DAVIS TAX-FREE HIGH
INCOME FUND
ANNUAL REPORT
SEPTEMBER 30, 1998
[PICTURE]
[DAVIS FUND LOGO]
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
Dear Shareholder:
The Davis Tax-Free High Income Fund, Inc. emphasizes long-term, risk-adjusted
performance and, as of September 30, 1998, continued to hold Morningstar's
highest risk-adjusted rating, ***** (five stars) for every time measured for
both its Class A and Class B shares.(1) Contributing to your Fund's superior
risk-adjusted rating has been its low volatility in addition to its total
return. The Fund's volatility is so low that Morningstar classifies it as a
short-term municipal fund. Furthermore, the Fund's Class B shares have generated
a positive return in every year since its inception in March, 1985, although
there can be no assurance it will continue to do so in the future.
According to Morningstar, "This fund sports a terrific record: Its long-term
returns all place in the muni short-term category's best decile, and its yield
has been among the best, as well. The fund's risk scores are nearly as
good....Manager Clark Stamper's exploitation of market inefficiencies is the
fund's key strength."(2)
In terms of absolute performance, the Fund's Class A shares generated a total
return on net asset value of 6.53% for the one-year period ended September 30,
1998.(3) This compared with an average return of 8.20% for the 50 high-yield
municipal bond funds tracked by Lipper Analytical Services, Inc.(4) The Fund
trailed its peer group because it was more defensively positioned during a
period when the market generally rallied, but we think the portfolio is
appropriately structured for the investment environment we see ahead.
Well-Positioned for a Flight to Quality
The first nine months of calendar 1998 were a fairly rosy period overall for the
bond markets, with long-term Treasury yields declining from around 6% at the
start of the year to around 5% on September 30. The municipal market followed
this trend, albeit on a lagging basis because the rally was driven mainly by
foreign buyers fleeing financial turmoil in Asia and rushing to purchase U.S.
Treasuries. These investors do not buy tax-free municipal securities.
Because the municipal market lagged, yields on tax-free bonds reached extremely
attractive levels, with yields on AAA-rated municipals equal to about 93% of
U.S. Treasury yields in September.(5) That's the narrowest the spread between
municipal and Treasury yields has been since 1996 when politicians were debating
the merits of a flat income tax, which would have negated the appeal of tax-free
municipal bonds.
Credit quality fears began to emerge in the taxable bond market in mid-July and
gained momentum as the third quarter progressed. Triggering the sharp reversal
in market sentiment were growing concerns about international financial problems
along with the threat of a global credit crunch and rising interest rates. Even
after the Federal Reserve's two rate cuts--one in late September and the other
in mid-October--the markets continue to be gripped by volatility and
illiquidity.
These concerns have also spilled over to the municipal market, causing lower
quality municipals to trade poorly as investors rush to quality and away from
risk. We believe your Fund's defensive strategy is well-suited to this volatile
market environment, including the likelihood of credit-quality problems if
deflationary pressures mount.
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
As we observed the steep declines suffered by issuers of low credit quality in
the taxable markets, we further pruned the Fund's lower-quality holdings. As a
result, your Fund's credit quality rating remains high, with an average rating
of AA- for all the securities in its portfolio.(5) As another measure of the
portfolio's defensive posture, approximately 39% of the bonds are backed by
private municipal bond insurance or a federal agency. In addition, to further
lower overall risk, the Fund continues to be highly diversified with more than
500 positions from issuers in all 50 states.
Rigorous Research and a Value-Oriented Philosophy
In managing your Fund, we pursue a value-oriented investment philosophy. Our
approach is long term and concentrates primarily on evaluating the risk and
reward trade-offs of different investments through a disciplined research
process.
We build the portfolio bond by bond, using bottom-up, in-depth credit analysis
of municipal bond issuers to minimize credit risk. To manage interest rate risk
and call risk, we carefully focus on the upside potential and downside
protection of each individual investment. We also employ top-down management
techniques to assure proper portfolio diversification.
Your Fund continues to emphasize the same strategies that it used to achieve its
top risk-adjusted performance rating. To obtain extra yield per credit quality
and a more favorable risk/return relationship, we buy bonds that are out of the
spotlight and often mispriced. In addition, to gain a more than proportionate
amount of downside protection, the Fund has relinquished some upside potential
by investing in cushion bonds.
Cushion bonds are bonds that pay larger than average interest rates and that can
be purchased at relatively low prices because investors generally expect the
bonds to be called in or redeemed by the issuer before maturity. Through careful
research, our objective is to identify bonds that are unlikely to be called
despite the market's expectations. Because the bonds are purchased at relatively
low prices, the Fund has some cushion if the market drops. Furthermore, if the
bonds remain strong after the anticipated call date--as has occurred in many
instances--the Fund continues to collect the bonds' high tax-free income.
One example of a recent cushion bond investment is the Fund's purchase of New
Jersey Health, Muhlenberg Regional Medical Center 7.60% bonds due on July 1,
2002.(6) This issue is insured by AMBAC and, thus, carries a AAA rating. The
Fund purchased these bonds at a 5.98% yield to the 30-day call. If the bonds
remain strong until maturity in 2002, the Fund will earn a 6.84% yield to
maturity on its investment.
The Fund's defensive strategies position the Fund to outperform its peer group
if credit quality spreads--that is, the difference in yields between
high-quality and lower-quality bonds--widen. Spreads have already widened
dramatically in the taxable market and we expect a similar occurrence in the
tax-free market, meaning low-quality municipals could significantly underperform
high-quality issues going forward. While our strategies provide extra yield and
downside protection, they would also limit the Fund's upside potential if
interest rates dropped substantially, or if the credit quality environment
improved dramatically due to a booming economy.
2
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
As always, we remain dedicated to helping our shareholders build and preserve
wealth over time. We believe the Fund's conservative approach will reward
shareholders with relatively high levels of tax-free income and strong
performance, consistent with our focus on minimizing volatility and maximizing
long-term risk-adjusted returns.
Sincerely,
/s/ Shelby M.C. Davis /s/ B. Clark Stamper
Shelby M.C. Davis B. Clark Stamper
Chief Investment Officer Portfolio Manager
November 4, 1998
- ----------
This Annual Report is furnished to you by Davis Distributors, LLC, which acts as
the distributor for Davis Tax-Free High Income Fund, Inc. This Annual Report is
authorized for distribution only when accompanied or preceded by a current
prospectus of Davis Tax-Free High Income Fund, Inc. which contains more
information about fees and expenses. Please read the prospectus carefully before
investing or sending money.
(1) Source: Morningstar Mutual Funds, September 30, 1998. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of September
30, 1998. Subject to change every month, Morningstar ratings are calculated from
a fund's three-, five-, and 10-year average annual total 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 A shares (inception date December 1, 1994) were rated against 1,581
municipal bond funds for the three-year period. The Fund's Class B shares were
rated against 1,581, 943, and 359 municipal bond funds for the three-, five-,
and 10-year periods, respectively. Ten percent of the funds in an investment
category receive five stars; the next 22.5% receive four stars; the next 35%
receive three stars; the next 22.5% receive two stars, and 10% receive one star.
Star ratings for the Fund's other classes may vary and are available only for
those classes with at least three years of performance history. Past performance
is not a guarantee of future results.
(2) Source: Morningstar Mutual Funds, May 27, 1998.
(3) Average annual total return assumes reinvestment of dividends and capital
gain distributions. Past performance is not a guarantee of future results.
Investment return and principal value will vary so that, when redeemed, an
investor's shares may be worth more or less than when purchased.
3
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
* (Without a sales charge taken into consideration for the period ended
September 30, 1998)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
FUND NAME 1 YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION
--------- ----- ----- ----- ----- ---------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Davis Tax-Free High Income "A" 6.53% 6.83% N/A N/A 7.43% - 12/01/94
- ---------------------------------------------------------------------------------------------------------------
Davis Tax-Free High Income "B" 5.74% 6.04% 5.51% 6.95% 7.11% - 03/21/85
- ---------------------------------------------------------------------------------------------------------------
Davis Tax-Free High Income "C" 5.74% N/A N/A N/A 5.84% - 08/18/97
- ---------------------------------------------------------------------------------------------------------------
Davis Tax-Free High Income "Y" N/A N/A N/A N/A 6.34% - 10/06/97+
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
+ Return is non-annualized
** (With a 4.75% sales charge or any applicable contingent deferred sales charge
taken into consideration for the period ended September 30, 1998)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
FUND NAME 1 YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION
--------- ----- ----- ----- ---- ---------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Davis Tax-Free High Income "A" 1.47% 5.11% N/A N/A 6.09% - 12/01/94
- ---------------------------------------------------------------------------------------------------------------
Davis Tax-Free High Income "B" 1.75% 5.15% 5.20% 6.95% 7.11% - 03/21/85
- ---------------------------------------------------------------------------------------------------------------
Davis Tax-Free High Income "C" 4.74% N/A N/A N/A 5.84% - 08/18/97
- ---------------------------------------------------------------------------------------------------------------
Davis Tax-Free High Income "Y" N/A N/A N/A N/A 6.34% - 10/06/97+
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
+ Return is non-annualized
(4) Lipper Analytical Services, Inc. rankings are based on total returns but do
not consider sales charges.
(5) Standard & Poor's Corporate Bond Ratings -
AAA--Debt rated AAA has the highest rating assigned by Standard and
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
(6) The Fund's portfolio securities as of September 30, 1998, including the
securities discussed in this letter, are listed in the Schedule of Investments.
Portfolio holdings are subject to change.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
4
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
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. 1.88% 6 mos.3.11% 12 mos. 6.53%
Class B Shares 3 mos. 1.69% 6 mos.2.72% 12 mos. 5.74%
Class C Shares 3 mos. 1.58% 6 mos.2.73% 12 mos. 5.74%
Class Y Shares 3 mos. 1.71% 6 mos.3.14% since 10/06/97 6.34%
- --------------------------------------------------------------------------------
Net Asset Value Average Annual Total Returns
- -------------------------------------------------------------------------------
Class A Shares 3 yrs.6.83% Since inception (December 1, 1994) 7.43%
Class B Shares 3 yrs.6.04% 5 yrs. 5.51% 10 yrs. 6.95%
Class C Shares Since inception (August 18, 1997) 5.84%
- -------------------------------------------------------------------------------
Composition of the Fund's Portfolio by Quality Rating as a Percentage of
Total Assets at September 30, 1998
<TABLE>
<CAPTION>
Fund's Assessment of General Definition
Moody's/S&P Rating Category Percentage Non-rated Securities of Bond Quality
- --------------------------- ---------- -------------------- ---------------
<S> <C> <C> <C>
Aaa/AAA....................... 48.01% 0.12% Highest quality
Aa/AA......................... 11.76% 0.00% High quality
A/A........................... 16.07% 0.45% Upper medium grade
Baa/BBB....................... 6.75% 2.97% Medium grade
Ba/BB......................... 3.77% 3.86% Some speculative
elements
B/B........................... 1.31% 1.71% 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..................... 9.11% 0.00% Not rated by
Moody's or S&P
Short-term Investments........ 3.22% 0.00%
------- -----
100.00% 9.11%
</TABLE>
Average credit rating: AA-
Weighted average maturity: 16.84 years
5
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Comparison of Davis Tax-Free High Income Fund, Inc., Class A Shares and Lehman
Brothers 10 Year Revenue Bond Index
==============================================================================
Average Annual Total Return For the Non-Annualized Total Return For the
Periods ended September 30, 1998. Period ended September 30, 1998.
- --------------------------------------------------------------------------------
CLASS A SHARES CLASS Y SHARES
(This calculation includes an (There is no sales charge applicable
initial sales charge of 4 3/4%). to this calculation.)
One Year ......................... 1.47%
Life of Class (December 1, 1994 Life of Class (October 6, 1997
through September 30, 1998)... 6.09% through September 30, 1997)... 6.34%
- --------------------------------------------------------------------------------
$10,000 invested at inception. Let's say you invested $10,000 in Davis Tax-Free
High Income Fund, Inc. 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, 1998 the
value of your investment would have grown to $12,543 - a 25.43% increase on your
initial investment. For comparison, the Lehman Brothers 10 Year Revenue Bond
Index is also presented on the chart below.
[The following table was depicted as a line chart in the printed material]
<TABLE>
<CAPTION>
Davis Tax-Free High Lehman Brothers
Income Fund Class A 10 Year Revenue
------------------- ---------------
<S> <C> <C>
12/1/94 9,525 10,000
9/30/95 10,285 11,652
9/30/96 10,936 12,162
9/30/97 11,774 13,283
9/30/98 12,543 14,449
</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, Inc. 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.
6
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Comparison of Davis Tax-Free High Income Fund, Inc., Class B Shares and Lehman
Brothers 10 Year Revenue Bond Index
================================================================================
Average Annual Total Return For the Periods ended September 30, 1998.
- --------------------------------------------------------------------------------
CLASS B SHARES (This calculation includes applicable contingent deferred sales
charges.)
One Year ........................................................... 1.75%
Five Years ......................................................... 5.20%
Ten Years .......................................................... 6.95%
- --------------------------------------------------------------------------------
$10,000 invested over ten years. Let's say you invested $10,000 in Davis
Tax-Free High Income Fund, Inc. B shares on September 30, 1988. As the chart
below shows, by September 30, 1998 the value of your investment would have grown
to $19,581 - a 95.81% increase on your initial investment. For comparison, the
Lehman Brothers 10 Year Revenue Bond Index is also presented on the chart below.
[The following table was depicted as a line chart in the printed material]
<TABLE>
<CAPTION>
Davis Tax-Free High Lehman Brothers
Income Fund Class B 10 Year Revenue
------------------- ---------------
<S> <C> <C>
9/30/88 10,000 10,000
9/30/89 10,863 10,791
9/30/90 11,445 11,520
9/30/91 12,601 13,138
9/30/92 13,725 14,498
9/30/93 14,974 16,418
9/30/94 15,395 16,140
9/30/95 16,417 18,025
9/30/96 17,325 18,930
9/30/97 18,518 20,674
9/30/98 19,581 22,489
</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, Inc. 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, INC.
Comparison of Davis Tax-Free High Income Fund, Inc., Class C Shares and Lehman
Brothers 10 Year Revenue Bond Index
================================================================================
Average Annual Total Return For the Periods ended September 30, 1998.
- --------------------------------------------------------------------------------
CLASS C SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year ............................................................... 4.74%
Life of Class (August 18, 1997 through September 30, 1998) ............. 5.84%
- --------------------------------------------------------------------------------
$10,000 invested on August 31, 1997. Let's say you invested $10,000 in Davis
Tax-Free High Income Fund, Inc. C shares on August 31, 1997. As the chart below
shows, by September 30, 1998 the value of your investment would have grown to
$10,655 - a 6.55% increase on your initial investment. For comparison, the
Lehman Brothers 10 Year Revenue Bond Index is also presented on the chart below.
[The following table was depicted as a line chart in the printed material]
<TABLE>
<CAPTION>
Davis Tax-Free High Lehman Brothers
Income Fund Class C 10 Year Revenue
------------------- ---------------
<S> <C> <C>
8/31/97 10,000 10,000
9/30/97 10,077 10,121
9/30/98 10,655 11,009
</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, Inc. 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, INC.
Portfolio Holdings as of September 30, 1998
================================================================================
[The following two tables were depicted as pie charts in the printed material.]
Portfolio Makeup (% of Fund Net Assets)
- ---------------- ----------------------
Cash, Short-term Bonds & Other Assets 3.4%
Municipal Bonds 96.6%
Sector Weightings (% of Portfolio)
- ----------------- ----------------
General Obligation 9.7%
Other 2.2%
Utilities 10.4%
Education 3.9%
Health 23.3%
Housing 9.6%
Ind. Dev. Rev. 4.9%
Poft. Ctrl. Rev 8.2%
Revenue Bonds 27.8%
<TABLE>
<CAPTION>
% of Fund
Top 10 Holdings State Net Assets
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Santa Clara Cnty., CA, Tax and Revenue Antic. Note, 4.50%, 10/01/99 California 2.31%
Port Auth NY & NJ Rev. Bds. (Cons.-Seventy-Second) Ser. '92, 7.35%, New York 2.13%
10/01/27
Monroe Cnty., MI, Poll. Ctl. Rev. Bds. (Detroit EDSN Prj.) Ser. '89 I, Michigan 1.93%
7.50%, 09/01/19
Ohio St. Air Quality Dev. Auth. Rev. Bds. (Pollution Ctl./Ohio Edison Ohio 1.49%
Ser. '90, 7.45%, 03/01/16
Pennsylvania Hsg. Fin. Agy. Sngl. Fam. Mtg. Rev. Bds., Ser. 28, Pennsylvania 1.45%
7.55%, 10/01/23
Kentucky Asset/Liability Comm. Gen. Fd. Rev. Bds., Tax & Rev. Antic Kentucky 1.44%
Nts., Ser. '98 A, 4.50%, 06/25/99
Louisville & Jefferson Cnty., KY, Riverport Auth. Mtg. Rev. Bds., Kentucky 1.36%
Ser. '86, 7.875%, 05/15/16
Illinois Hlth. Fac. Auth. Rev. Ref. Bds. (Hinsdale Hosp.) Ser. '90 A, Illinois 1.29%
9.00%, 11/15/15
Chicago, IL, Pub. Bldg. Comm. Mtg. Rev. Bds. (MBIA Insured) Ser. A, Illinois 1.20%
7.125%, 01/01/15
Brazos River Auth., TX, Pollution Control Rev. Ref. Bds. (Texas Util. Elec. Texas 1.18%
Co. Prj.) Ser. A, 5.55%, 05/01/33
</TABLE>
9
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - (96.58%)
ALABAMA - (1.22%)
$ 3,670,000 Birmingham Med. Ctr., Eastern Alabama Special Care Fac. Rev. Ref. Bds.
