Ser. `97, 5.25%, 08/15/27................................. 955,010
325,000 Wisconsin St. Hlth. Fac. Auth. Rev. Bds., (Good Samaritan Med. Ctr.)
Ser. `87, 7.00%, 03/01/09.................................................. 332,218
---------------
8,989,551
---------------
WYOMING - (0.04%)
105,000 Wyoming Community Dev. Auth. Insured Bds., Sngl. Fam. Mtg., Cap.
Appreciation, Ser. B, Zero Cpn., 06/01/11.................................. 99,835
---------------
Total Municipal Bonds - (identified cost $210,544,585)..................... 212,127,822
---------------
SHORT TERM - (7.20%)
16,370,000 Federal Home Loan Bank Discount Notes, 6.00%, 10/01/97
- (identified cost $16,370,000)............................................ 16,370,000
---------------
Total investments - (identified cost $226,914,585)(100.49%) (a)........ 228,497,822
Liabilities less other assets - (0.49%)................................ (1,113,433)
---------------
Net assets - (100%)............................................... $ 227,384,389
===============
(a) Aggregate cost for Federal income tax purposes is $226,914,585.
At September 30, 1997 unrealized appreciation (depreciation) of securities for
Federal income tax purposes was as follows:
Unrealized appreciation...................................................... $ 3,239,828
Unrealized depreciation...................................................... (1,656,591)
---------------
Net unrealized appreciation............................................ $ 1,583,237
===============
</TABLE>
* Security is paying less than stated interest rate.
+ Security is in default.
SEE NOTES TO FINANCIAL STATEMENTS
28
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
At September 30, 1997
<TABLE>
=============================================================================================================
<S> <C>
ASSETS:
Investments in securities, at value (identified cost $226,914,585) (Note 1)............. $ 228,497,822
Cash.................................................................................... 316,612
Receivables:
Interest............................................................................ 4,259,417
Capital stock sold.................................................................. 9,446,401
Investment securities sold.......................................................... 15,166,023
Prepaid expenses........................................................................ 20,197
--------------
Total assets............................................................... 257,706,472
--------------
LIABILITIES:
Payables:
Capital stock reacquired............................................................ 68,562
Investment securities purchased.................................................... 29,863,227
Commissions to distributor (Note 4)................................................. 153,010
Accrued expenses........................................................................ 237,284
--------------
Total liabilities.......................................................... 30,322,083
--------------
NET ASSETS (NOTE 5).......................................................................... $ 227,384,389
==============
CLASS A SHARES
Net assets.......................................................................... $ 92,020,383
Shares outstanding.................................................................. 9,977,733
Net asset value and redemption price per share (net assets/shares outstanding)...... $ 9.22
========
Maximum offering price per share (100/95.25 of $9.22)............................... $ 9.68
========
CLASS B SHARES
Net assets.......................................................................... $ 132,933,621
Shares outstanding.................................................................. 14,463,987
Net asset value, offering and redemption price per share (net assets/
shares outstanding)............................................................... $ 9.19
========
CLASS C SHARES
Net assets.......................................................................... $ 2,430,385
Shares outstanding.................................................................. 262,665
Net asset value, offering and redemption price per share (net assets/
shares outstanding)............................................................... $ 9.25
========
NET ASSETS CONSIST OF:
Undistributed net income................................................................ $ 1,385,348
Unrealized appreciation on investments.................................................. 1,583,237
Accumulated net realized gain........................................................... 1,352,494
Paid-in capital......................................................................... 223,063,310
--------------
Net assets................................................................. $ 227,384,389
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1997
<TABLE>
<CAPTION>
==============================================================================================================
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest............................................................................ $ 12,913,236
---------------
Expenses:
Management fees (Note 3).......................................... $ 1,065,546
Custodian fees.................................................... 136,745
Transfer agent fees............................................... 152,797
Audit fees........................................................ 37,720
Legal fees....................................................... 25,854
Accounting fees (Note 3).......................................... 64,586
