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Filed Pursuant to Rule 497(e)
Registration File No.: 333-76407
DAVIS VALUE PORTFOLIO
DAVIS FINANCIAL PORTFOLIO
DAVIS REAL ESTATE PORTFOLIO
(Part of Davis Variable Account Fund, Inc.)
July 1, 1999
As amended December 6, 1999
This prospectus contains important information. Please read it before investing
and keep it for future reference.
These Funds are sold exclusively to insurance company separate accounts for
variable annuity and variable life insurance contracts.
An investment in these Funds is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. There is a risk that you could lose a portion or all of your investment.
The Securities and Exchange Commission has not approved or disapproved of these
securities. The Securities and Exchange Commission has not determined whether
this prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
Over 25 Years of Reliable Investing
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TABLE OF CONTENTS
DAVIS VALUE PORTFOLIO 3
Investment Objective and Strategies
Principal Risks of Investing in Davis Value Portfolio
Performance Information
DAVIS FINANCIAL PORTFOLIO 4
Investment Objective and Strategies
Principal Risks of Investing in Davis Financial Portfolio
Performance Information
DAVIS REAL ESTATE PORTFOLIO 5
Investment Objective and Strategies
Principal Risks of Investing in Davis Real Estate Portfolio
Performance Information
DAVIS MANAGEMENT 7
The Adviser and Sub-Adviser
The Davis Investment Philosophy
The Adviser's Performance History
Adviser Compensation
Chief Investment Officer and Portfolio Managers
OTHER INFORMATION 10
Purchase and Redemption of Shares
Pricing of Shares
Taxes
Dividends and Distributions
OBTAINING ADDITIONAL INFORMATION 12
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DAVIS VALUE PORTFOLIO
INVESTMENT OBJECTIVE AND STRATEGIES
Davis Value Portfolio's investment objective is growth of capital. The Fund
invests primarily in common stock of U.S. companies with market capitalizations
of at least $5 billion which we believe are of high quality and whose shares are
selling at attractive prices. We select stocks with the intention of holding
them for the long term. We believe that managing risk is the key to delivering
superior long-term investment results; therefore, we consider how much could
potentially be lost on an investment before considering how much might be
gained.
You can find more detailed information about our investment philosophy in the
section called THE DAVIS INVESTMENT PHILOSOPHY.
PRINCIPAL RISKS OF INVESTING IN DAVIS VALUE PORTFOLIO
There is a risk that you could lose all or a portion of your investment in the
Fund. The value of your investment in the Fund will vary with the prices of the
securities in which the Fund invests. This section describes what we think are
the most significant factors that can cause the Fund's performance to suffer.
o MARKET RISK. The market value of shares of common stock can change rapidly
and unpredictably as a result of political or economic events having little
or nothing to do with the performance of the company.
o COMPANY RISK. The price of a common stock varies with the success and
failure of its issuer. As a result, the success of the companies in which
the Fund invests largely determines the Fund's performance.
PERFORMANCE INFORMATION
Davis Value Portfolio began selling shares to the public on July 1, 1999. The
past performance of the Fund will be included in the next annual update of the
Fund's prospectus after it has been offered to the public for a full calendar
year.
Davis Selected Advisers, LP, has been managing portfolios in a similar style
since 1969, including Davis New York Venture Fund.
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DAVIS FINANCIAL PORTFOLIO
INVESTMENT OBJECTIVE AND STRATEGIES
Davis Financial Portfolio's investment objective is growth of capital. The Fund
invests primarily in common stock of financial companies. During normal market
conditions, at least 65% of the Fund's assets are invested in companies that are
"principally engaged" in financial services.
A company is "principally engaged" in financial services if it owns financial
services-related assets that constitute at least 50% of the value of all of its
assets, or if it derives at least 50% of its revenues from providing financial
services. Companies in the financial services industry include commercial banks,
industrial banks, savings institutions, finance companies, diversified financial
services companies, investment banking firms, securities brokerage houses,
investment advisory companies, leasing companies, insurance companies and
companies providing similar services.
Our portfolio managers use the Davis investment philosophy to select common
stock of quality, overlooked, growth companies at value prices and hold them for
the long term. Intensive research allows us to identify companies we believe to
be of high quality whose shares are selling at attractive prices. We believe
that managing risk is the key to delivering superior long-term investment
results; therefore, we consider how much could potentially be lost on an
investment before considering how much might be gained.