(MBIA Insured) , 7.25%, 07/01/15........................................... $ 3,680,973
295,000 Houston Cnty., AL, (Southeast Alabama Med. Ctr. Prj.) (MBIA Insured),
7.625%, 04/01/07........................................................... 304,927
115,000 Ozark, AL, Medical Clinic Brd. 1st Mtg. Rev. Bds. (United States Hlth. &
Hsg. Foundation, Inc. Prj.), 9.25%, 10/01/99............................... 118,203
770,000 Selma, AL, Ind'l. Dev. Brd. Ind'l. Dev. Rev. Bds., (Hammermill Plant Prj.)
Ser. '79, 6.875%, 04/01/04................................................. 779,409
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............................................................ 560,600
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.............. 1,075,980
---------------
6,520,092
---------------
ALASKA - (0.59%)
2,000,000 Alaska Energy Auth. Pwr. Rev. Bds. (Bradley Lake Prj.), 7.25%, 07/01/16...... 2,091,740
770,000 Alaska Energy Auth. Pwr. Rev. Bds. (Bradley Lake Prj.), 6.25%, 07/01/21...... 784,676
265,000 Alaska St. Hsg. Fin. Corp. Collateralized Home Mtg. Bds. - Ser. '89A-1,
7.625%, 12/01/13........................................................... 270,830
---------------
3,147,246
---------------
ARIZONA - (1.32%)
1,000,000 Arizona Educ. Loan Marketing Corp., Educ. Loan Rev. Bds., Ser. B,
7.30%, 09/01/03............................................................ 1,049,310
1,000,000 Arizona Educ. Loan Marketing Corp., Educ. Loan Rev. Bds., Ser. B,
7.35%, 09/01/04............................................................ 1,049,740
775,000 Arizona Educ. Loan Marketing Corp., Educ. Loan Rev. Bds., Ser. B,
7.375%, 09/01/05........................................................... 813,704
140,000 Chandler, AZ, Improvement Dist. No. 51, 7.875%, 01/01/99..................... 141,522
230,000 Coconino & Mohave Cntys., AZ, Unified School Dist. No. 6, Cap.
Appreciation Ref. Bds., Zero Cpn., 07/01/02................................ 199,111
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............................. 684,194
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..... 525,690
65,000 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.......................... 66,763
620,000 Mesa, AZ, Ind. Dev. Auth. Hlth. Care Fac. Rev. Bds., (Western Hlth.
Network-A-3) Ser. '88, 7.625%, 01/01/13.................................... 638,451
8,220,000 Phoenix, AZ, IDA Sngl. Fam. Mtg. Rev. Bds., Ser. '84, Zero Cpn.,
12/01/15................................................................... 1,255,687
200,000 Pima, AZ, Ind'l. Dev. Auth. Hlth. Care Corp. Rev. Bds. Ser. '88, 8.00%,
07/01/13................................................................... 204,718
</TABLE>
10
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
ARIZONA - Continued
$ 400,000 Pima, AZ, Ind'l. Dev. Auth. Multi. Fam. Mtg. Rev. Bds. (Broadway Prop.)
(FHA Insured) Ser. '85, 8.15%, 12/01/25.................................... $ 446,000
---------------
7,074,890
---------------
ARKANSAS - (0.67%)
500,000 Independence Cnty., AR, PCR, (Mississippi Pwr. & Lt. Co. Prj.) '82-A
Ser. B, 9.50%, 07/01/14................................................... 518,210
520,000 Jefferson Cnty, AR, Rev. Ref. Bds. (Energy Ark, Inc. Prj.), 5.60%, 10/01/17.. 529,225
2,500,000 Little River Cnty., AR, Rev. Ref. Bds. (Georgia Pacific Corp. Prj.), 5.60%,
10/01/26................................................................... 2,530,725
---------------
3,578,160
---------------
CALIFORNIA - (12.25%)
66,000 California Educ. Fac. Auth. Rev. Bds. (Pooled Ref. Prg.) (MBIA Insured)
Ser. '86, 6.70%, 11/01/09.................................................. 66,193
145,000 California Hlth. Fac. Auth. Hosp. Rev. Bds. (Rabobank Nederland)
Ser. B, 7.20%, 01/01/12.................................................... 146,763
795,000 California Hlth. Fac. Auth. Insured Hosp. Rev. Bds. FGIC Insured (Victor
Valley Community Hosp.) '84 Ser. A, 9.875%, 07/01/12....................... 818,850
360,000 California Hlth. Fac. Auth. Insured Hosp. Rev. Bds. (Victor Valley
Community Hosp.) '84 Ser. A, 9.875%, 07/01/12.............................. 361,782
3,905,000 California Hlth. Fac. Fin. Auth. Insured Hlth. Fac. Rev. Bds.
(Henry Mayo Newhall Memorial Hosp.) Ser. '88A, 8.00%, 10/01/18............. 3,996,221
500,000 California Hlth. Fac. Fin. Auth. Insured Hosp. Rev. Bds. (H.E.L.P. Group)
Ser. A, 7.00%, 08/01/21.................................................... 546,195
5,770,000 California Hlth. Fac. Fin. Auth. Rev. Bds. (Kaiser Permanente) Ser. A,
7.00%, 10/01/18............................................................ 6,057,865
835,000 California Hsg. Fin. Agy. Rev. Home Mtg Bds., Cap. Appreciation,
Ser. D, Zero Cpn., 08/01/20................................................ 157,715
690,000 California Hsg. Fin. Agy. Rev. Insured Hsg. Bds., Ser. B, 8.625%, 08/01/15... 726,467
440,000 California Pub. Cap. Impts. Fac. Auth. Rev. Bds. (Pooled Prj.) Ser. B,
8.10%, 03/01/18............................................................ 450,463
1,500,000 California St. Dept. Wtr. Res. Cent., Rev. Bds. (VY Prj.), 5.40%, 07/01/12... 1,515,390
600,000 California St. Veteran's Bds., 6.15%, 02/01/11............................... 613,200
200,000 California St. Veteran's Bds., 6.20%, 02/01/12............................... 204,410
175,000 California St. Veteran's Bds., 6.20%, 02/01/16............................... 178,869
2,500,000 California St. Veteran's Bds., 6.375%, 02/01/27.............................. 2,555,575
825,000 City of Napa, CA, '92, Ind. Rev. Ref. Bds. (Napa Motel and Restaurant),
8.50%, 12/01/07............................................................ 843,381
250,000 Cnty. of Marin, Mtg. Rev. Bds., Ser. '84A (FHA Insured Mtg. Loan -
Marion Park Apts. Prj.), Zero Cpn., 04/01/01............................... 195,720
1,000,000 Cnty. of Marin, Multifam. Hsg. Rev. Bds., Ser. '84B (Marion Park
Apts. Prj.), Zero Cpn., 04/01/07........................................... 429,680
</TABLE>
11
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
CALIFORNIA - Continued
$ 330,000 Huntington Park, CA, Sngl. Fam. Mtg. Rev. Bds., Ser. '84A, 9.50%,
01/01/11................................................................... $ 357,393
5,000,000 Kern Cnty., CA, Tax & Rev. Antic Nts., Unlimited G.O., Ser. '98, 4.25%,
10/01/99................................................................... 5,051,850
1,000,000 Lancaster, CA, School Dist. Ctfs. of Participation (FSA Proj.) Capital
Appreciation Bds., Zero Cpn., 04/01/15..................................... 453,470
1,480,000 Lancaster, CA, School Dist. Ctfs. of Participation (FSA Proj.) Capital
Appreciation Bds., Zero Cpn., 04/01/16..................................... 636,459
1,480,000 Lancaster, CA, School Dist. Ctfs. of Participation (FSA Proj.) Capital
Appreciation Bds., Zero Cpn., 04/01/17..................................... 596,721
1,730,000 Lancaster, CA, School Dist. Ctfs. of Participation (FSA Proj.) Capital
Appreciation Bds., Zero Cpn., 04/01/19..................................... 633,561
1,730,000 Lancaster, CA, School Dist. Ctfs. of Participation (FSA Proj.) Capital
Appreciation Bds., Zero Cpn., 04/01/22..................................... 547,320
200,000 Los Angeles, CA, Community Redevelopment Agy. Bds., '87 Ser. G,
6.75%, 07/01/10............................................................ 207,760
555,000 Los Angeles, CA, Community Redevelopment Agy. Bds., '87 Ser. G,
6.75%, 07/01/10............................................................ 576,578
310,000 Los Angeles, CA, Home Mtg. Rev. Bds. (GNMA Mtg. Sec. Prog.), 8.10%,
05/01/17................................................................... 341,012
100,000 Los Angeles, CA, Multi. Fam. Hsg. Rev. Ref. Bds., Ser. '91 A, 7.00%,
05/01/21 (c)............................................................... 105,161
175,000 Los Angeles, CA, Multi. Fam. Rev. (FHA Insured Multi-Fam. Hsg. Mtg.
Rev. Bds.) Park Parthenia Prj., 7.30%, 07/20/11............................ 179,891
30,000 Los Angeles, CA, Reg'l Airports Improvement Corp. Lease Rev. Bds.
(Los Angeles West Terminal Fuel Corp.), 10.00%, 01/01/01................... 32,528
815,000 Monterey, CA, Hosp. Rev. Ref. Bds. (Community Hosp. Monterey Pen.-B),
7.375%, 07/01/14........................................................... 820,159
900,000 New Haven, CA, Unified School Dist., Cap. Appreciation Ref. Bds.,
Unlimited G.O., Zero Cpn., 08/01/13........................................ 442,890
985,000 New Haven, CA, Unified School Dist., Cap. Appreciation, Unlimited G.O.,
Ser. B, Zero Cpn., 08/01/14................................................ 456,922
1,200,000 New Haven, CA, Unified School Dist., Cap. Appreciation, Unlimited G.O.,
Ser. B, Zero Cpn., 08/01/15................................................ 524,676
1,400,000 New Haven, CA, Unified School Dist., Cap. Appreciation, Unlimited G.O.,
Ser. B, Zero Cpn., 08/01/16................................................ 574,406
1,650,000 New Haven, CA, Unified School Dist., Cap. Appreciation, Unlimited G.O.,
Ser. B, Zero Cpn., 08/01/17................................................ 637,395
1,390,000 Palmdale, CA, School Dist. Ctfs. of Participation, Capital Appreciation
Bds., Zero Cpn., 10/01/18.................................................. 523,710
1,580,000 Palmdale, CA, School Dist. Ctfs. of Participation, Capital Appreciation
Bds., Zero Cpn., 10/01/22.................................................. 487,446
</TABLE>
12
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
CALIFORNIA - Continued
$ 850,000 Palomar Pomerado Hosp. Dist., CA, Rev. Ref. Bds., (MBIA Insured)
Ser. '89A, 7.25%, 11/02/08................................................. $ 869,797
350,000 Ridgecrest, CA, Certificates of Participation Bds. (Ridgecrest Redev. Agy.)
Ser. '88, 7.60%, 03/01/03.................................................. 362,376
380,000 Ridgecrest, CA, Certificates of Participation Bds. (Ridgecrest Redev. Agy.)
Ser. '88, 7.60%, 03/01/13.................................................. 393,456
3,000,000 Riverside Cnty., CA, Tax & Rev. Antic. Nts., Unlimited G.O., Ser. '98,
4.50%, 09/30/99............................................................ 3,038,250
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................................................ 112,156
5,000,000 San Diego Cnty., CA, Tax & Rev. Antic. Nts., Unlimited G.O., Ser. '98,
4.50%, 09/30/99............................................................ 5,063,750
1,000,000 San Francisco, CA, Bay Area Rapid Tran. Dist. Sales Tax, Rev. Ref. Bds.,
4.75%, 07/01/23............................................................ 982,780
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.................. 703,997
120,000 San Francisco, CA, City & Cnty. Parking Auth. Rev. Ref. Bds.
(Moscone Ctr. Parking Lease) Ser. '88, 7.50%, 12/01/08..................... 122,599
3,910,000 San Francisco, CA, City & Cnty. Redev. Fin. Auth. Tax Allocation,
Ctfs. of Participation Bds., Ser. A, Zero Cpn., 08/01/16................... 1,529,006
3,915,000 San Francisco, CA, City & Cnty. Redev. Fin. Auth. Tax Allocation,
Ctfs. of Participation Bds., Ser. A, Zero Cpn., 08/01/17................... 1,450,077
3,910,000 San Francisco, CA, City & Cnty. Redev. Fin. Auth. Tax Allocation,
Ctfs. of Participation Bds., Ser. A, Zero Cpn., 08/01/18................... 1,373,348
100,000 Santa Clara Cnty., CA, Hsg. Auth. Multifam. Hsg. Rev. Bds., (FNMA
Coll. - Amberwood Apts.) Ser. '85 C, 4.95%, 10/01/07....................... 102,511
12,225,000 Santa Clara Cnty., CA, Tax and Revenue Antic. Note, 4.50%, 10/01/99.......... 12,381,236
170,000 Santa Clara Cnty., CA, Mtg. Rev. Insured Multiplier Rev. Bds., (Terman
Apt. Prj.) Ser. '84 A, Zero Cpn., 10/01/99................................. 162,432
1,400,000 Santa Maria, CA, Wtr. & Wastewtr. Certificates of Participation,
Ser. A, Zero Cpn., 08/01/27................................................ 1,127,000
745,000 South Pasadena, CA, Uni. School Dist. FGIC Insured, Ser. B, Zero Cpn.,
11/01/21................................................................... 240,665
750,000 South Pasadena, CA, Uni. School Dist. FGIC Insured, Ser. B, Zero Cpn.,
11/01/22................................................................... 230,385
440,000 Torrance, CA, Hosp. Rev. Bds. (Torrance Mem. Hosp.) Ser. '87, 6.75%,
01/01/12................................................................... 443,656
90,000 Torrance, CA, Hosp. Rev. Ref. Bds. (Torrance Mem. Hosp.) (MBIA Insured)
Ser. '87, 6.75%, 01/01/12.................................................. 90,720
250,000 University, CA, Rev. Bds. (Faculty Residential Mtg.) Ser. '79, 7.20%,
09/01/12................................................................... 250,790
</TABLE>
13
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
CALIFORNIA - Continued
$ 500,000 Whisman, CA, School Dist. Cap. Appreciation, (MBIA Insured) Ser. B,
Zero Cpn., 08/01/16........................................................ $ 213,070
500,000 Whisman, CA, School Dist. Cap. Appreciation, (MBIA Insured) Ser. B,
Zero Cpn., 08/01/18........................................................ 191,400
750,000 Whisman, CA, School Dist. Cap. Appreciation, (MBIA Insured) Ser. B,
Zero Cpn., 08/01/19........................................................ 272,423
---------------
65,759,927
---------------
COLORADO - (0.29%)
1,450,000 Adams Cnty., CO, School Dist. No. 012 Cap. Appreciation, (MBIA Insured)
Ser. '95A, Zero Cpn., 12/15/12............................................. 757,756
105,000 Colorado Hsg. Fin. Auth. Multi-Fam., Ser. '82B, 6.00%, 10/01/25............. 89,649
30,000 Denver (City & Cnty.), CO, Sngl. Fam. Mtg. Rev. Bds., Ser. '85A,
Zero Cpn., 09/01/16........................................................ 4,677
475,000 El Paso Cnty., CO, School Dist. No. 38 Unlimited G.O., Ser. '87B,
7.90%, 12/01/08............................................................ 478,354
100,000 Greeley, CO, Sales & Use Tax Rev. Ref. Bds. (MBIA Insured) Ser. '87,
6.00%, 02/01/99............................................................ 100,888
180,000 Hamilton Creek Metro Dist., Summit Cnty., CO, G.O., 1.18%, 12/01/04.......... 100,800
---------------
1,532,124
---------------
CONNECTICUT - (0.30%)
250,000 Connecticut Dev. Auth., Aquarium Prj. Rev. Bds. (Mystic Marine Life
Aquarium Prj. - '97 Series A), 6.875%, 12/01/17............................ 270,815
600,000 Connecticut Dev. Auth., Hlth. Care Rev. Bds. (Corp. for Independent Living
Prj.) Ser. '93B, 8.00%, 07/01/17........................................... 660,972
40,000 Connecticut St. Hlth. & Educ. Facs. Auth. Rev. Bds. (Yale New Haven
Hosp.) Ser. '85B, 7.00%, 07/01/12.......................................... 47,008
645,000 Connecticut St. Res. Recovery Auth. Bds. (Bridgeport Resco Co., L.P. Prj.)
'85 Ser. B, 8.625%, 01/01/04............................................... 654,146
---------------
1,632,941
---------------
DELAWARE - (0.19%)
830,000 Delaware Econ. Dev. Rev. Ref. Bds. (Supermarkets General Corp. Prj.)
Ser. '83, 10.875%, 12/01/03................................................ 839,072
200,000 Delaware St. Econ. Dev. Comm. Multi. Fam. Mtg. Rev. Bds. Cap.