Reports to shareholders........................................... 56,073
Directors fees and expenses....................................... 59,871
Registration and filing fees...................................... 63,570
Miscellaneous..................................................... 21,451
Commissions paid under distribution plan (Note 4)
Class A...................................................... 129,433
Class B...................................................... 1,099,299
Class C...................................................... 992
---------------
Total expenses........................................................ 2,913,937
Fee Reduction (Note 7).............................................................. (4,520)
---------------
Net Expenses................................................................... 2,909,417
---------------
Net investment income.................................................. 10,003,819
---------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions............................................... 1,392,396
Net decrease in unrealized appreciation of investments during the period..................... (127,490)
-----------------
Net realized and unrealized gain on investments................................ 1,264,906
----------------
Net increase in net assets resulting from operations........................... $ 11,268,725
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
==============================================================================================================
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
OPERATIONS: 1997 1996
------------- -------------
<S> <C> <C>
Net investment income........................................... $ 10,003,819 $ 9,885,893
Net realized gain from investment transactions................. 1,392,396 419,913
Net decrease in unrealized appreciation
of investments......................................... (127,490) (1,166,075)
---------------- ----------------
Net increase in net assets resulting
from operations............................... 11,268,725 9,139,731
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Distribution from net investment income
Class A ($0.59 and $0.54 per share, respectively). (3,300,319) (2,654,081)
Class B ($0.52 and $0.48 per share, respectively). (6,339,753) (6,209,444)
Class C ($0.02 per share)......................... (767) -
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 5)............................. 71,697,040 (17,041,893)
---------------- -----------
Total increase (decrease) in net assets................ 73,067,482 (17,871,029)
NET ASSETS:
Beginning of year .............................................. 154,316,907 172,187,936
---------------- ----------------
End of year (including undistributed net investment
income of $1,385,348 and $1,022,368, respectively) ... $ 227,384,389 $ 154,316,907
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND
NOTES TO FINANCIAL STATEMENT
At September 30, 1997
===============================================================================
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. The Fund offers shares in four classes, Class A, Class B,
Class C and Class Y. The Class A shares are sold with a front-end sales charge,
the Class B shares are sold at net asset value and may be subject to a
contingent deferred sales charge upon redemption and the Class C shares are
sold at net asset value and may be subject to a contingent deferred sales
charge upon redemption. Class Y shares are sold at net asset value and are not
subject to any contingent deferred shares charge. Class Y shares are only
available to certain qualified investors. 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, 1997, were $240,835,878 and
$179,697,114, respectively.
32
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
At September 30, 1997
===============================================================================
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.
Effective June 1, 1997, Davis Distributors, LLC (the "Distributor"),
and subsidiary of the Adviser, became the Underwriter and Distributor of the
Fund. Until June 1, 1997, the Adviser also acted as Underwriter and
Distributor. The Distributor is paid for registering Fund shares for sale in
various states. The fee for the year ended September 30, 1997 amounted to
$12,000. The Distributor is also paid for certain transfer agent services. The
fee for the year ended September 30, 1997 amounted to $8,728.
The Adviser is paid for certain accounting services. The fee for the
year ended September 30, 1997 amounted to $64,586. Certain directors and the
officers of the Fund are also officers and directors of the general partner of
the Adviser.
Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned
subsidiary of the Adviser, acts as sub-adviser to the Fund. The Fund pays no
fees directly to DSA-NY.
Stamper Capital & Investments, Inc. ("Stamper") acts as sub-adviser of
the Fund. Stamper manages the day-to-day investment operations for the Fund.
The Fund pays no fees directly to Stamper. Stamper receives from the Adviser a
percentage of the total annual investment advisory fees paid by the Fund to 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, 1997, Davis Distributors, LLC (or
its predecessor, Davis Selected Advisers, L.P.), the Fund's Underwriter (the
"Underwriter") received $1,397,658 from commissions earned on sales of Class A
shares of the Fund of which $228,998 was retained by the Underwriter and the
remaining $1,168,660 was reallowed to investment dealers. The Underwriter 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, 1997 was $129,433.
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.