You can find more detailed information about our investment philosophy in the
section called THE DAVIS INVESTMENT PHILOSOPHY.
PRINCIPAL RISKS OF INVESTING IN DAVIS FINANCIAL PORTFOLIO
There is a risk that you could lose all or a portion of your investment in the
Fund. The value of your investment in the Fund will vary with the prices of the
securities in which the Fund invests. This section describes what we think are
the most significant factors that can cause the Fund's performance to suffer.
o MARKET RISK. The market value of shares of common stock can change rapidly
and unpredictably as a result of political or economic events having little
or nothing to do with the performance of the company.
o COMPANY RISK. The price of a common stock varies with the success and
failure of its issuer. As a result, the success of the companies in which
the Fund invests largely determines the Fund's performance.
o CONCENTRATED FINANCIAL SERVICES PORTFOLIO. Davis Financial Portfolio
invests primarily in a single industry, and any fund that has a
concentrated portfolio is particularly vulnerable to the risks of its
target sector. Risks of investing in the financial services sector include:
o REGULATORY ACTIONS. Financial services companies may suffer a setback
if regulators change the rules under which they operate.
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o CHANGES IN INTEREST RATES. Unstable interest rates can have a
disproportionate effect on the financial services industry.
o CONCENTRATION OF LOANS. Financial services companies whose securities
Davis Financial Portfolio purchases may themselves have concentrated
portfolios, such as a high level of loans to real estate developers,
which makes them vulnerable to economic conditions that affect that
industry.
o COMPETITION. The financial services industry has become increasingly
competitive.
PERFORMANCE INFORMATION
Davis Financial Portfolio began selling shares to the public on July 1, 1999.
The past performance of the Fund will be included in the next annual update of
the Fund's prospectus after it has been offered to the public for a full
calendar year.
Davis Selected Advisers, L.P., has been managing portfolios in a similar style
since 1991, including Davis Financial Fund.
DAVIS REAL ESTATE PORTFOLIO
INVESTMENT OBJECTIVE AND STRATEGIES
Davis Real Estate Portfolio's investment objective is total return through a
combination of growth and income. During normal market conditions, at least 65%
of Davis Real Estate Portfolio's assets are invested in "real estate
securities," which are securities issued by companies that are "principally
engaged" in the real estate industry. The Fund does not invest directly in real
estate.
A company is "principally engaged" in the real estate industry if it owns real
estate or real estate-related assets that constitute at least 50% of the value
of all of its assets, or if it derives at least 50% of its revenues or net
profits from owning, financing, developing, managing, or selling real estate, or
from offering products or services that are related to real estate. Issuers of
real estate securities include real estate investment trusts (known as "REITs"),
brokers, developers, lenders, and companies with substantial real estate
holdings such as paper, lumber, hotel, and entertainment companies.
Most of Davis Real Estate Portfolio's real estate securities are, and likely
will continue to be, interests in REITs. REITs pool investors' funds to make
real estate related investments, such as buying interests in income producing
property or making loans to real estate developers.
Our portfolio manager uses the Davis investment philosophy to select common
stock of quality overlooked, growth companies at value prices and to hold them
for the long term. We search for REITs and other companies with first class
management teams who view real estate as a means of producing steady increases
in income and strong returns on capital. We concentrate heavily on valuation,
looking for
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companies that sell at less than the present value of their expected cash flow
over the next few years.
You can find more detailed information about our investment philosophy in the
section called THE DAVIS INVESTMENT PHILOSOPHY.
PRINCIPAL RISKS OF INVESTING IN DAVIS REAL ESTATE PORTFOLIO
There is a risk that you could lose all or a portion of your investment in the
Fund. The value of your investment in the Fund will vary with the prices of the
securities in which the Fund invests. This section describes what we think are
the most significant factors that can cause the Fund's performance to suffer.
o MARKET RISK. The market value of shares of common stock can change rapidly
and unpredictably as a result of political or economic events having little
or nothing to do with the performance of the company.
o COMPANY RISK. The price of a common stock varies with the success and
failure of its issuer. As a result, the success of the companies in which
the Fund invests largely determines the Fund's performance.
o CONCENTRATED REAL ESTATE PORTFOLIO. Davis Real Estate Portfolio invests
primarily in one industry, and any fund that has a concentrated portfolio
is particularly vulnerable to the risks of its selected industry. Real
estate securities are susceptible to the many risks associated with the
direct ownership of real estate, including:
o Declines in property values as a result of changes in the economy or
the surrounding area, or because a particular region has become less
appealing to tenants.
o Increases in property taxes, operating expenses, interest rates, or
competition.
o Overbuilding.
o Changes in zoning laws.
o Losses from casualty or condemnation.