Appreciation & Def. Inc. Sec. (Chestnut Cross), 0%/9.75%, 07/20/20 (b)..... 199,386
---------------
1,038,458
---------------
DISTRICT OF COLUMBIA - (0.03%)
1,250,000 District of Columbia, Hsg. Fin. Agy. Multi. Fam. Mtg. Rev. Bds. (MBIA/
FHA Insured) Multiplier-FHA-Benning , Zero Cpn., 02/01/27.................. 58,500
1,500,000 District of Columbia, Multi-Unit Hsg. Fin. Corp. Mtg. Rev. Bds. (MBIA/
FHA Insured) Congress Pk. II Ap, Zero Cpn., 11/01/25....................... 96,240
---------------
154,740
---------------
</TABLE>
14
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
FLORIDA - (5.14%)
$ 945,000 Broward Cnty., FL, Hsg. Fin. Auth. Rev. Home Mtg., Ser. A, Cap.
Appreciation, Zero Cpn., 04/01/14.......................................... $ 203,024
410,000 Charlotte Cnty., FL, IDR Ref. Bds. (Beverly Enterprises - Florida, Inc. Prj.)
Ser. '87, 10.00%, 06/01/11................................................. 463,505
4,750,000 City of Tampa, FL, Home Mtg. Rev. Bds., '83 Ser. A, Muni Multiplier
Bds., Zero Cpn., 10/01/14.................................................. 833,863
700,000 Clearwater, FL, Wtr. & Swr. Rev. Ref. Bds., Cap. Appreciation, Zero Cpn.,
12/01/07................................................................... 372,792
210,000 Dade Cnty., FL, Hlth. Fac. Auth. Hosp. Rev. Ref. Bds. (Miami Childrens
Hosp. Prj.) (FGIC Insured) Ser. '87, 6.875%, 08/15/17..................... 212,659
1,755,000 Dade Cnty., FL, Hlth. Fac. Auth. Hosp. Rev. Ref. Bds. (Miami Childrens
Hosp. Prj.) (MBIA/FGIC Insured) Ser. '87, 6.875%, 08/15/17................ 1,777,218
225,000 Dade Cnty., FL, Hsg. Fin. Auth. Mtg. Rev. Bds. (Coll-Lihud Ltd. Apts. Prj.)
Ser. '84 H, 10.50%, 06/01/00............................................... 226,238
1,830,000 Escambia Cnty., FL, Hlth. Fac. Auth. Hlth. Fac. Rev. Ref. Bds. (Baptist
Hosp. Inc. ) Ser. '88 A, 8.70%, 10/01/14................................... 1,866,875
2,095,000 Florida Hsg. Fin. Agy., 1st Mtg. Rev. Bds., Cap. Appreciation, Ser. '84,
Zero Cpn., 07/15/16....................................................... 263,907
170,000 Florida Hsg. Fin. Agy. Multifam. Bds. (Pickwick Apts.) Ser. '84A,
Zero Cpn., 01/01/07........................................................ 99,476
900,000 Florida Hsg. Fin. Agy. (Southlake Apartments Prj. - D), 8.10%, 10/01/02...... 870,012
35,000 Florida St. Board of Educ. Cap. Outlay Bds., Ser. '89B, 7.50%, 06/01/05...... 35,770
2,000,000 Florida St. Div. Bd. Fin. Dept. Gen'l. Svcs. Rev. Bds. (Dept. Nat. Res.
Preservation 2000-A) Ser. '92, 5.75%, 07/01/99............................. 2,036,620
100,000 Highlands Cnty., FL, IDA (Beverly Enterprises - Florida, Inc. Prj.) Ser. '91,
9.25%, 07/01/07............................................................ 111,454
500,000 Hillsborough Cnty. IDA 1st Mtg. Rev. Bds. (Tampa Bay Christian Ctr.,
Inc. - Alafia Village Prj.) Ser. '96, 8.75%, 10/01/26...................... 527,030
185,000 Jacksonville Hlth. Fac. Auth. Hosp. Rev. Ref. Bds., Ser. '89A (Methodist
Hosp. Prj.), 8.00%, 10/01/06............................................... 183,104
460,000 Jacksonville Hlth. Fac. Auth. Hosp. Rev. Ref. Bds., Ser. '89A (Methodist
Hosp. Prj.), 8.00%, 10/01/15............................................... 458,183
290,000 Jacksonville Hlth. Fac. Auth. Hosp. Rev. Ref. Bds., Ser. '89B (Methodist
Hosp. Prj.), 8.00%, 10/01/15............................................... 288,855
200,000 Lee Cnty., FL, IDA Hlth. Care Fac. Rev. Bds., Ser. '97 (Cypress Cove),
5.875%, 10/01/27 (c)....................................................... 207,198
228,680 Manatee Cnty., FL, Hsg. Fin. Auth. Mtg. Rev. Bds., Cap. Appreciation,
'83 Ser. A, Zero Cpn., 10/01/15............................................ 39,527
375,000 Melbourne, FL, Wtr. & Swr. Rev. Red. Bds., Ser. '86C, 6.00%, 10/01/14........ 379,455
7,500,000 Miami-Dade Cnty., FL, Special Obligation Bds. (MBIA Insured) Ser. '97 B,
Zero Cpn., 10/01/32........................................................ 1,227,525
33,010,000 Miami-Dade Cnty., FL, Special Obligation Bds. (MBIA Insured) Ser. '97 B,
Zero Cpn., 10/01/33........................................................ 5,109,288
</TABLE>
15
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
FLORIDA - Continued
$ 4,320,000 Miami-Dade Cnty., FL, Special Obligation Ref. Bds. (MBIA Insured)
Ser. '97 C, Zero Cpn., 10/01/13............................................ $ 2,114,251
3,990,000 Miami-Dade Cnty., FL, Special Obligation Ref. Bds. (MBIA Insured)
Ser. '97 A, Zero Cpn., 10/01/24............................................ 1,029,021
1,000,000 Miami, FL, Hlth. Fac. Auth. Hosp. Rev. Ref. Bds., Ser. '88 (Mercy Hosp.),
8.125%, 08/01/11........................................................... 1,023,780
320,000 Miami, FL, Special Obligation Bds. (MBIA Insured) '86 Ser. A, 7.375%,
07/01/06................................................................... 323,082
415,000 Orange Cnty., FL, IDA (Beverly Enterprises - Florida, Inc. Prj.) Ser. '91,
9.25%, 08/01/10............................................................ 463,870
485,000 Orlando & Orange Cnty., Expressway Auth. FL Expressway, Sr. Lien Rev.
Bds., Ser. '88, 7.625%, 07/01/18........................................... 525,745
1,050,000 Palm Beach Cnty., FL, Hsg. Fin. Auth. Sngl. Fam. Mtg. Rev. Bds. Cap.
Appreciation, Zero Cpn., 07/01/14.......................................... 211,806
100,000 Pinellas Park, FL, Wtr. & Swr. Rev. Bds., Ser. '84 A, 10.00%, 10/01/02....... 103,211
2,750,000 St. Petersburg, FL, Hlth. Fac. Auth. Rev. Bds. (Allegany Hlth.-A)
(MBIA Insured) Ser. '85, 7.00%, 12/01/15.................................. 3,073,373
350,000 South Indian River Wtr. Control Dist., Sect. 15A Improvement Bds. (Egret
Landing - Phase I), 8.00%, 11/01/18........................................ 389,277
470,000 Winter Garden, FL, IDR Ref. Bds. (Beverly Enterprises - Florida, Inc. Prj.)
Ser. '91, 8.75%, 07/01/12.................................................. 529,511
---------------
27,580,505
---------------
GEORGIA - (0.59%)
300,000 Douglas Cnty., GA, School Dist. Bds., Unlimited G.O., Ser. '86, 6.85%,
01/01/03................................................................... 303,801
200,000 Gainesville Redevelopment Auth., 1st Mtg. Rev. Bds. (Autumn Breeze
Personal Care Home, Inc. Prj.) Ser. '96A, 8.00%, 04/01/26.................. 215,338
10,000 Georgia St. Residential Fin. Auth. Sngl. Fam. Mtg. Rev. Bds. Cap.
Appreciation (FHA/VA Insured) Ser. '86 A, Zero Cpn., 12/01/16............ 2,615
575,000 The Hsg. Auth. of Columbus, GA, Multifamily Hsg. Rev. Bds. (Columbus
Gardens Elderly Hsg. Prj.) Ser. '94, 8.25%, 01/01/24....................... 649,158
200,000 Liberty Cnty., IDA, Ind. Rev. Ref. Bds., Ser. '92 (LeConte Properties,
Inc. Prj.), 7.875%, 12/01/14............................................... 216,310
750,000 Macon Cnty., GA, Hosp. Ref. Rev. Bds. (Flint River Comm.
Hospital - Paracelsus Healthcare Corp. Prj.) Ser. '91, 9.00%, 03/01/11..... 759,638
1,000,000 Savannah, GA, Econ. Dev. Auth. Rev. Bds. (First Mtg.-Coastal Care)
Ser. '97 A, 7.75%, 09/01/27................................................ 1,040,770
---------------
3,187,630
---------------
HAWAII - (1.44%)
195,000 Dept. of Transportation of the State of HI, Special Fac. Rev. Bds., Ser. '90
(Continental Airlines, Inc.), 9.60%, 06/01/08............................. 213,233
4,000,000 Hawaii St. Dept. Budget & Fin. Spl. Pur. Mtg. Rev. Bds. (Hawaii Elec. Prj.)
(MBIA Insured) Ser. '88, 7.625%, 12/01/18.................................. 4,223,120
</TABLE>
16
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
HAWAII - Continued
$ 3,000,000 Honolulu, HI, (City & Cnty.) Multifam. Rev. Hsg. (Waipahu Towers Prj.)
Ser. '95, 6.90%, 06/20/35.................................................. $ 3,269,370
---------------
7,705,723
---------------
ILLINOIS - (4.88%)
6,000,000 Chicago, IL, Pub. Bldg. Comm. Mtg. Rev. Bds. (MBIA Insured) Ser. A,
7.125%, 01/01/15........................................................... 6,415,740
250,000 Chicago, IL, School Fin. Auth. Unlimited G.O., Ser. B, 7.60%, 06/01/01....... 254,190
750,000 Chicago, IL, Wtr. Rev. Bds., Ser. '97, 4.00%, 11/01/98....................... 750,413
120,000 Cnty. of Cook, IL, Sngl. Mtg. Rev. Bds., '83 Ser. A, Zero Cpn., 07/01/15..... 20,148
135,000 Decatur, IL, Pub. Bldg. Comm. Rev. Bds., Unlimited G.O., Ser. '86,
7.50%, 01/01/00............................................................ 139,487
1,000,000 Illinois Dev. Fin. Auth. Rev. Ref. Bds. (Comm. Rehab. Providers) Ser. '97 A,
5.60%, 07/01/06............................................................ 1,077,350
450,000 Illinois Educ. Fac. Auth. Rev. Ref. Bds. (Illinois Institute of Technology)
Ser. A '87, 8.75%, 06/01/15................................................ 458,573
100,000 Illinois Hlth. Fac. Auth. Rev. Ref. Bds. (Advocate Hlth. Care) Ser. '96 A,
4.70%, 08/15/01............................................................ 102,206
180,000 Illinois Hlth. Fac. Auth. Rev. Ref. Bds. (Ancilla Sys. Inc.) Ser. '97 A,
5.25%, 07/01/16............................................................ 186,881
1,000,000 Illinois Hlth. Fac. Auth. Rev. Ref. Bds. (Centegra Hlth. Sys.),
5.25%, 09/01/18............................................................ 1,003,470
6,130,000 Illinois Hlth. Fac. Auth. Rev. Ref. Bds. (Hinsdale Hosp.) Ser. '90 A,
9.00%, 11/15/15............................................................ 6,903,729
500,000 Illinois Hlth. Fac. Auth. Rev. Ref. Bds. (Midwest Physician Group Ltd.),
5.50%, 11/15/19............................................................ 497,495
500,000 Illinois Hlth. Fac. Auth. Rev. Ref. Bds. (Rockford Hlth. Sys.) Ser. '97,
5.125%, 08/15/15........................................................... 510,265
395,000 Illinois Hlth. Fac. Auth. Rev. Ref. Bds. (Unrefunded Balance-A)
(MBIA Insured) Ser. '88, 7.90%, 08/15/03................................... 400,360
8,897,526 Illinois Hsg. Dev. Auth., Multi-Fam. Hsg. Rev. Bds., Cap. Appreciation,
Ser. '83A, Zero Cpn., 07/01/25............................................. 664,690
300,000 St. Clair Cnty., IL, Certificates of Participation Bds., Ser. '97 A, 5.30%,
10/01/12................................................................... 316,434
1,000,000 St. Clair Cnty., IL, Pub. Bldg., Community Bldg. Rev. Bds., 8.00%,
12/01/05................................................................... 1,053,290
3,000,000 Village of Robbins, Cook Cnty., IL, Res. Recovery Rev. Bds. (Robbins
Res. Recovery Partners, L.P. Prj.), 8.375%, 10/15/16....................... 2,400,000
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 (c)........... 1,010,560
131,000 Village of Sauget, IL, IDR Bds. (The Pillsbury Co. Prj.) Ser. '80, 8.375%,
05/01/05................................................................... 131,405
500,000 Village of Sherman, IL, 1st Mtg. Rev. Bds. (Villa Vianney, Inc.) Ser. '95A,
8.375%, 07/01/25........................................................... 532,840
</TABLE>
17
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
ILLINOIS - Continued
$ 550,000 Village of Sherman, IL, 1st Mtg. Rev. Bds. (Villa Vianney, Inc.) Ser. '97A,
7.75%, 10/01/22........................................................... $ 583,121
1,000,000 Village of Wataga, IL, 1st Mtg. Hlth. Fac. Rev. Bds. (First Humanics Corp.
- Galesburg, IL Prj.) Ser. '86, 7.76%, 09/01/16............................ 770,000
---------------
26,182,647
---------------
INDIANA - (1.91%)
485,000 Carmel, IN, Retirement Rental Hsg. Rev. Ref. Bds. (Beverly Enterprises -
Indiana, Inc. Prj.) Ser. '92, 8.75%, 12/01/08.............................. 550,524
199,612 Elwood, IN, Econ. Dev. Rev. (K-Mart Co. - S. S. Kresge Co. Prj.), 8.50%,
10/15/00................................................................... 200,133
175,000 Greencastle, IN, Multifam. Rev. (FNMA Insured Multi-Fam. Hsg. Mtg.
Rev. Bds.) Pedcor Invest. VH LP Prj., Ser. '91, 7.125%, 11/01/06........... 182,627
500,000 Griffith, IN, Econ. Dev. Rev. Bds. (May Dept. Stores Co. Prj.) Ser. '79,
6.75%, 03/01/09............................................................ 503,005
730,000 Indiana Bond Bank, Ser. '88 B Bds., 8.50%, 02/01/18.......................... 748,819
665,000 Indiana Bond Bank, Ser. '88 C Bds., 8.125%, 02/01/17......................... 681,299
130,000 Indiana Bond Bank, Special Program Bds., Ser. '87 A, 8.70%, 02/01/13......... 132,149
1,000,000 Indiana Hlth. Fin. Auth. Hosp. Fac. Rev. Bds. (Community Hosp. Prj.)
Ser. '91, (MBIA Insured), 6.85%, 07/01/22.................................. 1,107,780
785,000 Indiana Hlth. Fin. Auth. Hosp. Fac. Rev. Ref. Bds. (Floyd Mem. Hosp. &
Hlth. Svc.) Ser. '98, 5.25%, 02/15/18...................................... 795,700
2,000,000 Indianapolis, IN, Loc. Pub. Impt. Bd. Bk. Rev. Bds., Cap. Appreciation,
Ser. '91 C, Zero Cpn., 01/01/10............................................ 1,183,160
610,000 Madison Cnty., IN, Hosp. Auth. Hosp. Rev. Ref. Bds. (Community Hosp.
Of Anderson), 8.00%, 01/01/14.............................................. 624,286
1,025,000 Marion Cnty., IN, Convention & Recreational Fac. Rev. Bds.
(MBIA Insured), Ser. A, Zero Cpn., 06/01/13................................ 515,544
1,000,000 Monroe Cnty., IN, Multifam. Hsg. Rev. Bds. (GNMA Coll. - Country
View-A), 5.75%, 04/01/33................................................... 1,027,970
2,000,000 Tipton, IN, Comm. School Bldg. Corp. 1st Mtg. Rev. Bds., Ser. '98,
5.00%, 07/15/20............................................................ 2,003,280
---------------
10,256,276
---------------
IOWA - (0.18%)
176,698 Creston, IA, IDR (S.S. Kresge Co. - K-Mart Inc.), 8.50%, 08/01/00............ 177,134
500,000 Iowa Fin. Auth. Hosp. Fac. Rev. Ref. Bds. (Iowa Hlth. Sys.), Ser. A,
(MBIA Insured), 5.125%, 01/01/28........................................... 499,585
300,000 Salix, IA, PCR Bds., (Iowa-Illinois Gas & Elec. Prj.), 5.75%, 06/01/03....... 300,849
---------------
977,568
---------------
KANSAS - (0.16%)
405,000 Kansas City, KS, Crawford Cnty., Tax-Exempt Muni Multiplier Rev. Bds.,
Zero Cpn., 04/01/16........................................................ 62,937
</TABLE>
18
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
KANSAS - Continued
$ 250,000 Kansas City, KS, Dev. Fin. Auth. Rev. Bds. MBIA Insured
(Sisters of Charity Leavenworth) Ser. '98, 5.125%, 12/01/18................ $ 256,328
205,000 Liberal, KS, Swr. Util. Sys. Rev. Ref. Bds., 8.80%, 10/01/99................. 209,977
305,000 Liberal, KS, Swr. Util. Sys. Rev. Ref. Bds., 8.90%, 04/01/00................. 312,430
250,000 Saline Cnty., KS, Sngl. Fam. Mtg. Rev. Cap. Accumulator Bds.,
Ser. '82 A, Zero Cpn., 11/01/14............................................ 43,313
---------------
884,985
---------------
KENTUCKY - (4.35%)
110,000 Cntys. of Jefferson, Oldham and Bullitt, KY, Home Mtg. Rev. Bds, Ser. '84,
10.75%, 11/01/14........................................................... 118,290
1,800,000 Elizabethtown, KY, IDR Bds. (Colt Industries Inc.), 9.875%, 10/01/10......... 1,823,184
250,000 Floyd, KY, Gas Sys. Rev. Ref. Bds., Ser. '91A, 8.00%, 09/01/12............... 279,088
200,000 Jefferson Cnty., KY, Cap. Prj. Corp. Rev. Bds. Lease - Ser. B, Zero Cpn.,
08/15/07................................................................... 105,808
550,000 Jefferson Cnty., KY, Cap. Prj. Corp. Rev. Muni Multi Lease Ref. Bds. -
Ser. A '87, Zero Cpn., 08/15/14............................................ 185,422
205,000 Jefferson Cnty., KY, Home Mtg. Rev. Bds. (Mun. Multiplier) Ser. '83,
Zero Cpn., 05/01/14........................................................ 49,231
7,650,000 Kentucky Asset/Liability Comm. Gen. Fd. Rev. Bds., Tax & Rev. Antic.