33
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
At September 30, 1997
===============================================================================
NOTE 4 - DISTRIBUTION AND UNDERWRITING FEES - (CONTINUED)
CLASS B SHARES - (CONTINUED)
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 year ended September 30, 1997, Class B shares of the Fund
made distribution plan payments which included commissions of $834,477 and
maintenance fees of $264,822.
Commissions earned by the Distributor during the year ended September
30, 1997 on the sale of Class B shares of the Fund amounted to $1,495,059 of
which $1,311,520 was reallowed to qualified selling dealers.
The Distributor intends to seek payment from Class B shares of the Fund
in the amount of $2,900,917, 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, 1997 the Distributor received contingent deferred sales
charges from Class B shares of the Fund of $148,296.
CLASS C SHARES
Class C shares of the Fund are sold at net asset value and are redeemed
at net asset value less a contingent deferred sales charge of 1% if redeemed
within one year of purchase. The Fund pays the Distributor 1% of the Fund's
annual average net assets attributable to Class C shares, of which 0.75% may be
used to pay distribution expenses and 0.25% may be used to pay shareholder
service fees. During the year ended September 30, 1997, Class C shares of the
Fund made distribution payments of $992.
NOTE 5 - CAPITAL STOCK
At September 30, 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:
34
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
At September 30, 1997
<TABLE>
<CAPTION>
==============================================================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
FOR THE YEAR ENDED
CLASS A SEPTEMBER 30, 1997
---------------------------------
SHARES AMOUNT
--------------- ---------------
<S> <C> <C>
Shares sold.......................................................... 6,872,383 $ 63,146,106
Shares issued to shareholders in connection with
reinvestment of distributions.................................. 211,487 1,933,280
------------- ---------------
7,083,870 65,079,386
Shares reacquired.................................................... (2,004,557) (18,369,419)
------------- ---------------
Net increase................................................. 5,079,313 $ 46,709,967
============= ===============
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)
============= ===============
FOR THE YEAR ENDED
CLASS B SEPTEMBER 30, 1997
---------------------------------
SHARES AMOUNT
--------------- ---------------
Shares sold.......................................................... 4,212,644 $ 38,566,676
Shares issued to shareholders in connection with
reinvestment of distributions.................................. 352,552 3,214,140
------------- ---------------
4,565,196 41,780,816
Shares reacquired.................................................... (2,103,052) (19,216,556)
-------------- ---------------
Net increase................................................. 2,462,144 $ 22,564,260
============= ===============
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>
35
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
At September 30, 1997
<TABLE>
<CAPTION>
===============================================================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
AUGUST 18, 1997
(COMMENCEMENT
OF OPERATIONS)
THROUGH
CLASS C SEPTEMBER 30, 1997
-------------------------------
SHARES AMOUNT
------------ ----------------
<S> <C> <C>
Shares sold.......................................................... 262,631 $ 2,422,498
Shares issued to shareholders in connection with
reinvestment of distributions.................................. 34 315
----------- ---------------
262,665 2,422,813
Shares reacquired.................................................... - -
----------- ---------------
Net increase................................................. 262,665 $ 2,422,813
=========== ===============
</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 $4,520 during
the year ended September 30, 1997.
36
<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:
CLASS A
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED SEPTEMBER 30, ENDED
--------------------------- SEPTEMBER 30,
1997 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........................... .57 .61 .40
Net Gains or Losses on Securities (both
realized and unrealized)...................... .11 (.05) .30
------- ------ -------
Total From Investment Operations......... .68 .56 .70
------- ------ -------
Less Distributions
Dividends (from net
investment income)............................ (.59) (.54) (.40)
Distribution from gains from investment
transactions.................................. (.02) (.06) (.01)
------ ------ ------
Total Distributions....................... (.61) (.60) (.41)
------ ------ ------
Net Asset Value, End of Period..................... $ 9.22 $ 9.15 $ 9.19
====== ====== ======
Total Return (1)................................... 7.66% 6.33% 7.93%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted)................................. $92,020 $44,828 $45,461
Ratio of Expenses to
Average Net Assets............................ 1.26%(2) 1.36% 1.43%*
Ratio of Net Income to
Average Net Assets............................ 6.60% 6.64% 5.95%*
Portfolio Turnover Rate......................... 112.71% 106.55% 127.80%
(1) Sales charges are not reflected in calculation.