PERFORMANCE INFORMATION
Davis Real Estate Portfolio began selling shares to the public on July 1, 1999.
The past performance of the Fund will be included in the next annual update of
the Fund's prospectus after it has been offered to the public for a full
calendar year.
Davis Selected Advisers, L.P., has been managing portfolios in a similar style
since 1994, including Davis Real Estate Fund.
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DAVIS MANAGEMENT
THE ADVISER AND SUB-ADVISER
Davis Selected Advisers, L.P. ("Adviser") serves as the investment adviser for
each of the Davis Funds, including Davis Value Portfolio, Davis Financial
Portfolio, and Davis Real Estate Portfolio. The Adviser's offices are located at
3480 East Britannia Drive, Suite 108, Tucson, Arizona. 85706. The Adviser
provides investment advice for each of the Davis Funds, manages their business
affairs, and provides day-to-day administrative services. The Adviser also
serves as investment adviser for other mutual funds and institutional clients.
Davis Selected Advisers-NY, Inc., serves as the sub-adviser for each of the
Davis Funds, including Davis Value Portfolio, Davis Financial Portfolio, and
Davis Real Estate Portfolio. The Sub-Adviser's offices are located at 609 Fifth
Avenue, New York, New York 10017. The Sub-Adviser provides investment management
and research services for the Davis Funds and other institutional clients, and
is a wholly owned subsidiary of Davis Selected Advisers, L.P. The Sub-Adviser's
fee is paid by Davis Selected Advisers, not the Fund.
THE DAVIS INVESTMENT PHILOSOPHY
Each of the Davis Funds is managed using the Davis investment philosophy, which
stresses a back-to-basics approach: we use extensive research to buy growing
companies at value prices and hold on to them for the long term. We look for
companies with sustainable growth rates selling at modest price-earnings
multiples that we hope will expand as other investors recognize the company's
true worth.
Over the years, Davis Selected Advisers, L.P., has developed a list of ten
characteristics that we believe allow companies to sustain long-term growth and
minimize risks to enhance their potential for superior long-term returns.
Although few companies exhibit all ten characteristics, we search for those
possessing:
o Excellent management.
o Managers who own stock in their own company.
o Strong returns on investments of its capital.
o A lean expense structure.
o A dominant or growing market share in a growing market.
o A proven record as an acquirer.
o A strong balance sheet.
o Products or services that are not likely to become obsolete.
o Successful international operations.
o Innovation in all aspects of operations.
We emphasize individual stock selection and believe that the ability to evaluate
management is critical. We routinely visit the managers at their place of
business in order to gain insight into the relative value of different
businesses.
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THE ADVISER'S PERFORMANCE HISTORY
Davis Value Portfolio, Davis Financial Portfolio, and Davis Real Estate
Portfolio were first offered to the public on July 1, 1999, and have performance
records of less than a year; however, Davis Selected Advisers has been managing
accounts in similar styles for a number of years. The performance results
presented in the tables below should not be considered predictions of the future
performance of the portfolios. THE PORTFOLIOS' PERFORMANCE MAY BE EITHER HIGHER
OR LOWER THAN THE COMPOSITES PRESENTED BELOW.
The performance histories presented below for Davis Large Cap Equity Composite,
Davis Financial Composite, and Davis Real Estate Composite include all accounts
($3.5 million or larger) with investment objectives, policies and strategies
substantially similar (although not necessarily identical) to those used by
Davis Selected Advisers in managing the Davis Value Portfolio, Davis Financial
Portfolio, or Davis Real Estate Portfolio, respectively. Private accounts may be
included in the performance histories. Private accounts are not subject to
certain investment limitations, diversification requirements and other
restrictions imposed by the 1940 Act and the Internal Revenue Code, which, if
applicable, may have adversely affected the performance results.