Nts., Ser. '98 A, 4.50%, 06/25/99.......................................... 7,712,807
750,000 Kentucky Econ. Dev. Fin. Auth. Hlth. Fac. Rev. Bds. (Christian Church
Homes), 5.375%, 11/15/23................................................... 759,990
1,720,000 Kentucky, St. Tpk. Auth. Res. Rec. Rd. Rev. Ref. Bds., Ser. '85 A,
6.00%, 07/01/09............................................................ 1,723,285
395,000 Kentucky, St. Tpk. Auth. Res. Rec. Rd. Rev. Ref. Bds. (FGIC Insured),
Ser. '85 A, 6.00%, 07/01/09................................................ 395,822
7,185,000 Louisville & Jefferson Cnty., KY, Riverport Auth. Mtg. Rev. Bds.,
Ser. '86, 7.875%, 05/15/16................................................. 7,297,517
2,000,000 Louisville, KY, Airport Lease Rev. Bds., Ser. '89 A, 7.85%, 02/01/09......... 2,087,140
175,000 Morehead, KY, Ind. Bldg. Rev. Bds. (Emerson Elec.) Ser. '76, 6.30%,
04/01/01................................................................... 180,544
1,075,000 Owensboro, KY, Elec. Light & Pwr. Rev. Bds., Ser. B, Zero Cpn.,
01/01/09................................................................... 388,951
250,000 Somerset, KY, Wtr. Prj. Rev. Bds., Ser. '91, 6.40%, 12/01/05................. 255,963
---------------
23,363,042
---------------
LOUISIANA - (2.16%)
435,000 Bossier City, LA, Rev. Ref. Bds. Ser. '87, 7.85%, 01/01/04................... 443,052
85,000 Jefferson Parish, LA, Home Mtg. Rev. Bds. Cap. Appreciation, Zero Cpn.,
09/01/02................................................................... 57,276
85,000 Jefferson Parish, LA, Home Mtg. Rev. Bds. Cap. Appreciation, Zero Cpn.,
03/01/03................................................................... 54,223
</TABLE>
19
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
LOUISIANA - Continued
$ 365,000 Lafayette Parish, LA, Law Enforcement Dist. Special Bds., 6.10%, 03/01/00.... $ 365,715
275,000 Lafayette Parish, LA, Law Enforcement Dist. Special Bds., 6.20%, 03/01/01.... 275,536
1,000,000 Lake Charles Non-Profit Hsg. Dev. Corp. Mtg. Rev. Ref. Bds., Ser. '90A
and Ser. '90B, 7.875%, 02/15/25............................................ 1,024,750
720,000 Louisiana Pub. Fac. Auth. Hosp. Rev. Ref. Bds., Ser. '93 (Gen. Hlth., Inc.
Prj.) (MBIA Insured), Ser. '89 A, 6.50%, 11/01/14.......................... 739,678
1,800,000 Louisiana Pub. Fac. Auth. Rev. Bds. (Hlth. & Ed. Cap.), Ser. '85 D, 7.90%,
12/01/15................................................................... 1,848,240
1,500,000 Louisiana Pub. Fac. Auth. Rev. Ref. Bds., Ser. '93 (Schwegmann Westside
Expressway, Inc. Prj.), 8.00%, 10/01/09.................................... 1,652,385
25,000 Louisiana Pub. Fac. Auth. Supplemental Student Loan Rev. Variable Rate
Demand Bds., (Statewide Prg.) Ser. '84B, 8.125%, 12/01/99.................. 25,938
350,000 Louisiana Pub. Fac. Auth. Supplemental Student Loan Rev. Variable Rate
Demand Bds., (Statewide Prg.) Ser. '84C, 8.125%, 12/01/99.................. 363,125
1,000,000 Louisiana St., Gas & Fuels Tax, Rev. Bds., Ser. '90 A, 7.25%, 11/15/04....... 1,056,840
355,000 New Orleans, LA, Hsg. Dev. Corp. First Lien Rev. Bds. (Tulane Ave. Prj.)
Ser. '79, 7.875%, 06/01/10................................................. 356,005
1,725,000 Sales Tax School Bds., Parish School Brd. of the Parish of Jefferson, State of
LA, Ser. '86A, 7.00%, 02/01/08............................................. 1,792,172
500,000 Sales Tax School Bds., Parish School Brd. of the Parish of Jefferson, State of
LA, Ser. '86A, 7.00%, 02/01/08............................................. 534,650
1,000,000 West Feliciana Parish, LA, Rev. Bds. (Pollution Control Rev. Gulf States),
5.80%, 12/01/15............................................................ 1,025,440
---------------
11,615,025
---------------
MAINE - (0.33%)
1,765,000 Maine Hlth. & Higher Educ. Fac., Hosp. Rev. Ref. Bds. (Eastern Maine
Med. Ctr.) Ser. '85, 9.10%, 10/01/12....................................... 1,765,282
---------------
MARYLAND - (1.26%)
700,000 Allegany Cnty., MD, IDR Bds. (Moran Manor Care Ctr.) Ser. '84,
12.45%, 02/01/27........................................................... 850,395
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........................... 11,002
1,000,000 Maryland St. Hlth. & Higher Educ. Facs. Auth. Rev. Bds., Ser. '97
(Charity Oblig. Group), 4.60%, 11/01/26 (c)................................ 1,029,190
485,000 Montgomery Cnty., MD, Econ. Dev. Rev. Bds. (Brink Reservoir Fac.)
Ser. '84, 10.375%, 12/15/14................................................ 496,562
220,000 Montgomery Cnty., MD, Hsg. Opportunity Comm. Multifam. Mtg. Rev.
Bds., Ser. '88 A, 8.10%, 07/01/08.......................................... 224,858
2,275,000 Montgomery Cnty., MD, Hsg. Opportunity Comm. Multifam. Mtg. Rev.
Bds., Ser. '88 A, 8.25%, 07/01/19.......................................... 2,326,552
</TABLE>
20
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
MARYLAND - Continued
$ 1,770,000 Upper Potomac River Comm., MD, PCR Bds., Westvaco Corp. Prj.,
9.125%, 08/01/15........................................................... $ 1,844,694
---------------
6,783,253
---------------
MASSACHUSETTS - (2.84%)
250,000 Lawrence, MA, IDR Bds., (New Balance Realty Trust Prj.), 10.00%,
10/01/03................................................................... 251,093
100,000 Massachusetts Educ. Loan Auth., Educ. Loan Rev. Bds., Issue C, Ser. '85A,
7.875%, 06/01/03........................................................... 101,922
215,000 Massachusetts Educ. Loan Auth., Educ. Loan Rev. Bds., Issue D, Ser. '89A,
7.65%, 01/01/07............................................................ 220,601
125,000 Massachusetts Hlth. & Educational Fac. Auth. Rev. Bds. (New England
School of Law), 8.30%, 07/01/03............................................ 125,470
125,000 Massachusetts Hlth. & Educational Fac. Auth. Rev. Bds. (New England
School of Law), 8.30%, 07/01/04............................................ 125,470
1,000,000 Massachusetts Hlth. & Educational Fac. Auth. Rev. Bds., St. Anne's Hosp.
Issue, Ser. A, 9.375%, 07/01/14............................................ 1,003,700
375,000 Massachusetts State G.O., 10.50%, 08/01/03................................... 379,016
200,000 Massachusetts State G.O., 9.75%, 09/01/03.................................... 201,022
1,395,000 Massachusetts State Hlth. & Educational Fac. Auth. Rev. Bds.
(Brockton Hosp.), Ser. '87 B, 8.00%, 07/01/07.............................. 1,413,749
1,930,000 Massachusetts State Hlth. & Educational Fac. Auth. Rev. Bds.
(Brockton Hosp.), Ser. '87 B, 8.10%, 07/01/13.............................. 1,955,785
2,000,000 Massachusetts State Hlth. & Educational Fac. Auth. Rev. Bds.
(Care Group Issue) (MBIA Insured) Ser. A, 4.75%, 07/01/20.................. 1,931,440
250,000 Massachusetts State Hlth. & Educational Fac. Auth. Rev. Bds.
(Catholic Hlth. East) Ser. B, 5.00%, 11/15/28.............................. 249,213
1,500,000 Massachusetts State, Ind. Fin. Agy., Rev. Ref. Bds., (1st Healthcare Corp.
Prj.), 7.75%, 04/01/19..................................................... 1,547,940
3,495,000 Massachusetts State, Ind. Fin. Agy., Rev. Ref. Bds., (Harvard Cmnty. Hlth.)
Ser. '88B, 8.125%, 10/01/17................................................ 3,565,354
1,170,000 Massachusetts State, Ind. Fin. Agy., Rev. Ref. Bds., (Harvard Cmnty.)
(MBIA Insured) Ser. '88, 8.125%, 10/01/17.................................. 1,197,729
945,000 Massachusetts State, Ind. Fin. Agy., Rev. Ref. Bds., (Provider Lease
Program) Ser. '89A, 8.75%, 07/15/09........................................ 967,085
---------------
15,236,589
---------------
MICHIGAN - (3.96%)
100,000 Cnty. of Oakland, State of Michigan Bds., Clinton-Oakland Sys., Paint
Creek Inceptor Sewage Disposal Bds., 7.00%, 05/01/01....................... 102,290
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........................... 1,099,134
1,000,000 Kalamazoo, MI, Hosp. Fin. Auth. Hosp. Fac. Rev. Ref. Bds. (Bronson
Methodist Hosp.) (MBIA Insured) Ser. '98, 5.50%, 05/01/28.................. 1,054,180
</TABLE>
21
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
MICHIGAN - Continued
$ 580,000 Kentwood, MI, Econ. Dev. Corp. Rev. Bds. (Hanover-Kent, Inc. - K-Mart
Corp.), 7.85%, 09/01/01.................................................... $ 584,779
570,000 Michigan Muni Bd. Auth. Local Gov't Loan Prg. Rev. Ref. Bds.,
Ser. '92 A, 8.625%, 11/01/16............................................... 580,904
1,000,000 Michigan State Bldg. Auth. Rev. Bds. (Facs. Prog.) '97 Ser. IIA, 5.00%,
10/15/14................................................................... 1,029,940
600,000 Michigan State Strategic Fd. Ltd. Oblig. Rev. Bds. (NSF International Prj.)
Ser. '97A, 5.75%, 08/01/19................................................. 638,754
975,000 Michigan State Strategic Fd. Ltd. Oblig. Rev. Bds. (St. John-Bon Secours
Cont. Care) Ser. '87, 7.90%, 11/15/16...................................... 997,679
500,000 Michigan State Strategic Fd. Ltd. Oblig. Rev. Bds. (Welch Foods Inc.)
Ser. '91, 6.75%, 07/01/01.................................................. 515,200
150,000 Michigan State Strategic Fd. Ltd. Oblig. Rev. Environmental Impt. Bds,
Crown- Ser. '97 B, 6.25%, 08/01/12......................................... 141,252
3,250,000 Monroe Cnty., MI, Poll. Ctl. Rev. Bds. (Detroit EDSN Prj.) Ser. '89 I,
7.30%, 09/01/19............................................................ 3,442,758
9,745,000 Monroe Cnty., MI, Poll. Ctl. Rev. Bds. (Detroit EDSN Prj.) Ser. '89 I,
7.50%, 09/01/19............................................................ 10,340,360
200,000 Munising, MI, Pub. Schools, Alger & Schoolcraft Cntys. Rev. Bds., Ser.
'89, 7.05%, 05/01/99....................................................... 201,622
180,000 River Dist., MI, Community Hosp. Auth. Hosp. Rev. Ref. Bds., Ser. '89,
7.20%, 05/01/99............................................................ 182,171
100,000 River Dist., MI, Community Hosp. Auth. Hosp. Rev. Ref. Bds., Ser. '89,
7.40%, 05/01/01............................................................ 101,208
210,000 University, MI, Univ. Rev. Ref. Bds. (Student Fee) Ser. '87, 6.00%,
04/01/09................................................................... 210,015
---------------
21,222,246
---------------
MINNESOTA - (0.63%)
880,000 Blaine, MN, IDR (Consolidated Freightways Del. Prj.) '79 Ser. B,
7.25%, 01/01/04............................................................ 885,870
100,000 Hutchinson, MN, Bank Rev. Bds., Ser. '90, 6.70%, 02/01/01.................... 100,908
305,000 Minneapolis, MN, Community Dev. Agy. Rev. Bds. (River Bluff Prj.),
11.375%, 06/01/09.......................................................... 314,254
260,000 Minneapolis, MN, Community Dev. Agy. Rev. Bds. (West Bank
Homes Prj.), 11.75%, 10/01/08.............................................. 273,478
200,000 Minneapolis & St. Paul, MN, Met. Airports Comm. Rev. Bds., Ser. 7,
7.80%, 01/01/04............................................................ 206,128
145,000 Minnesota State Higher Educ. Fac. Auth. Rev. Bds. (St. Olaf College)
Ser. '79, 6.40%, 04/01/00.................................................. 147,005
105,000 Minnesota State Higher Educ. Fac. Auth. Rev. Bds. (St. Olaf College)
Ser. '79, 6.50%, 04/01/01.................................................. 106,404
170,000 Minnesota St. Hsg. Fin. Agy., Sngl. Fam. Mtg. Rev. Bds., '86 Ser. B,
7.25%, 07/01/16............................................................ 170,092
</TABLE>
22
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
MINNESOTA - Continued
$ 555,000 Minnesota St. Hsg. Fin. Agy., Sngl. Fam. Mtg. Rev. Bds., '86 Ser. C,
7.00%, 07/01/16............................................................ $ 555,278
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.................................. 10,298
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.................................. 15,447
250,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. '84-N, Sunwood
Inn/Bandana Square Ltd., 10.00%, 12/01/14.................................. 257,553
5,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. K, Jackson Str.
Shops Ltd., 9.50%, 12/01/01................................................ 5,145
10,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. K, Jackson Str.
Shops Ltd., 9.50%, 12/01/02................................................ 10,290
235,000 The Port Auth. of the City of Saint Paul, MN, IDR, Ser. K, Jackson Str.
Shops Ltd., 9.50%, 12/01/14................................................ 241,902
100,000 University, MN, Rev. Ref. Bds., '86 Ser. A, 6.00%, 02/01/11.................. 99,456
---------------
3,399,508
---------------
MISSISSIPPI - (2.87%)
1,500,000 Amory, MS, Dock & Wharf Rev. Bds. (Weyerhauser Co. Prj.), 9.50%,
09/01/00................................................................... 1,553,025
6,085,000 Claiborne Cnty., MS, PCR (Middle South Energy, Inc. Prj.) Ser. C,
9.875%, 12/01/14........................................................... 6,317,690
1,815,000 Clarksdale, MS, Ind. Rev. Bds. (Bah Pptys./Archer-Daniel's), 11.75%,
06/01/11................................................................... 1,834,747
200,000 Hinds Cmnty. College Dist., MS, Ctfs. of Participation (Conference &
Training Ctr. Prj.) Ser. '94, 6.50%, 09/01/14.............................. 215,198
570,000 Lauderdale Cnty., MS, Mtg. Rev. Bds. (Aldersgate) (MBIA/FHA Insured)
Ser. '85, 8.25%, 11/01/06.................................................. 589,950
1,695,000 Lauderdale Cnty., MS, Mtg. Rev. Bds. (Aldersgate) (MBIA/FHA Insured)
Ser. '86, 8.25%, 11/01/16.................................................. 1,754,325
9,015,000 Mississippi Home Corp. Residual Rev. Bds., Cap. Appreciation, Ser. I '92,
Zero Cpn., 09/15/16........................................................ 3,139,925
---------------
15,404,860
---------------
MISSOURI - (0.89%)
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............................................ 250,653
1,000,000 Independence, MO, Elec. Util. Rev. Ref. Bds., '89 Ser. A & B,
7.10%, 06/01/04............................................................ 1,006,390
100,000 Jefferson Cnty., MO, Reorg. School Dist. No. R3 Unlimited G.O., 6.50%,
03/01/02................................................................... 100,245
200,000 Jefferson Cnty., MO, Reorg. School Dist. No. R3 Unlimited G.O., 6.60%,
03/01/03................................................................... 200,506
150,000 Kansas City, MO, Ind. Dev. Auth. Econ. Dev. Rev. Ref. Bds. (Encore
Nursing Ctr. Ltd.), 8.00%, 12/01/02........................................ 162,539
</TABLE>
23
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
MISSOURI - Continued
$ 435,000 Little Blue Valley Swr. Dist., MO, Rev. Ref. Bds. (AMBAC Insured)
Ser. '85, 8.60%, 10/01/00.................................................. $ 435,065
210,000 Missouri Hsg. Dev. Commission, Hsg. Dev. Bds. (Federally Insured Mtg.