(2) Ratio of expenses to average net assets after the reduction of custodian fees under a custodian
agreement were 1.25% for September 30, 1997. Prior to 1996, such reductions were reflected in the the expense
ratios.
</TABLE>
* Annualized
37
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
==============================================================================
CLASS B
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period........................ $ 9.12 $ 9.17 $ 9.09 $ 9.65 $ 9.49
------ ------ ------- ------ ------
Income From Investment Operations
Net Investment Income............ .53 .54 .48 .44 .54
Net Gains or Losses on Securities
(both realized and unrealized). .08 (.05) .10 (.18) .29
------ ------ ------- ------ ------
Total From Invest-
ment Operations............ .61 .49 .58 .26 .83
------ ------ ------- ------ ------
Less Distributions
Dividends (from net
investment income)............. (.52) (.48) (.48) (.44) (.54)
Distribution from gains
from (.02) (.06) (.01) (.28) -
investment transactions........
Distribution in excess
of net investment income....... - - (.01) (.07) (.10)
Tax Return of capital
distributions................. - - (.03) (.03)
------ ------ ------- ----- ------
Total Distributions.......... (.54) (.54) (.50) (.82) (.67)
------- ------ ------- ------ ------
Net Asset Value, End of Period...... $ 9.19 $ 9.12 $ 9.17 $ 9.09 $ 9.65
====== ====== ======= ====== ======
Total Return (1).................... 6.89% 5.51% 6.64% 2.81% 9.10%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted).................. $132,934 $109,488 $126,727 $188,874 $164,018
Ratio of Expenses to
Average Net Assets............. 2.02% 2.10% 2.14% 2.07% 2.26%
Ratio of Net Income to
Average Net Assets............. 5.87% 5.89% 5.37% 4.49% 5.50%
Portfolio Turnover Rate.......... 112.71% 106.55% 127.80% 113.46% 107.80%
</TABLE>
(1) Sales charges are not reflected in calculation.
38
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
==============================================================================================================
AUGUST 18, 1997
(COMMENCEMENT
OF OPERATIONS)
CLASS C THROUGH
SEPTEMBER 30,
1997
---------------
<S> <C>
Net Asset Value, Beginning
of Period............................ $ 9.20
------
Income From Investment Operations
Net Investment Income................ .04
Net Gains on Securities (both
realized and unrealized)........... .03
-------
Total From Invest-
ment Operations................ .07
-------
Less Distributions
Dividends (from net
investment income)................. (.02)
Distribution from gains
from -
investment transactions............
Distribution in excess
of net investment income........... -
Tax Return of capital
distributions..................... -
------
Total Distributions.............. (.02)
------
Net Asset Value, End of Period.......... $ 9.25
======
Total Return (1)........................ 0.77%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted)...................... $ 2,430
Ratio of Expenses to
Average Net Assets................. 2.03%*
Ratio of Net Income to
Average Net Assets................. 5.85%*
Portfolio Turnover Rate.............. 112.71%
(1) Sales charges are not reflected in calculation.
</TABLE>
* Annualized
39
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
===============================================================================
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF DAVIS TAX-FREE HIGH INCOME FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Davis Tax Free High Income Fund, Inc., including the schedule of portfolio
investments, as of September 30, 1997, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of
the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Davis Tax-Free High Income Fund, Inc. as of September 30, 1997, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 11, 1997
40
<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
Andrew A. Davis President
Christopher C. Davis Eileen R. Street
Eugene M. Feinblatt Vice President, Treasurer
Jerry D. Geist & Assistant Secretary
D. James Guzy Andrew A. Davis
G. Bernard Hamilton Vice President
LeRoy E. Hoffberger Christopher C. Davis
Laurence W. Levine Vice President
Christian R. Sonne Carolyn H. Spolidoro
Edwin R. Werner Vice President
Sharra L. Reed
Assistant Treasurer
& Assistant Secretary
INVESTMENT ADVISER
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
DISTRIBUTOR
Davis Distributors, LLC
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.