The performance histories compare the Davis Large Cap Equity Composite, Davis
Financial Composite, and Davis Real Estate Composite on an annualized
asset-weighted performance, results net of advisory fees and estimated expenses,
against the S&P 500(R) Index. Each Composite performance is computed using an
internal time-weighted rate of return for each account (including every private
account and every mutual fund in the composite), weighted for the relative size
of each account using beginning of period values.
The composite returns are reduced by the Fund's estimated annual operating
expenses (1.05% per year). The insurance company's charges on your contract will
also reduce actual performance. This calculation, used to measure the
performance of a composite, is different from the standardized SEC method used
to measure the performance of a single mutual fund. The S&P 500(R) Index is a
widely recognized unmanaged index of stock performance.
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THE PERFORMANCE INFORMATION SET FORTH BELOW FOR DAVIS SELECTED ADVISERS DOES NOT
REPRESENT THE PERFORMANCE OF DAVIS VALUE PORTFOLIO, DAVIS FINANCIAL PORTFOLIO,
OR DAVIS REAL ESTATE PORTFOLIO.
DAVIS LARGE CAP EQUITY COMPOSITE RETURNS VS. S & P 500 INDEX
(For the periods ending December 31, 1998)
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<CAPTION>
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PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS SINCE JANUARY
1, 1970
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<S> <C> <C> <C> <C>
DAVIS LARGE CAP EQUITY COMPOSITE 14.80% 21.82% 20.28% 14.80%
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S&P 500 INDEX 28.58% 24.03% 19.17% 13.45%
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As of December 31, 1998, the composite included 19 accounts with aggregate assets of $18.27
billion.
<CAPTION>
DAVIS FINANCIAL COMPOSITE RETURNS VS. S & P 500 INDEX
(For the periods ending December 31, 1998)
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PAST 1 YEAR PAST 3 YEARS PAST 5 YEARS SINCE JANUARY
1, 1992
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<S> <C> <C> <C> <C>
DAVIS FINANCIAL COMPOSITE 14.31% 29.74% 25.83% 25.34%
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S&P 500 INDEX 28.59% 28.13% 24.03% 19.47%
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As of December 31, 1998, the composite included five accounts with aggregate
assets of approximately $1 billion.
DAVIS REAL ESTATE COMPOSITE RETURNS VS. S & P 500 INDEX
(For the periods ending December 31, 1998)
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PAST 1 YEAR PAST 3 YEARS SINCE JANUARY
1, 1995
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DAVIS REAL ESTATE COMPOSITE (15.55)% 13.44% 14.64%
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S&P 500 INDEX 28.58% 28.13% 30.43%
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As of December 31, 1998, the Davis Real Estate Composite included six accounts
with aggregate assets of $479.6 million.
ADVISER COMPENSATION
The annual Adviser compensation for the fiscal year December 31, 1999 (based on
average net assets) is as follows:
Davis Value Portfolio 0.75%
Davis Financial Portfolio 0.75%
Davis Real Estate Portfolio 0.75%
CHIEF INVESTMENT OFFICER AND PORTFOLIO MANAGERS
SHELBY M.C. DAVIS serves as Chief Investment Officer of Davis Selected Advisers
and as President of all the Davis Funds. He served as Davis New York Venture
Fund's Portfolio Manager from its inception in 1969 until February 1997, and
served as
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Portfolio Manager of a growth and income fund managed by Davis Selected Advisers
from May 1993 until February 1997.
CHRISTOPHER C. DAVIS serves as Vice President of Davis Variable Account Fund. He
has served as Co-Portfolio Manager of Davis Value Portfolio and Davis Financial
Portfolio with Kenneth Charles Feinberg since their inception, July 1, 1999, and
also manages or co-manages other equity funds advised by Davis Selected
Advisers. He has served as Portfolio Manager or Co-Portfolio Manager of various
equity funds managed by Davis Selected Advisers since October 1995. Mr. Davis
was the assistant Portfolio Manager and research analyst working with Shelby
M.C. Davis from September 1989 to September 1995.
KENNETH CHARLES FEINBERG has served as Co-Portfolio Manager of Davis Value
Portfolio and Davis Financial Portfolio since their inception, July 1, 1999, and
also co-manages other equity funds advised by Davis Selected Advisers. He has
served as Co-Portfolio Manager of various equity funds managed by Davis Selected
Advisers since May 1997 and began as a research analyst at Davis Selected
Advisers in December 1994. Mr. Feinberg served as Assistant Vice President of
Investor Relations for Continental Corporation from 1988 to 1994.