Loans) Ser. July 1, 1975, 8.00%, 07/01/17.................................. 212,799
555,000 Missouri School Bds. Association Ctfs. (Partner Pool) Ser. A, 7.375%,
03/01/06................................................................... 569,336
1,000,000 Missouri St. Hlth. & Educ. Fac. Auth. Rev. Bds. (Lake Ozarks Gen. Hosp.
Inc.), 5.125%, 02/15/24.................................................... 989,440
730,000 Missouri St. Hsg. Dev. Comm. Mtg. Rev. Ref. Bds., '91 Ser. B, Zero Cpn.,
09/01/12................................................................... 299,468
450,000 Missouri St. Hsg. Dev. Comm. Rev. Bds., Ser. '79, 7.00%, 09/15/22............ 457,929
70,000 St. Louis Cnty., MO, Sngl. Fam. Mtg. Rev. Bds., 9.25%, 10/01/16.............. 76,076
---------------
4,760,446
---------------
MONTANA - (1.67%)
5,110,000 Forsyth, MT, Pollution Control Rev. Ref Bds., (Washington Wtr. Pwr. Prj.)
Ser. '89 (MBIA Insured), 7.125%, 12/01/13.................................. 5,400,452
3,250,000 Montana St. Brd. Invt. Workers Comp. Prog. Rev. Bds. MBIA Insured
Ser. '91, 6.875%, 06/01/20................................................. 3,568,728
---------------
8,969,180
---------------
NEBRASKA - (0.10%)
1,415,000 Nebraska Higher Educ. Loan Prg. Capital Appreciation Rev. Bds.,
Ser. '89 A, Zero Cpn., 12/15/15............................................ 523,720
---------------
NEVADA - (0.76%)
1,250,000 Clark Cnty., NV, IDR (Nevada Pwr. Co. Prj.) Ser. '97A, 5.90%,
11/01/32................................................................... 1,280,038
2,000,000 Clark Cnty., NV, Pollution Ctl. Rev. Ref. Bds. (Southern CA Edison Prj.)
Ser. A, 7.125%, 06/01/09................................................... 2,148,780
500,000 State Of Nevada Muni Bd. Bank Prj. No. 18 & 19, 8.40%, 09/01/01.............. 518,830
105,000 State Of Nevada Muni Bd. Bank Prj. No. 18 & 19, 8.50%, 09/01/05.............. 112,113
---------------
4,059,761
---------------
NEW HAMPSHIRE - (1.33%)
500,000 New Hampshire Higher Educ. & Hlth. Fac. Auth. Rev. Bds. (NH Catholic
Charities Issue) Ser. '91, 8.40%, 08/01/11................................. 575,710
3,950,000 New Hampshire St. IDA Rev. Bds. (Pollution Ctl.-Connecticut Lt. Prj.)
Ser. '89, 7.375%, 12/01/19................................................. 4,177,125
2,225,000 New Hampshire St. IDA PCR Ref. Bds. (Pub. Svc. Co. of New Hampshire
Prj.) '91 Ser. C, 7.65%, 05/01/21.......................................... 2,386,290
---------------
7,139,125
---------------
NEW JERSEY - (1.22%)
200,000 Essex Cnty., NJ, Improvement Auth. Rev. Bds., (Sr. Citizens Hsg.-FHA-
Jewish Fed. Prj.) Ser.'87, 7.75%, 03/01/09................................. 201,080
</TABLE>
24
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
NEW JERSEY - Continued
$ 50,000 New Jersey Econ. Dev. Auth., Econ. Dev. Bds. (Polymeric Resources Corp.
Prj. - '94 Ser.), 9.00%, 12/01/19.......................................... $ 54,403
1,000,000 New Jersey Econ. Dev. Auth., Econ. Dev. Rev. Ref. Bds. (Holt Hauling &
Warehousing) Ser. G, 8.40%, 12/15/15....................................... 1,098,320
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........................... 1,367,672
220,000 New Jersey Econ. Dev. Auth., Econ. Dev. Sr. Rev. Bds. (Lakewood of
Voorhees FHA Insured Prj.) Ser. A, 8.875%, 01/15/20........................ 257,110
350,000 New Jersey Econ. Dev. Auth., 1st Mtg. Rev. Bds. (Franciscan Oaks Prj.)
Ser. '97, 5.60%, 10/01/12.................................................. 356,510
250,000 New Jersey Econ. Dev. Auth., 1st Mtg. Rev. Bds. (Franciscan Oaks Prj.)
Ser. '97, 5.75%, 10/01/23.................................................. 252,303
1,000,000 New Jersey Econ. Dev. Auth., 1st Mtg. Rev. Ref. Bds. (Keswick Pines)
Ser. '98, 5.70%, 01/01/18.................................................. 1,012,330
1,000,000 New Jersey Econ. Dev. Auth. Ind. & Econ. Dev. Rev. Bds. (Owens-Ill Inc.
Vineland Prj.), 5.85%, 09/01/07............................................ 1,001,000
250,000 New Jersey Hlth. Care Fac. Fin. Auth. Rev. Ref. Bds. (Christian Hlth. Care
Ctr.) Ser. '97A, 5.50%, 07/01/18........................................... 255,063
500,000 New Jersey Hlth. Care Fac. Fin. Auth. Rev. Ref. Bds. (Community Med.
Ctr./Kimball Etc. FSA) Ser. '98, 4.75%, 07/01/19........................... 495,405
200,000 New Jersey Hlth. Care Fac. Fin. Auth. Rev. Bds. (Muhlenberg Reg'l. Med.
Ctr.) Ser. '88 B, 7.60%, 07/01/02.......................................... 204,658
---------------
6,555,854
---------------
NEW MEXICO - (0.60%)
120,000 City of Albuquerque, NM, Hlth. Care Sys. Rev. Bds. (Lovelace Medical
Foundation Prj.), 12.00%, 03/01/11......................................... 120,805
20,000 City of Albuquerque, NM, Hlth. Care Sys. Rev. Bds. (Lovelace Medical
Foundation Prj.) Ser. '83A, 10.25%, 03/01/11............................... 20,522
2,970,000 Gallup, NM, Pollution Control Rev. Ref Bds., (Plains Elec. Generation Prj.)
(MBIA Insured), 6.65%, 08/15/17............................................ 3,058,506
10,000 New Mexico Mtg. Fin. Auth. Sngl. Fam. Mtg. Prg. Rev. Bds., 7.00%,
07/01/14................................................................... 7,040
---------------
3,206,873
---------------
NEW YORK - (8.39%)
1,400,000 Amherst, NY, Ind'l Dev. Agy. Auth. Bds. (Lease Rev. Mult. Surface Rink
Complex) Ser. '97, 5.55%, 10/01/17......................................... 1,473,038
300,000 Battery Park City Auth., POD III Hsg. Rev. Bds., Ser. '84 (FHA-Insured
Mtg.), 10.00%, 06/01/23.................................................... 316,800
2,505,000 Clifton Park, NY, IDA IDR Bds. (Caldor Inc. Prj.) Ser. A, 11.25%,
12/01/12................................................................... 2,538,241
1,000,000 Monroe Cnty., NY, Wtr. Auth. Rev. Ref. Bds., Ser. '97, 5.00%, 08/01/19....... 1,002,590
105,000 New York City, Ser. '86 C, FGIC Insured Bds., 7.25%, 02/01/08................ 106,820
85,000 New York City, Ser. '88 B, FGIC Insured Bds., 7.50%, 12/01/03................ 85,585
</TABLE>
25
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
NEW YORK - Continued
$ 140,000 New York City, Ser. '89 B, FGIC Insured Bds., 7.00%, 10/01/19................ $ 144,514
200,000 New York City, Ser. '90 F, FGIC Insured Bds., 6.00%, 08/01/18................ 204,678
280,000 New York City, Ser. '90 I, FGIC Insured Bds., 7.25%, 08/15/14................ 293,185
520,000 New York City, Ser. '90 I, FGIC Insured Bds., 7.75%, 08/15/19................ 546,707
30,000 New York City, Ser. '86 B, Unlimited G.O., 7.30%, 08/15/99................... 30,699
165,000 New York City, Ser. '86 B, Unlimited G.O., 7.30%, 08/15/99................... 170,620
60,000 New York City, Ser. '88 D, Unlimited G.O., 7.875%, 08/01/00.................. 61,697
80,000 New York City, Ser. '88 D, Unlimited G.O., 8.00%, 08/01/01................... 82,264
740,000 New York City, Ser. '90 I, Unlimited G.O., 7.25%, 08/15/13................... 773,367
500,000 New York City, Ser. '90 I, Unlimited G.O., 7.25%, 08/15/15................... 523,545
610,000 New York, NY, City Muni Wtr. Fin. Auth., Wtr. & Swr. Rev. Bds.,
FGIC Insured, Ser. '89 B, 5.75%, 06/15/13.................................. 645,411
3,000,000 New York, NY, City Trans. Fin. Auth. Rev. Bds. (Future Tax Sec.)
Ser. '98 B, 4.75%, 11/15/18................................................ 2,950,200
825,000 New York State Dorm Auth., Rev. Ref. Bds., (Rochester Inst. Tech.)
Ser. '97, 5.30%, 07/01/17.................................................. 869,261
1,000,000 New York State Dorm Auth., Rev. Bds., (St. Barnabas Hosp.), Ser. '97,
5.35%, 08/01/17............................................................ 1,044,250
350,000 New York State Dorm Auth., Rev. Bds., (St. Vincent DePaul Res.),
Ser. '97, 5.30%, 07/01/18.................................................. 359,219
1,835,000 New York State Dorm Auth., Rev. Ref. Bds., (NY State Dept. Hlth.) Ser.
'98, 5.00%, 07/01/24....................................................... 1,811,310
4,250,000 New York State Energy Research & Dev. Auth., Elec. Fac. Rev. Bds.
(Edison Co. Prj.) Ser. '91, 7.50%, 01/01/26................................ 4,467,388
2,350,000 New York State Med. Care Fac. Fin. Agy., FGIC Insured Bds., (St. Francis
Hosp. Prj.), Ser. '88, 7.60%, 11/01/08..................................... 2,404,990
10,000 New York State Med. Care Fac. Fin. Agy., Rev. Bds., Hosp. & Nursing
Home Insured Mtg., Ser. '88, 7.90%, 02/15/08............................... 10,200
10,000 New York State Med. Care Fac. Fin. Agy., Rev. Bds., Hosp. & Nursing
Home Insured Mtg., Ser. '88 B, 8.00%, 02/15/08............................. 10,235
285,000 New York State Med. Care Fac. Fin. Agy., Rev. Bds., Hosp. & Nursing
Home Mtg., Ser. '87 A, 8.00%, 02/15/27..................................... 288,813
210,000 New York State Med. Care Fac. Fin. Agy., Rev. Bds., Hosp. & Nursing
Home Insured Mtg., Ser. '87 B, 8.875%, 08/15/27............................ 215,189
225,000 New York State Med. Care Fac. Fin. Agy., Rev. Bds., Hosp. & Nursing
Home Mtg., Ser. '88, 8.00%, 02/15/28....................................... 230,254
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.................................... 1,419,110
1,010,000 New York State Med. Care Fac. Fin. Agy., Rev. Ref. Bds., Mental Hlth.
Svcs. Fac., Ser. '87 A, 8.875%, 08/15/07................................... 1,024,342
2,000,000 New York State Med. Care Fac. Fin. Agy. Rev. Bds. (Beth Israel Med.
Ctr.-A) (MBIA Insured), Ser. '89, 7.40%, 11/01/04.......................... 2,046,480
</TABLE>
26
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
NEW YORK - Continued
$ 1,000,000 New York State Urban Development Corp., Rev. Ref. Bds., (Corr. Fac.)
Ser. '98, 5.00%, 01/01/19.................................................. $ 989,880
725,000 New York State Urban Development Corp., Rev. Bds., (St. Office-South
Mall) Ser. '89 A, Zero Cpn., 01/01/11...................................... 379,204
1,095,000 North Hempstead, NY, Ser. '98 A (FGIC Insured), 4.75%, 01/15/18.............. 1,086,722
100,000 Onondaga Cnty., NY, Ind'l. Dev. Agy. Ind'l. Dev. Rev. Bds. (Sysco Frosted
Foods Inc.) Ser. '83, 7.75%, 04/01/03...................................... 102,160
750,000 Otsego Cnty., NY, Ind'l. Dev. Agy. Civic Agy. Rev. Bds. (Bassett Hlth.
Care Prj.) Ser. '98 A, 5.35%, 11/01/20..................................... 781,170
10,000,000 Port Auth NY & NJ Rev. Bds. (Cons.-Seventy-Second) Ser. '92, 7.35%,
10/01/27................................................................... 11,434,800
300,000 Port Jervis, NY, IDA, Mercy Community Hosp. Rev. Bds., (Franciscan Hlth.
Partnership) Ser. '97, 5.10%, 11/01/07..................................... 310,800
470,000 Port Jervis, NY, IDA, Mercy Community Hosp. Rev. Bds., (Franciscan Hlth.
Partnership) Ser. '97, 5.20%, 11/01/08..................................... 489,453
1,300,000 Westchester Cnty., NY, Ind'l. Dev. Agy. Civic Fac. Rev. Bds.,
(Lawrence Hosp. Prj.) Ser. A, 5.125%, 01/01/18............................. 1,303,757
---------------
45,028,948
---------------
NORTH CAROLINA - (0.96%)
500,000 Brevard, NC, Hsg. Auth. 1st Mtg. Rev. Bds. (Ascend Healthcare, Inc. Prj.),
Ser. '98A, 7.50%, 03/01/28................................................. 506,120
500,000 Charlotte, NC, Hsg. Auth. 1st Mtg. Rev. Bds. (Ascend Healthcare, Inc. Prj.),
Ser. '98A, 7.50%, 03/01/28................................................. 506,120
470,000 North Carolina Eastern Mun. Pwr. Agy. Pwr. Sys. Rev. Ref. Bds.,
Ser. '88A, 6.00%, 01/01/26................................................. 470,235
500,000 North Carolina Med. Care Comm. Hlth. Care Fac., 1st Mtg. Rev. Bds.,
(Deerfield Espiscopal) Ser. '97, 6.00%, 11/01/27........................... 508,880
500,000 North Carolina Med. Care Comm. Hlth. Care Fac., 1st Mtg. Rev. Ref. Bds.,
(Glenaire Prj.) Ser. '97, 5.75%, 07/01/19.................................. 504,120
200,000 North Carolina Med. Care Comm. Hosp. Rev. Ref. Bds. (Moore Memorial
Hosp. Prj.), 9.10%, 10/01/99............................................... 206,634
1,000,000 North Carolina Med. Care Comm. Hlth. Care Fac., 1st Mtg. Rev. Ref. Bds.,
(United Church) Ser. '98, 5.625%, 09/01/24................................. 997,920
935,000 North Carolina Mun. Pwr. Agy. No. 1 Catawba Elec. Rev. Bds., Ser. '85 B,
6.00%, 01/01/20............................................................ 936,879
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..... 515,820
--------------
5,152,728
---------------
NORTH DAKOTA - (0.21%)
900,000 Ward Cnty., ND, Hlth Care Fac. Rev. Bds. (St. Joseph's Hosp. Corp. Prj.)
Ser. '94, 8.875%, 11/15/14................................................. 1,147,770
---------------
</TABLE>
27
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
OHIO - (3.30%)
$ 500,000 Cleveland, OH, Waterworks 1st Mtg. Rev. Bds., Ser. '87E, 6.00%, 01/01/17.... $ 501,150
500,000 Cleveland, OH, Waterworks Rev. Bds., Ser. A, 6.125%, 01/01/08................ 503,070
3,200,000 Cnty. of Belmont, Ohio Hlth. Sys. Rev. and Ref. Bds. (East Ohio Reg'l
Hosp. Issue), 5.80%, 01/01/18.............................................. 3,232,608
245,000 Garfield Heights, OH, Ser. '89, 7.50%, 12/01/09.............................. 251,419
1,120,000 Hamilton Cnty., Ohio Hosp. Facs. Rev. Bds. (Bethesda Hosp. Inc.)
Ser. '86A, 7.00%, 01/01/09................................................. 1,129,195
250,000 Lakewood, Ohio Hosp. Impt. Rev. Ref. Bds. (Lakewood Hosp. ) Ser. One,
6.00%, 02/15/10............................................................ 252,210
950,000 Mahoning Cnty., OH, Hosp. Facs. Rev. Ref. Bds. (St. Elizabeth Hosp. Med.
Ctr.) Ser. '86, 7.375%, 12/01/09........................................... 964,288
2,000,000 Mahoning Valley Sanitary Dist. (Ohio) Wtr. Rev. Bds., Ser. '94,
7.750%, 05/15/19........................................................... 2,238,280
325,000 Montgomery Cnty., OH, Hosp. Rev. Ref. Bds. (Grandview Hosp. & Med.
Ctr.) Ser. '97, 5.65%, 12/01/12............................................ 346,154
1,145,000 Ohio Hsg. Fin. Agy. Sngl. Fam. Mtg. Rev. Bds. Cap. Appreciation,
Ser. '85 A, Zero Cpn., 01/15/15............................................ 239,797
50,000 Ohio Hsg. Fin. Agy. Sngl. Fam. Mtg. Rev. Bds. (GNMA Mtg.-Backed Sec.
Prg.) Ser. '90 C, Zero Cpn., 09/01/02...................................... 38,327
7,500,000 Ohio St. Air Quality Dev. Auth. Rev. Ref. Bds. (Pollution Ctl./Ohio Edison)
Ser. '90, 7.45%, 03/01/16.................................................. 8,004,450
---------------
17,700,948
---------------
OKLAHOMA - (0.32%)
200,000 Oklahoma St. Ind. Auth. Rev. Bds. (Hlth. Sys./Baptist Ctr.) Ser. '95C,
7.00%, 08/15/03............................................................ 226,418
1,000,000 Southeastern, OK, Ind. Auth. OK Rev. Bds. (Pollution Ctl./Weyerhauser Co.
Prj.) Ser. '85, 9.85%, 02/01/00............................................ 1,018,260
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........................... 456,527
---------------
1,701,205
---------------
OREGON - (0.55%)
2,900,000 Oregon St., Ser. B, 6.875%, 12/01/13......................................... 2,973,805
---------------
PENNSYLVANIA - (8.17%)
50,000 Allegheny Cnty., PA, Residential Fin. Auth. Sngl. Fam. Mtg. Rev. Bds.,
'83-Ser.-B, Zero Cpn., 10/01/15............................................ 8,436
2,915,000 Beaver Cnty., PA, IDA PCR Bds. (J&L Specialty Steel-formerly known
as Colt Ind. Prj.) Ser. 19, 7.00%, 06/01/08................................ 2,971,551
65,000 Berks Cnty., PA, IDA IDR (Borg-Warner/Baker Protection Svcs., Inc.)
Ser. '81, 11.10%, 07/01/01................................................. 65,877
2,360,000 Berks Cnty., PA, IDA (Supermarkets General Corp. Prj.), 10.50%, 11/01/03..... 2,446,376
</TABLE>
28
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
PENNSYLVANIA - Continued
$ 400,000 Columbia Cnty. IDA, Columbia Cnty., PA, 1st Mtg. Rev. Bds., Ser. '86
(Orangeville Nursing Ctr. Associates Prj.), 9.00%, 12/01/12................ $ 401,080
1,000,000 Delaware Cnty., PA, Auth. Hlth. Sys. Rev. Bds. (Catholic Hlth. East)
Ser. '98, 4.875%, 11/15/18................................................. 986,690
1,250,000 Emmaus, PA, Gen'l Auth. Rev. Loc. Gov't Bds. (Bd. Pool Prog.) Ser. C,
7.90%, 05/15/18............................................................ 1,274,088
2,000,000 Emmaus, PA, Gen'l Auth. Rev. Loc. Gov't Bds. (Bd. Pool Prog.) Ser. E,
7.90%, 05/15/18............................................................ 2,038,540
1,850,000 Emmaus, PA, Gen'l Auth. Rev. Loc. Gov't Bds. (Bd. Pool Prog.) Ser. F,
7.90%, 05/15/18............................................................ 1,885,650
100,000 Hempfield, PA, School Dist., Lancaster Cnty. Ref. Bds. Ser. '90,
6.90%, 10/15/01............................................................ 100,824
715,000 Luzerne Cnty., PA, Hsg. Corp. Rev. Bds., 8.125%, 12/01/08.................... 716,351
200,000 McKean Cnty., PA, Ind. Dev. Auth. Rev. Bds., Ser. '80 (Corning Glass
Wks. Prj.), 7.75%, 06/01/05................................................ 201,172
295,000 Mercer Cnty., PA, IDA, Gumberg Assoc. - Pine Grove Square, The Kroger
Co., Ind. Dev. 1st Mtg. Rev. Bds., 13.00%, 06/01/07........................ 304,717
500,000 Montgomery Cnty., PA, IDA 1st Mtg. Rev. Ref. Bds., Ser. '97 A
(Meadowood), 6.25%, 12/01/17............................................... 530,470
100,000 Montgomery Cnty., PA, IDA Mtg. Rev. Ref. Bds., Ser. '92 A
(Geriatric and Medical Svcs., Inc. Prj.), 9.00%, 07/01/99.................. 102,241
115,000 Pennsylvania Hsg. Fin. Agy., Moderate Rehab. Rev. Bds., 9.00%, 08/01/01...... 116,870
7,585,000 Pennsylvania Hsg. Fin. Agy. Sngl. Fam. Mtg. Rev. Bds., Ser. 28,
7.55%, 10/01/23............................................................ 7,757,028
11,000,000 Pennsylvania Hsg. Fin. Agy. Sngl. Fam. Mtg. Rev. Bds., Ser. 63 A,
Zero Cpn., 04/01/30........................................................ 2,002,660
675,000 Pennsylvania St. Higher Educ. Fac. Auth. College & Univ. Rev. Bds.,
(Temple Univ.) Ser. '86, 7.40%, 10/01/10................................... 683,627
1,150,000 Pennsylvania St. Higher Educ. Fac. Auth. College & Univ. Rev. Bds.,
(Temple Univ.) Ser. '86, 7.40%, 10/01/10................................... 1,165,031
3,000,000 Pennsylvania St. Higher Educ. Fac. Auth. Hlth. Svcs. Rev. Bds.
(Allegheny Delaware VY Oblig.) Ser. '96, 5.50%, 11/15/08................... 3,044,700
5,000,000 Pennsylvania St. Higher Educ. Fac. Auth. Hlth. Svcs. Rev. Bds.
(Allegheny Delaware VY Oblig.) Ser. '96, 5.875%, 11/15/18.................. 5,080,850
285,000 Pennsylvania St. Higher Educ. Fac. Auth. Rev. Bds., (Thomas Jefferson
Univ.) Ser. '89 A, 6.00%, 07/01/19......................................... 295,348
4,000,000 Pennsylvania St. Second Ser. Unlimited G.O., Ser. '92, 5.40%, 07/01/00....... 4,121,000
1,150,000 Philadelphia, PA, Hosp. & Higher Educ. Fac. Auth. Rev. Ref. Bds.
(Jefferson Hlth. Sys.) Ser. '97 A, 5.125%, 05/15/18........................ 1,164,513
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........ 314,848
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........ 325,260
</TABLE>
29
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
PENNSYLVANIA - Continued
$ 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........ $ 268,720
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........ 253,124
150,000 Philadelphia, PA, Redev. Auth. Home Improvement Loan, Rev. Bds.,
Ser. '86 A, 7.375%, 06/01/03.............................................. 152,288
85,000 Philadelphia, PA, Redev. Auth. Sngl. Fam. Home Mtg. Rev. Ref. Bds.,
'85 Ser. A, 0%/10.25%, 06/01/17 (b)........................................ 87,631
220,000 Pittsburgh & Allegheny Cnty., PA, Pub. & Auth. Rev. Bds. Ser. '78,
6.50%, 12/01/07............................................................ 220,539
100,000 Pittsburgh, PA, Urban Redevelopment Auth. Home Improvement Loan,
Rev. Bds., Ser. '87 A, 7.125%, 08/01/04.................................... 102,577
750,000 Sharon, PA, Reg'l. Hlth. Sys. Auth. Hlth. Sys. Rev. Bds., (Sharon Reg'l.
Hlth. Sys.) (MBIA Insured) Ser. '98, 5.00%, 12/01/18...................... 751,305
250,000 Warren Cnty., PA, IDA Specialized Dev. Rev. Ref. Bds. (Beverly
Enterprises - Pennsylvania, Inc. Prj.) Ser. '91, 9.00%, 11/01/12........... 279,483
1,625,000 Westmoreland Cnty., PA, Ind'l Dev. Auth. Rev. Ref. Bds. (Citizens Gen.
Hosp. Prj.) Ser. '87, 8.25%, 07/01/13...................................... 1,649,928
---------------
43,871,393
---------------
PUERTO RICO - (0.25%)
780,000 Puerto Rico Commonwealth Infrastructure Fin. Auth. Special Bds.,
Ser. '88 A, 7.75%, 07/01/08................................................ 798,065
300,000 Puerto Rico Ind. Med. & Environmental PCR Fac. Fin. Auth. Rev. Bds.,
(Abbott Chemical Inc. Prj.), 6.50%, 07/01/09............................... 302,739
250,000 Puerto Rico Ind. Tourist Educational Med. & Environmental Ctl. Fac. Fin.
Auth. Rev. Bds., (Mennonite Gen. Hosp. Prj.), Ser. '97 A, 5.625%,
07/01/17................................................................... 257,790
---------------
1,358,594
---------------
RHODE ISLAND - (0.07%)
100,000 Rhode Island Hlth. & Educational Bldg. Corp. Hosp. Fin. Rev. Bds.,
(Roger Williams Gen. Hosp. Issue) Ser. '85, 9.375%, 07/01/04............... 100,423
250,000 Rhode Island Hlth. & Educational Bldg. Corp. Rev. Bds., 9.50%, 07/01/16...... 250,958
---------------
351,381
---------------
SOUTH CAROLINA - (0.86%)
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...... 425,908
750,000 Charleston Cnty., SC, Res. Recovery, Rev. Ref. Bds., (Foster Wheeler
Charleston), Ser. '97, 5.25%, 01/01/10..................................... 806,048
2,310,000 City of Charleston, SC, Waterworks and Sewer Sys. Ref. Rev. Bds.,
Ser. '86A, 7.00%, 01/01/15................................................. 2,338,967
100,000 Clemson Univ., SC, Ctfs. of Participation, Ser. '86, 6.90%, 12/01/07......... 100,566
</TABLE>
30
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
SOUTH CAROLINA - Continued
$ 275,000 Piedmont Mun. Pwr. Agy., SC, Elect. Rev. Ref. Bds., Ser. '86 A,
5.75%, 01/01/24............................................................ $ 275,157
595,000 South Carolina St. Ports Auth. Ports. Rev. Ref. Bds., 6.75%, 07/01/21........ 649,252
---------------
4,595,898
---------------
SOUTH DAKOTA - (0.44%)
250,000 Aberdeen, SD, Unlimited G.O., Rev. Ref. Bds., (MBIA Insured) Ser. '87,
6.90%, 07/01/04............................................................ 252,113
1,000,000 Education Loans, Inc., SD, Student Loan Ref. Bds., Ser. '98, 5.60%,
06/01/20................................................................... 1,035,290
30,000 South Dakota Bldg. Auth., Rev. Ref. Bds., Ser. of Feb. '84, 10.50%,
09/01/00................................................................... 32,778
1,000,000 South Dakota St. Hlth. & Educ. Fac. Auth. Rev. Ref. Bds., (McKennan
Hosp.) (MBIA Insured), Ser. '89 A, 7.625%, 07/01/14....................... 1,051,020
---------------
2,371,201
---------------
TENNESSEE - (1.78%)
295,000 Dover, TN, Hlth. & Educ. Fac., IDR (Wessex Corp. Dover Prj.), 9.50%,
09/01/11................................................................... 298,797
246,879 Dyer Cnty., TN, Ind. Dev. Brd. IDR Bds. (S.S. Kresge Co. - K-Mart Corp.),
8.10%, 11/01/00............................................................ 247,346
500,000 The Hlth. & Educational Fac. Auth. of the City of Crossville, TN, 1st Mtg.
Ref. Rev. Bds. (Country Place Hlth. Care Ctr., Inc. Prj.) Ser. '96 A,
7.75%, 06/01/13............................................................ 538,290
840,000 Lewisburg, TN, IDR Bds. (Mead Corp. Prj.), 7.875%, 02/01/00................... 867,720
245,000 McMinn Cnty., TN, Ind. Dev. Brd. Rev. Bds., (S.S. Kresge Co.), 8.00%,
11/01/00................................................................... 245,551
3,730,000 Memphis, TN, Compounding Interest Gen. Improvements Ref. Bds.,
Unlimited G.O., Ser. '88 A, Zero Cpn., 12/01/01............................ 3,089,596
440,000 New Tazewell, TN, Hlth. Educational & Hsg. Fac. Brd. IDR Bds. (Wessex
Corp. New Tazewell Prj.) Ser. '87, 10.00%, 06/01/17........................ 441,637
3,155,000 Tennessee Hsg. Dev. Agy. Rev. Bds., (Homeownership Prog. - Issue H)
(FHA/VA Insured) Ser. '88, 7.825%, 07/01/15................................ 3,286,406
510,000 Tennessee Hsg. Dev. Agy. Rev. Bds., (Homeownership Prog. - S)
(MBIA Insured) Ser. '90, 7.625%, 07/01/22.................................. 543,675
---------------
9,559,018
---------------
TEXAS - (6.07%)
10,160,000 Austin, TX, Hsg. Fin. Corp., Sngl. Fam. Mtg. Rev. Bds., Ser. '84,
Zero Cpn., 02/01/16........................................................ 1,354,023
600,000 Austin, TX, Utility Sys. Rev. and Ref. Bds., Cap. Appreciation, Ser. '88,
Zero Cpn., 11/15/12........................................................ 208,452
2,580,000 Bell Cnty., TX, Hlth. Fac. Dev. Corp. Rev. Bds. (Buckner Retirement Ser.),
5.25%, 11/15/28............................................................ 2,568,235
</TABLE>
31
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
TEXAS - Continued
$ 6,305,000 Bexar, TX, Metro. Wtr. Dist. Waterworks Sys. Rev. Bds., Cap.
Appreciation, (MBIA Insured), Zero Cpn., 05/01/32.......................... $ 1,047,954
6,305,000 Bexar, TX, Metro. Wtr. Dist. Waterworks Sys. Rev. Bds., Cap.
Appreciation, (MBIA Insured), Zero Cpn., 05/01/34.......................... 936,608
6,000,000 Brazos River Auth., TX, Pollution Control Rev. Ref. Bds. (Texas Util. Elec.
Co. Prj.) Ser. A, 5.55%, 05/01/33.......................................... 6,332,760
355,000 Brazos River Auth., TX, Rev. Ref. Collateralized Bds. (Houston L&P
Co. Prj.) '88 Ser. D, 7.75%, 10/01/15...................................... 362,143
230,000 Chisum, TX, Independent School Dist. Unlimited G.O., 5.85%, 02/15/01......... 230,403
370,000 Coastal Wtr. Auth. TX Wtr. Rev. Ref. Bds. (FGIC Insured), Ser. '86 A,
7.50%, 12/15/16............................................................ 396,703
625,000 Dallas Cnty., TX, Utility & Reclamation Dist. Rev. Ref. Bds., Cap.
Appreciation (MBIA Insured) Ser. '93, Zero Cpn., 02/15/14.................. 275,938
2,000,000 Gulf Coast Waste Disp. Auth. TX Rev. Bds. (Waste Disp.-Valero Energy
Corp.) Ser. '98, 5.60%, 04/01/32........................................... 2,014,160
11,185,000 Harris Cnty., Houston, TX, SportsAuth. Sp., Jr. Lien Rev. Bds., Cap.
Appreciation (MBIA Insured) Ser. '98 B, Zero Cpn., 11/15/18................ 3,931,304
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 (c)................ 1,536,499
30,000 Houston, TX, Hsg. Corp. No. 1 Rev. Bds., Long Drive Apartments - Section
8 Assisted, 9.00%, 02/01/20................................................ 32,906
300,000 Houston, TX, Hsg. Fin. Corp. Sngl. Fam. Mtg. Rev. Ref. Bds., Ser. A-1,
8.00%, 06/01/14............................................................ 325,437
435,000 Irving, TX, G.O., 4.75%, 09/15/15............................................. 436,705
1,000,000 Lewisville, TX, Hsg. Fin. Corp. Multifam. Rev. Bds., Ser. '97, 5.50%,
06/01/17................................................................... 1,033,370
500,000 Matagorda Cnty., TX, NA Dist. No. 1, Rev. Ref. Bds., (Houston Ind'l. Inc.,
Prj.) (MBIA Insured) Ser. '98 A, 5.25%, 11/01/29 (c)....................... 507,130
1,000,000 Matagorda Cnty., TX, NA Dist. No. 1, Rev. Ref. Bds., (Houston Ind'l. Inc.,
Prj.) (MBIA Insured) Ser. '98 B, 5.15%, 11/01/29 (c)....................... 1,013,440
2,000,000 North Central, TX, Hlth. Fac. Dev. Corp. Rev. Bds., (Young Mem. Prj.)
Ser. '98, 5.375%, 02/15/25.................................................. 2,008,320
220,000 Rogers, TX, Independent School Dist. Capital Appreciation Bds.,
Unlimited G.O., Zero Cpn., 08/15/24......................................... 54,743
220,000 Rogers, TX, Independent School Dist. Capital Appreciation Bds.,
Unlimited G.O., Zero Cpn., 08/15/25......................................... 51,680
220,000 Rogers, TX, Independent School Dist. Capital Appreciation Bds.,
Unlimited G.O., Zero Cpn., 08/15/26......................................... 48,803
220,000 Rogers, TX, Independent School Dist. Capital Appreciation Bds.,
Unlimited G.O., Zero Cpn., 08/15/27......................................... 46,095
220,000 Rogers, TX, Independent School Dist. Capital Appreciation Bds.,
Unlimited G.O., Zero Cpn., 08/15/28........................................ 43,540
</TABLE>
32
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
TEXAS - Continued
$ 1,250,000 San Antonio, TX, Hlth. Fac. Dev. Corp. Econ. Dev. Rev. Ref. Bds.