ANDREW A. DAVIS has served as Portfolio Manager of Davis Real Estate Portfolio
since its inception, July 1, 1999, and also manages or co-manages other Davis
equity funds. He has served as Portfolio Manager or Co-Portfolio Manager of
various equity funds managed by Davis Selected Advisers since January 1994. Mr.
Davis was Vice President of convertible securities research at PaineWebber,
Incorporated, for six years.
OTHER INFORMATION
PURCHASE AND REDEMPTION OF SHARES
We ordinarily effect orders to purchase and redeem shares at the Funds' next
computed net asset value after we have received an order. Life insurance
companies participating in the Funds serve as our designee for receiving orders
of separate accounts that invest in the Funds.
PRICING OF SHARES
We use current market valuations to price the securities in each of the Funds.
Securities that trade on an organized exchange are valued at the last published
sales price on the exchange. If no sales are recorded, the securities are valued
at the average of the closing bid and asked prices on the exchange.
Over-the-counter securities are valued at the average of closing bid and asked
prices. Debt securities maturing in 60 days or less are usually valued at
amortized (gradually reduced) cost. Longer term debt securities may be valued by
an independent pricing service. Securities with unavailable market quotations
and other assets are valued at "fair value" as determined by the Board of
Directors.
If any of the Funds' securities are traded in markets that close at different
times, events affecting portfolio values that occur between the time their
prices are determined and the time the Funds' shares are priced will generally
not be reflected
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in the Funds' share price. The net asset value of the Funds' shares may change
on days when shareholders will not be able to purchase or redeem the Funds'
shares.
The value of securities denominated in foreign currencies and traded in foreign
markets will have their value converted into the U.S. dollar equivalents at the
prevailing market rate as computed by State Street Bank and Trust Company, our
custodian bank. Fluctuation in the value of foreign currencies in relation to
the U.S. dollar may affect the net asset value of the Funds' shares even if
there has not been any change in the foreign currency price of the Funds'
investments.
TAXES
Each of the Funds have elected to be taxed as a "regulated investment company"
under the provisions of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If the Funds continue to qualify as regulated investment
companies and comply with the appropriate provisions of the Code, they will pay
no federal income taxes on the amounts they distribute.
Because the Funds' shareholders are insurance companies (such as the one that
issues your contract), no discussion of the federal income tax consequences to
shareholders is included herein. For information about the federal income tax
consequences of purchasing the contracts, see the prospectus for your contract.
DIVIDENDS AND DISTRIBUTIONS
Davis Value Portfolio and Davis Financial Portfolio generally declare and pay
dividends and short-term and long-term capital gains, if any, annually. Davis
Real Estate Portfolio generally declares and pays dividends quarterly, and
short-term and long-term capital gains, if any, annually. All dividends and
capital gains are paid to separate accounts of participating insurance
companies. At the election of these companies, dividends and distributions are
automatically reinvested at net asset value in shares of the Funds.
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OBTAINING ADDITIONAL INFORMATION
For more information about the Funds, request a free copy of the Statement of
Additional Information or the Annual and Semi-Annual Reports. The STATEMENT OF
ADDITIONAL INFORMATION provides more detailed information about the Funds and
their management and operations. An ANNUAL REPORT discusses the market
conditions and investment strategies that significantly affected the Funds'
performance during the last year. A SEMI-ANNUAL REPORT updates information
provided in the Annual Report for the next six months.
The Funds' Statement of Additional Information and Annual Report have been filed
with the Securities and Exchange Commission, are incorporated by reference, and
are legally a part of this prospectus.
WHERE YOU CAN GET THESE DOCUMENTS:
o FROM YOUR INSURANCE COMPANY OR YOUR ACCOUNT REPRESENTATIVE. Your Insurance
Company or Account Representative can provide you with copies of these
documents.
o VIA THE INTERNET. Visit the SEC web site (WWW.SEC.GOV).
o FROM THE SEC. The SEC's Public Reference Room in Washington DC. For more
information on the operations of the Public Reference Room call
1-800-SEC-0330. Additional copies of this information can be obtained, for
a duplicating fee, by writing the Public Reference Section of the SEC,
Washington DC 20549-6009.
Investment Company Act File No. 811-9293
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