(Encore Nursing Ctr.) Ser. '92, 8.25%, 12/01/19............................ $ 1,397,813
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......................... 185,704
95,000 Terrell, TX, Pub. Hosp. Corp. Rev. Bds. (American Med. Int'l Inc.)
Ser. '76, 7.375%, 02/01/06................................................. 97,195
825,000 Texas Hsg. Agy., Residential Mtg. Rev. Bds., Ser. '87D, 8.40%, 01/01/21...... 854,420
750,000 Texas Mun. Pwr. Agy. Rev. Ref. Bds., Ser. '87, 5.50%, 09/01/13............... 750,825
170,000 Texas St. Higher Educ. Coordinating Brd., College Student Loan Rev. Bds.,
7.20%, 04/01/02............................................................ 185,067
40,000 Texas Wtr. Res. Fin. Auth. Rev. Bds., Ser. '89, 7.625%, 08/15/08............. 41,193
340,000 Texas Wtr. Res. Fin. Auth. Rev. Bds., Ser. '89, 7.50%, 08/15/13.............. 351,414
235,000 Texoma Hsg. Fin. Corp. TX Sngl. Fam. Mtg. Rev. Ref. Bds.
(GNMA/FNMA Mtg.-Backed Sec.Prg.) Ser. '97, 5.80%, 09/01/28................. 241,770
255,000 Tomball, TX, Independent School Dist. Cap. Appreciation Ref. Bds.,
Unlimited G.O. Prerefunded, Zero Cpn., 02/15/13........................... 100,358
745,000 Tomball, TX, Independent School Dist. Cap. Appreciation Ref. Bds.,
Unlimited G.O. Unrefunded, Zero Cpn., 02/15/13............................ 287,063
1,195,000 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.......................... 1,272,567
---------------
32,562,740
---------------
UTAH - (0.97%)
1,270,000 Intermountain Pwr. Agy., UT, Pwr. Supply Rev. Bds.,'86 Ser. F, 5.00%,
07/01/13................................................................... 1,270,318
500,000 Intermountain Pwr. Agy., UT, Pwr. Supply Rev. Bds.,'88 Ser. B, 7.75%,
07/01/20................................................................... 511,740
7,420,000 Intermountain Pwr. Agy., UT, Pwr. Supply Rev. Bds., Cap. Appreciation,
'87 Ser. D, Zero Cpn., 07/01/20............................................ 1,322,615
200,000 Intermountain Pwr. Agy., UT, Pwr. Supply Rev. Bds. (First Crossover)
(MBIA Insured) '86 Ser. B, 6.00%, 07/01/15................................. 200,210
500,000 Intermountain Pwr. Agy., UT, Pwr. Supply Rev. Bds. (Second Crossover)
'86 Ser. C, 5.75%, 07/01/20................................................ 500,675
180,000 Ogden Neighborhood Dev. Agy. Utah Tax Increment , Tax Allocation Rev.
Bds., Cap. Appreciation (25th St. Prj.), Ser. '90 A, Zero Cpn., 12/30/05... 125,561
285,000 Ogden Neighborhood Dev. Agy. Utah Tax Increment , Tax Allocation Rev.
Bds., Cap. Appreciation (Wash. Blvd. Prj.), Ser. '90 B, Zero Cpn.,
12/30/05................................................................... 198,805
1,000,000 Utah Hsg. Fin. Agy. Rev. Bds. (RHA Community Services of Utah,
Inc. Prj.) Ser. '97 A, 6.875%, 07/01/27.................................... 1,053,560
---------------
5,183,484
---------------
VERMONT - (0.52%)
1,250,000 Vermont Educ. & Hlth. Bldgs. Fin. Agy. Rev. Bds. (Norwich Univ. Prj.)
Ser. '98, 5.50%, 07/01/21.................................................. 1,273,738
</TABLE>
33
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
VERMONT - Continued
$ 1,450,000 Vermont Hsg. Fin. Agy. Multi-Fam. Hsg. Bds., '79 Ser. A, 8.50%,
02/15/21................................................................... $ 1,513,075
---------------
2,786,813
---------------
VIRGIN ISLANDS - (0.16%)
825,000 Virgin Islands Pub. Fin. Auth. Sr. Lien Rev. Bds., Ser. '98 A, 5.625%,
10/01/25................................................................... 858,413
---------------
VIRGINIA - (3.08%)
1,000,000 Chesapeake, VA, Ind'l Dev. Auth. Nursing Home Rev. Bds. (Sentara Life
Care Corp. Prj.) Ser. '88, 7.875%, 11/01/08................................ 1,023,420
4,000,000 Chesapeake, VA, Ind'l Dev. Auth. Nursing Home Rev. Bds. (Sentara Life
Care Corp. Prj.) Ser. '88, 8.00%, 11/01/18................................. 4,094,120
210,000 The IDA of Covington-Alleghany Cnty., VA, IDR Ref. Bds. (Beverly
Enterprises, Inc. Prj.) Ser. '91, 9.375%, 09/01/01......................... 224,469
110,000 Montgomery Cnty., VA, Rev. Bds., Ser. '87, 6.70%, 04/01/07................... 111,923
1,000,000 Norfolk, VA, Ind'l Dev. Auth. Nursing Home Rev. Bds. (Sentara Life
Care Corp. Prj.) Ser. '88, 7.875%, 11/01/08................................ 1,023,420
2,000,000 Norfolk, VA, Ind'l Dev. Auth. Nursing Home Rev. Bds. (Sentara Life
Care Corp. Prj.) Ser. '88, 7.90%, 11/01/18................................. 2,046,720
500,000 Peninsula Ports Auth. VA, Hosp. Fac. Rev. Ref. Bds. (Whittaker Mem.
Hosp. Prj.) Ser. '87, 8.70%, 08/01/23...................................... 536,250
500,000 Virginia St. Hsg. Dev. Auth. Commonwealth Mtg., Ser. A, 6.90%,
07/01/07................................................................... 515,750
65,000 Virginia St. Hsg. Dev. Auth. Commonwealth Mtg., Ser. A, 7.00%,
01/01/13................................................................... 67,015
350,000 Virginia St. Hsg. Dev. Auth. Commonwealth Mtg., Ser. A, 7.10%,
01/01/17................................................................... 366,121
85,000 Virginia St. Hsg. Dev. Auth. Commonwealth Mtg., Ser. B, 7.375%,
07/01/17................................................................... 86,513
3,905,000 Virginia St. Hsg. Dev. Auth. Commonwealth Mtg., 6.80%, 07/01/06.............. 4,052,336
400,000 Virginia St. Hsg. Dev. Auth. Commonwealth Mtg., 6.20%, 07/01/21.............. 418,328
215,000 Virginia St. Res. Auth. Wtr. & Swr. Sys. Rev. Bds. (Pooled Loan Prg.)
Ser. '97 A, 7.50%, 11/01/17................................................ 215,720
500,000 Winchester, VA, Ind'l Dev. Auth. Res. Care Fac., 1st Mtg. Rev. Bds.
(Westminster-Canterbury) Ser. '98, 5.75%, 01/01/18......................... 505,305
1,250,000 Winchester, VA, Ind'l Dev. Auth. Res. Care Fac., 1st Mtg. Rev. Bds.
(Westminster-Canterbury) Ser. '98, 5.75%, 01/01/27......................... 1,259,975
---------------
16,547,385
---------------
WASHINGTON - (1.51%)
2,000,000 Chelan Cnty., WA, Pub. Utilities Dist. No. 1, Chelan Hydro Cons. Sys.
Rev. Bds., Ser. '91 A, 7.60%, 07/01/25 (c)................................ 2,270,680
500,000 Chelan Cnty., WA, Pub. Utilities Dist. No. 1, Chelan Hydro Cons. Sys.
Rev. Bds., Ser. '97 A, 4.85%, 07/01/32 (c)................................. 513,605
</TABLE>
34
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
WASHINGTON - Continued
$ 500,000 Chelan Cnty., WA, Pub. Utilities Dist. No. 1, Chelan Hydro Cons. Sys.
Rev. Bds.. Ser. '97 A, 5.25%, 07/01/32 (c)................................. $ 511,930
500,000 Chelan Cnty., WA, Pub. Utilities Dist. No. 1, Chelan Hydro Cons. Sys.
Rev. Bds.. Ser. '97 A, 5.60%, 07/01/32 (c)................................. 527,230
400,000 King Cnty., WA, Unlimited G.O., Ser. A '78, 6.50%, 12/01/12.................. 401,020
1,500,000 Washington St. Hlth. Care Fac. Auth. Rev. Bds. (Swedish Hlth. Sys.)
Ser. '98, 5.125%, 11/15/18................................................. 1,519,530
2,300,000 Washington St. Hsg. Fin. Comm. Nonprofit Hsg. Rev. Bds. (Seattle Univ.
Auxiliary Svcs. Prj.) Ser. '98, 5.30%, 07/01/31............................ 2,341,883
---------------
8,085,878
---------------
WEST VIRGINIA - (1.45%)
380,000 Beverly, WV, Hsg. Corp. Mtg. Rev. Bds., Ser. '81 (Beverly Manor/FHA -
Insured/Section 8 Prj.), 11.00%, 11/15/22.................................. 457,296
200,000 Glasgow, WV, Hlth. Fac. Rev. Ref. Bds. (Beverly Enterprises, Inc. Prj.)
Ser. '91, 9.50%, 09/01/01................................................. 214,700
1,000,000 Ohio Cnty., WV, Cnty. Comm. Hlth. Sys. Rev. & Impt. Bds. (Ohio
Valley Med. Ctr.-A) Ser. '98, 5.75%, 01/01/13.............................. 1,009,220
1,000,000 Ohio Cnty., WV, Cnty. Comm. Hlth. Sys. Rev. & Impt. Bds. (Ohio
Valley Med. Ctr.-A) Ser. '98, 5.80%, 01/01/18.............................. 1,006,880
65,000 Putnam Cnty., WV, IDR (IDR Bds.) Rite Aid West Virginia Inc., 10.375%,
11/01/02................................................................... 65,246
845,000 West Virginia Hsg. Dev. Fd., Rental Dev. Prg. Bds., Ser. C (Section 8
Assisted Dev.), 10.00%, 07/01/15........................................... 855,241
1,250,000 West Virginia St. Hsg. Dev. Fd. Hsg. Fin. Rev. Bds., Ser. '87, 7.40%,
11/01/11................................................................... 1,266,813
2,540,000 West Virginia St. Hsg. Dev. Fd. Hsg. Fin. Rev. Bds., Ser. B-2, 7.85%,
11/01/14................................................................... 2,612,898
305,000 West Virginia St. Hsg. Dev. Fd., Rev. Bds., Ser. '87 A, 7.25%, 05/01/17...... 312,107
---------------
7,800,401
---------------
WISCONSIN - (1.37%)
300,000 Clear Lake, WI, Sewer Sys. Mtg. Rev. Bds., 8.00%, 08/01/11................... 321,036
170,000 Wisconsin Hlth. Fac. Auth. Rev. Ref. Bds., Hosp. Sisters Svcs. Sys.,
Ser. D, 9.125%, 07/01/05................................................... 170,782
1,480,000 Wisconsin Hlth. Fac. Auth. Rev. Ref. Bds., Hosp. Sisters Svcs. Sys.,
Ser. D, 9.25%, 07/01/12.................................................... 1,520,700
270,000 Wisconsin Hsg. & Econ. Dev. Auth. Home Ownership Rev. Bds.,
Ser. E, 8.00%, 03/01/21.................................................... 277,422
900,000 Wisconsin St. Hlth. & Educational Fac. Auth. Rev. Bds. (Franciscan
Sisters Christian-A) Ser. '98, 5.50%, 02/15/28............................. 921,357
2,500,000 Wisconsin St. Hlth. & Educational Fac. Auth. Rev. Ref. Bds. (Wausau
Hosp. Inc.) Ser. '98 A, 5.125%, 08/15/20................................... 2,509,800
</TABLE>
35
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Schedule of Investments - Continued
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Value
Principal (Note 1)
- --------- --------
<S> <C> <C>
MUNICIPAL BONDS - Continued
WISCONSIN - Continued
$ 1,595,000 Wisconsin St. Hlth. & Educational Fac. Auth. Rev. Bds. (RFDF Inc. Prj.)
Ser. '97, 7.375%, 07/15/27................................................. $ 1,649,916
---------------
7,371,013
---------------
WYOMING - (0.02%)
80,000 Wyoming Community Dev. Auth. Insured Bds., Sngl. Fam. Mtg., Cap.
Appreciation, Ser. B, 0%/8.25%, 06/01/11 (b)............................... 81,204
---------------
Total Municipal Bonds - (identified cost $513,157,392)..................... 518,308,896
---------------
SHORT TERM BONDS - (2.80%)
6,100,000 Madison Cnty., IL, Environmental Improvement Rev. Bds. (Shell Wood
Rvr. Prj.) Ser. '97 A, 4.25%, 03/01/33 (c)................................. 6,100,000
8,900,000 Valdez Alaska Marine Term Rev. Bds. (Exxon Pipeline Co. Prj.),
4.10%, 10/01/25 (c)........................................................ 8,900,000
---------------
Total Short Term - (identified cost $15,000,000)........................... 15,000,000
---------------
Total investments - (identified cost $528,157,392)(99.38%) (a)......... 533,308,896
Other assets less liabilities - (0.62%)................................ 3,345,707
----------------
Net assets - (100%)............................................... $ 536,654,603
================
</TABLE>
(a) Aggregate cost for Federal income tax purposes is $528,157,392.
At September 30, 1998 unrealized appreciation (depreciation) of securities for
Federal income tax purposes was as follows:
Unrealized appreciation..............................$ 8,434,536
Unrealized depreciation.............................. (3,283,032)
----------------
Net unrealized appreciation.....................$ 5,151,504
================
(b) Represents a step bond: a zero coupon bond that converts to a fixed or
variable interest rate at a designated future date.
(c) Represents the current rate for a variable rate security.
The zero coupon bonds amounted to $51,052,341 and 9.51% of the Fund's net assets
as of September 30, 1998.
See Notes to Financial Statements
36
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Statement of Assets and Liabilities
At September 30, 1998
================================================================================
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value (identified cost $528,157,392) (See accompanying
Schedule of Investments) ....................................................... $ 533,308,896
Cash ............................................................................... 53,020
Receivables:
Interest ....................................................................... 9,447,517
Capital stock sold ............................................................. 1,425,926
Investment securities sold ..................................................... 2,074,644
Prepaid expenses ................................................................... 59,940
Other assets ....................................................................... 24,098
-------------
Total assets .......................................................... 546,394,041
-------------
LIABILITIES:
Payables:
Capital stock redeemed ......................................................... 545,472
Investment securities purchased ................................................ 8,428,370
Commissions to distributor (Note 4) ............................................ 376,361
Accrued expenses ................................................................... 389,235
-------------
Total liabilities ..................................................... 9,739,438
-------------
NET ASSETS (Note 5) ..................................................................... $ 536,654,603
=============
CLASS A SHARES
Net assets ..................................................................... $ 243,877,540
Shares outstanding ............................................................. 26,530,013
Net asset value and redemption price per share ................................. $ 9.19
=============
Maximum offering price per share (100/95.25 of $9.19) .......................... $ 9.65
=============
CLASS B SHARES
Net assets ..................................................................... $ 255,300,333
Shares outstanding ............................................................. 27,877,092
Net asset value and redemption price per share ................................. $ 9.16
=============
CLASS C SHARES
Net assets ..................................................................... $ 36,593,730
Shares outstanding ............................................................. 3,969,955
Net asset value and redemption price per share ................................. $ 9.22
=============
CLASS Y SHARES
Net assets ..................................................................... $ 883,000
Shares outstanding ............................................................. 96,107
Net asset value and redemption price per share ................................. $ 9.19
=============
Net assets consist of:
Par value of shares of capital stock ............................................... $ 584,732
Additional paid-in capital ......................................................... 531,312,230
Undistributed net investment income ................................................ 1,264
Net unrealized appreciation on investments ......................................... 5,151,504
Accumulated net realized loss ...................................................... (395,127)
-------------
Net assets ............................................................ $ 536,654,603
=============
</TABLE>
37
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Statement of Operations
For the year ended September 30, 1998
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest............................................................................ $ 28,290,467
---------------
Expenses:
Management fees (Note 3).......................................... $ 2,769,520
Custodian fees.................................................... 80,127
Transfer agent fees
Class A...................................................... 162,020
Class B...................................................... 190,632
Class C...................................................... 13,159
Class Y...................................................... 925
Audit fees........................................................ 26,197
Legal fees........................................................ 27,550
Accounting fees (Note 3).......................................... 15,996
Reports to shareholders........................................... 67,010
Directors fees and expenses....................................... 60,946
Registration and filing fees...................................... 86,570
Miscellaneous..................................................... 4,356
Payments under distribution plan (Note 4)
Class A...................................................... 535,985
Class B...................................................... 2,077,802
Class C...................................................... 222,588
---------------
Total expenses......................................................... 6,341,383
Expenses paid indirectly (Note 6)...................................... (24,124)
---------------
Net expenses........................................................... 6,317,259
---------------
Net investment income............................................. 21,973,208
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from investment transactions............................................... (237,034)
Net increase in unrealized appreciation of investments during the period..................... 3,568,267
---------------
Net realized and unrealized gain on investments................................ 3,331,233
---------------
Net increase in net assets resulting from operations........................... $ 25,304,441
===============
</TABLE>
See Notes to Financial Statements
38
<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: 1998 1997
-------------- --------------
<S> <C> <C>
Net investment income .................................... $ 21,973,208 $ 10,003,819
Net realized gain (loss) from investment transactions .... (237,034) 1,392,396
Net increase (decrease) in unrealized appreciation
of investments .................................. 3,568,267 (127,490)
------------- -------------
Net increase in net assets resulting
from operations ........................ 25,304,441 11,268,725
Dividends and distributions to shareholders from:
Net investment income
Class A .................................... (11,779,256) (3,300,319)
Class B .................................... (10,526,467) (6,339,753)
Class C .................................... (1,029,628) (767)
Class Y .................................... (21,941) --
Realized gains
Class A .................................... (673,758) (78,623)
Class B .................................... (790,190) (178,821)
Class C .................................... (46,345) --
Class Y .................................... (294) --
In excess of net investment income
Class A .................................... (518,381) --
Class B .................................... (262,079) --
Class C .................................... (39,435) --
Capital share transactions (Note 5) ...................... 309,653,547 71,697,040
------------- -------------
Total increase in net assets ............... 309,270,214 73,067,482
Net Assets:
Beginning of year ........................................ 227,384,389 154,316,907
------------- -------------
End of year (including undistributed net investment income
of $1,264 and $1,385,348, respectively) ........ $ 536,654,603 $ 227,384,389
============= =============
</TABLE>
See Notes to Financial Statements
39
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Notes to Financial Statement
At September 30, 1998
================================================================================
Note 1 - Summary of Significant Accounting Policies
Davis Tax-Free High Income Fund, Inc. (the "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 and 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. Income,
expenses (other than those attributable to a specific class) and gains and
losses are allocated daily to each class of shares based upon the relative
proportion of net assets represented by each class. Operating expenses directly
attributable to a specific class are charged against the operations of that
class. 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 an
independent pricing service or broker. 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 asked 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 or excise tax is required.
Securities Transactions and Related Investment Income
Securities transactions are accounted for on the trade date (date the
order to buy or sell is executed) with realized gain or loss on the sale of
securities being determined based upon identified cost. Interest income is
recorded on the accrual basis. Premiums on tax-exempt securities, original issue
discounts and market discounts are amortized to investment income, over the
lives of the respective securities, or to the earliest call date, if applicable,
for financial reporting and tax purposes.
Dividends and Distributions to Shareholders
Dividends and distributions to shareholders are recorded on the
ex-dividend date. The character of the distributions made during the year from
net investment income may differ from its ultimate characterization for federal
income tax purposes. Also, due to the timing of distributions, the fiscal year
in which amounts are distributed may differ from the fiscal year in which income
or gain was recorded by the Fund. The Fund adjusts the classification of
distributions to shareholders to reflect the differences between financial
statement amounts and distributions determined in accordance with income tax
regulations. Accordingly, during the year ended September 30, 1998, amounts have
been reclassified to reflect an increase in undistributed net investment income
of $819,895 and a corresponding decrease in additional paid-in capital. Income
from amortization of
40
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Notes to Financial Statements - Continued
At September 30, 1998
================================================================================
Note 1 - Summary of Significant Accounting Policies - (Continued)
market discounts and certain short-term investments is not tax-exempt and may
result in some percentage of dividends being reported as taxable income to
shareholders.
Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of income and expenses during the reporting period. Actual
results may differ from these estimates.
Note 2 - Purchases and Sales of Securities
Purchases and sales of investment securities (excluding short-term
securities) during the year ended September 30, 1998, were $834,467,780 and
$534,516,976, respectively.
Note 3 - Investment Advisory Fees and Other Transactions with Affiliates
The Fund pays advisory fees for investment management and advisory
services under a management agreement with Davis Selected Advisers, L.P. (the
"Adviser"). The agreement provides for a fee at the annual rate of 0.65% of the
first $250 million of average annual net assets of the Fund, 0.60% of the next
$250 million of average annual net assets of the Fund and 0.55% of average
annual net assets over $500 million.
The Adviser is paid for registering Fund shares for sale in various
states. The fee for the year ended September 30, 1998 amounted to $12,996.
Boston Financial Data Services is the Fund's primary transfer agent. The Adviser
is also paid for certain transfer agent services. The fee for these services for
the year ended September 30, 1998 amounted to $46,432. State Street Bank & Trust
Company ("State Street Bank") is the Fund's primary accounting provider. Fees
for such services are included in the custodian fee as State Street Bank also
serves as the Fund's custodian. The Adviser is also paid for certain accounting
services. Such fee paid to the Adviser for the year ended September 30, 1998
amounted to $15,996. 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") also 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, 1998, Davis Distributors, LLC, the
Fund's Underwriter (the "Underwriter" or "Distributor") received $4,936,465 from
commissions earned on sales of Class A shares of the Fund of which $745,286 was
retained by the Underwriter and the remaining $4,191,179 was reallowed to
investment dealers. The Underwriter paid the costs of prospectuses in excess of
those required to be filed as part
41
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Notes to Financial Statements - Continued
At September 30, 1998
================================================================================
Note 4 - Distribution and Underwriting Fees - (Continued)
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 service fee
with respect to Class A shares sold by dealers which remain outstanding during
the period. The service 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 for which the Underwriter pays no service fees to other
firms. The service fee for Class A shares of the Fund for the year ended
September 30, 1998 was $535,985.
Class B Shares
Class B shares of the Fund are sold at net asset value and are redeemed at
net asset value less a contingent deferred sales charge if redeemed within six
years of purchase.
The Fund pays a distribution fee to reimburse the Distributor for
commission advances on the sale of the Fund's Class B shares. The National
Association of Securities Dealers, Inc., ("NASD") limits the percentage of the
Fund's average annual net assets attributable to Class B shares which may be
used to reimburse the Distributor. 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 1% annual limit in some future period or
periods when the plan limits have not been reached.
During the year ended September 30, 1998, Class B shares of the Fund made
distribution plan payments which included distribution fees of $1,564,911 and
service fees of $512,891.
Commission advances by the Distributor during the year ended September 30,
1998 on the sale of Class B shares of the Fund amounted to $5,948,842 of which
$5,934,317 was reallowed to qualified selling dealers.
The Distributor intends to seek payment from Class B shares of the Fund in
the amount of $7,561,473, representing the cumulative commission advances by the
Distributor on the sale of the Fund's Class B shares, plus interest, reduced by
cumulative distribution fees paid by the Fund and cumulative contingent deferred
sales charges 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, 1998 the Distributor received contingent deferred sales charges of
$294,925 from redemptions of Class B shares of the Fund.
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 average
annual 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.
42
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Notes to Financial Statements - Continued
At September 30, 1998
================================================================================
Note 4 - Distribution and Underwriting Fees - (Continued)
During the year ended September 30, 1998, Class C shares of the Fund made
distribution plan payments of $222,588. During the year ended September 30,
1998, the Distributor received $6,858 in contingent deferred sales charges from
redemption of Class C shares of the Fund.
Note 5 - Capital Stock
At September 30, 1998, there were 1,000,000,000 shares of capital stock
($0.01 par value per share) authorized. Transactions in capital stock were as
follows:
<TABLE>
<CAPTION>
Year Ended
Class A September 30, 1998
-------------------------------
Shares Amount
------ ------
<S> <C> <C>
Shares sold .................................... 35,588,556 $ 326,191,003
Shares issued to shareholders in connection with
reinvestment of distributions ............ 640,064 5,842,119
------------- -------------
36,228,620 332,033,122
Shares redeemed ................................ (19,676,340) (179,925,895)
------------- -------------
Net increase ........................... 16,552,280 $ 152,107,227
============= =============
<CAPTION>
Year Ended
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 redeemed ................................ (2,004,557) (18,369,419)
------------- -------------
Net increase ........................... 5,079,313 $ 46,709,967
============= =============
<CAPTION>
Year Ended
Class B September 30, 1998
-------------------------------
Shares Amount
------ ------
<S> <C> <C>
Shares sold .................................... 17,056,260 $ 155,837,641
Shares issued to shareholders in connection with
reinvestment of distributions ............ 511,231 4,656,040
------------- -------------
17,567,491 160,493,681
Shares redeemed ................................ (4,154,386) (37,903,497)
------------- -------------
Net increase ........................... 13,413,105 $ 122,590,184
============= =============
<CAPTION>
Year Ended
September 30, 1997
-------------------------------
Shares Amount
------ ------
<S> <C> <C>
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 redeemed ................................ (2,103,052) (19,216,556)
------------- -------------
Net increase ........................... 2,462,144 $ 22,564,260
============= =============
</TABLE>
43
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC
Notes to Financial Statements - Continued
At September 30, 1998
================================================================================
Note 5 - Capital Stock - (Continued)
<TABLE>
<CAPTION>
Year Ended
Class C September 30, 1998
-------------------------------
Shares Amount
------ ------
<S> <C> <C>
Shares sold .................................... 4,003,278 $ 36,794,143
Shares issued to shareholders in connection with
reinvestment of distributions ............ 37,685 345,114
------------- -------------
4,040,963 37,139,257
Shares redeemed ................................ (333,673) (3,060,421)
------------- -------------
Net increase ........................... 3,707,290 $ 34,078,836
============= =============
<CAPTION>
August 18, 1997
(Inception of Class)
through
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 redeemed ................................ -- --
------------- -------------
Net increase ........................... 262,665 $ 2,422,813
============= =============
<CAPTION>
October 6, 1997
(Inception of Class)
Class Y through
September 30, 1998
-------------------------------
Shares Amount
------ ------
<S> <C> <C>
Shares sold .................................... 115,009 $ 1,049,727
Shares issued to shareholders in connection with
reinvestment of distributions ............ 1 5
------------- -------------
115,010 1,049,732
Shares redeemed ................................ (18,903) (172,432)
------------- -------------
Net increase ........................... 96,107 $ 877,300
============= =============
</TABLE>
NOTE 6 - CUSTODIAN FEES
Under an agreement with the custodian bank, custodian fees are reduced for
earnings on cash balances maintained at the custodian by the Fund. Such
reductions amounted to $24,124 during the year ended September 30, 1998.
44
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Federal Income Tax Information (Unaudited)
For the Year Ended September 30, 1998
================================================================================
In early 1999, shareholders will receive information regarding all
dividends and distributions paid to them by the Fund during calendar year 1998.
Regulations of the U.S. Treasury Department require the Fund to report this
information to the Internal Revenue Service.
None of the dividends paid by the Fund during the year ended September 30,
1998 are eligible for the corporate dividend-received deduction.
The foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because of
the complexity of the federal regulations which may affect your individual tax
return and the many variations in state and local tax regulations, we recommend
that you consult your tax adviser for specific guidance.
45
<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>
December 1, 1994
(Inception of
Year Ended September 30, Class) through
---------------------------------- September 30,
1998 1997 1996 1995
---- ---- ---- ------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ................................. $ 9.22 $ 9.15 $ 9.19 $ 8.90
-------- ------- ------- -------
Income From Investment Operations
Net Investment Income ..................... 0.54 0.57 0.61 0.40
Net Realized and Unrealized Gains or Losses 0.04 0.11 (0.05) 0.30
-------- ------- ------- -------
Total From Investment Operations ... 0.58 0.68 0.56 0.70
-------- ------- ------- -------
Dividends and Distributions
Dividends from Net Investment Income ...... (0.54) (0.59) (0.54) (0.40)
Distribution from Realized Gains .......... (0.05) (0.02) (0.06) (0.01)
Distributions in Excess of Net Investment
Income ................................ (0.02) -- -- --
-------- ------- ------- -------
Total Distributions ................. (0.61) (0.61) (0.60) (0.41)
-------- ------- ------- -------
Net Asset Value, End of Period ............... $ 9.19 $ 9.22 $ 9.15 $ 9.19
======== ======= ======= =======
Total Return(1) .............................. 6.53% 7.66% 6.33% 7.93%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted) ........................... $243,878 $92,020 $44,828 $45,461
Ratio of Expenses to
Average Net Assets ...................... 1.04% 1.26%(2) 1.36% 1.43%*
Ratio of Net Investment Income to
Average Net Assets ...................... 5.37% 6.60% 6.64% 5.95%*
Portfolio Turnover Rate(3) ................ 126.28% 112.71% 106.55% 127.80%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.25% for September 30, 1997. Prior
to 1996, such reductions were reflected in the expense ratios.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
46
<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 B
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ......................... $ 9.19 $ 9.12 $ 9.17 $ 9.09 $ 9.65
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ............. 0.49 0.53 0.54 0.48 0.44
Net Realized and Unrealized Gains
or Losses ....................... 0.02 0.08 (0.05) 0.10 (0.18)
-------- -------- -------- -------- --------
Total From Investment
Operations .................. 0.51 0.61 0.49 0.58 0.26
-------- -------- -------- -------- --------
Dividends and Distributions
Dividends from Net
Investment Income ............... (0.48) (0.52) (0.48) (0.48) (0.44)
Distribution from Realized Gains .. (0.05) (0.02) (0.06) (0.01) (0.28)
Distribution in Excess
of Net Investment Income ........ (0.01) -- -- (0.01) (0.07)
Tax Return of Capital
Distributions .................. -- -- -- -- (0.03)
-------- -------- -------- -------- --------
Total Distributions ........... (0.54) (0.54) (0.54) (0.50) (0.82)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ....... $ 9.16 $ 9.19 $ 9.12 $ 9.17 $ 9.09
======== ======== ======== ======== ========
Total Return(1) ...................... 5.74% 6.89% 5.51% 6.64% 2.81%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted) ................... $255,300 $132,934 $109,488 $126,727 $188,874
Ratio of Expenses to
Average Net Assets .............. 1.80%(2) 2.02% 2.10% 2.14% 2.07%
Ratio of Net Investment Income
to Average Net Assets ........... 4.62% 5.87% 5.89% 5.37% 4.49%
Portfolio Turnover Rate(3) ........ 126.28% 112.71% 106.55% 127.80% 113.46%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.79% for September 30, 1998. Prior
to 1996, such reductions were reflected in the expense ratios.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
47
<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 C August 18, 1997
(Inception
Year of Class)
ended through
September 30, September 30,
1998 1997
---- ----
Net Asset Value, Beginning of Period ....... $ 9.25 $ 9.20
---------- ----------
Income From Investment Operations
Net Investment Income ................... 0.49 0.04
Net Realized and Unrealized Gains ....... 0.03 0.03
---------- ----------
Total From Investment Operations .... 0.52 0.07
---------- ----------
Dividends and Distributions
Dividends from Net Investment Income .... (0.48) (0.02)
Distributions in Excess of Net Investment
Income ............................... (0.02) --
Distribution from Realized Gains ........ (0.05) --
---------- ----------
Total Distributions ................. (0.55) (0.02)
---------- ----------
Net Asset Value, End of Period ............. $ 9.22 $ 9.25
========== ==========
Total Return(1) ............................ 5.74% 0.77%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) . $ 36,594 $ 2,430
Ratio of Expenses to Average Net Assets . 1.77%(2) 2.03%*
Ratio of Net Investment Income to
Average Net Assets .................... 4.65% 5.85%*
Portfolio Turnover Rate(3) .............. 126.28% 112.71%
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day for the fiscal period. Sales charges are not reflected
in the total returns. Total returns are not annualized for periods of less
than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.76% for September 30, 1998.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
48
<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 Y
October 6, 1997
(Inception
Of Class)
through
September 30,
1998
----
Net Asset Value, Beginning of Period ......................... $ 9.20
-------
Income From Investment Operations
Net Investment Income ..................................... 0.54
Net Realized and Unrealized Gain .......................... 0.03
-------
Total From Investment Operations ..................... 0.57
-------
Dividends and Distributions
Dividend from Net Investment Income ....................... (0.53)
Distribution from Realized Gain ........................... (0.05)
-------
Total Distribution .................................... (0.58)
-------
Net Asset Value, End of Period ............................... $ 9.19
=======
Total Return(1) .............................................. 6.34%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ................... $ 883
Ratio of Expenses to Average Net Assets ................... 0.93%*(2)
Ratio of Net Investment Income to Average Net Assets ...... 5.49%*
Portfolio Turnover Rate(3) ................................ 126.28%
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day for the fiscal period. Total returns are not annualized
for periods of less than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 0.92% for September 30, 1998.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
49
<PAGE>
DAVIS TAX-FREE HIGH INCOME FUND, INC.
Independent Auditors' Report
================================================================================
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 investments, as
of September 30, 1998, and the related statement of operations, the statement of
changes in net assets, and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended September 30, 1997 and the financial
highlights for each of the years in the four-year period ended September 30,
1997 were audited by other auditors whose report, dated November 11, 1997,
expressed an unqualified opinion on this information.
We conducted our audit 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, 1998, by correspondence with the custodian and brokers; and where
confirmations were not received from brokers, we performed other auditing
procedures. 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 audit provides 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, 1998, and the results
of its operations, the changes in its net assets, and the financial highlights
for the year then ended, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
November 4, 1998
50
<PAGE>
DAVIS TAX-FREE HIGH
INCOME FUND, INC.
124 East Marcy Street, P.O. Box 1688, 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 Kenneth C. Eich
Jerry D. Geist Vice President
D. James Guzy Sharra L. Reed
G. Bernard Hamilton Vice President, Treasurer
LeRoy E. Hoffberger & Assistant Secretary
Laurence W. Levine Thomas D. Tays
Christian R. Sonne Vice President & Secretary
Andrew A. Davis
Vice President
Investment Adviser Christopher C. Davis
Davis Selected Advisers, L.P. Vice President
124 East Marcy Street Carolyn H. Spolidoro
Santa Fe, New Mexico 87501 Vice President
1-800-279-0279
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
KPMG Peat Marwick LLP
707 Seventeenth Street, Suite 2300
Denver, Colorado 80202
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.
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