<PAGE>
DAVIS VALUE PORTFOLIO
DAVIS FINANCIAL PORTFOLIO
DAVIS REAL ESTATE PORTFOLIO
(PORTFOLIOS OF DAVIS VARIABLE ACCOUNT FUND, INC.)
June 30, 2000
SEMI-ANNUAL REPORT
[DAVIS FUNDS LOGO]
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DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
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Dear Shareholder,
We are optimists at heart and we believe that stocks offer the best means of
creating wealth over the long term. Historically, stocks have won over time
because they represent claims on growth, not a fixed promise to pay a fixed
amount, which is the case with bonds.(1) As gross domestic product (GDP) and
corporate profits grow, so does the valuation floor for stocks.
With that as a backdrop, every day when we come to work we try to do four
things. First, we seek out businesses that will grow, preferably ones that need
little new capital because that means they are the most self-sufficient.
Second, we evaluate the judgment, vision and integrity of management. We want to
get a good feel for what management plans to do with the free cash flows
generated by the business--be it making new investments, acquiring other
businesses or increasing dividends.
Third, we value those businesses against the alternatives, seeking to determine
what "mystery" coupon or rate of return the business will produce for its
stockowners. In other words, we determine what we would be willing to pay for
the business in order to provide us with a better projected rate of return than
the coupon rate on risk-free alternatives such as 10-year Treasury bonds, and we
try to buy the companies when they are attractively valued.
Fourth, we consider this analysis within the context of where we are in the
stock market cycle. We know we are on a long journey. If equities will grow at a
rate of around 7% a year over the next 30 years, which is a little less than
their long term average, that would take the Dow Jones Industrial Average from
around 10,000 to 80,000 by 2030.(2) At the same time, we are mindful that road
conditions will not always be favorable and that there will be checkpoints along
the way because different eras create different risk profiles.
Looking ahead over the next few years, we recognize that we are unlikely to
continue enjoying the big drivers of stock performance that we have had over the
past 15 to 20 years--namely, dramatically rising corporate profits, steeply
falling interest rates and sharply higher price/earnings (P/E) valuations.
Inflation and interest rates have plateaued at best and may be increasing, which
means caution lights are flashing on the road ahead. If inflation keeps
climbing, the Federal Reserve will take concerted action after the presidential
election, raising interest rates even further and therefore the risk-free hurdle
rate against which all stocks have to compete. As for corporate profits, they
still have a green light, but they have been inflated by various accounting
practices and cannot keep growing their share of GDP forever.
All of this leads us to believe that the market could be in a 30% to 50% trading
range over the next 5 to 10 years before there is a big break out again. That is
a lot of movement in points, but not much in percentage terms, particularly when
you consider the market went up tenfold (from 1,000 to 10,000) over the past 20
years. Although the rate of growth may be slowing, we still anticipate a fairly
favorable environment for stocks. The Federal Reserve is doing its job right by
trying to prolong the cycle, deflate a bubble and prevent a boom/bust scenario.
Even if we stay in a trading-range market for some time, there should always be
opportunities for stock picking.
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DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
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We think multinationals may be a fertile area to investigate whether they are in
the technology, drug or financial sector. For several years, these companies
have been fighting headwinds related to various financial crises around the
world, the strength of the dollar and the market's fixation on Internet
companies. Now high-quality multinationals with proven management teams may move
into the spotlight because they have flexibility to allocate capital around the
globe to wherever it may earn the best return, and with a world population of
around six billion, their potential customer base is huge.
Contrary to what some people may believe, we are not against technology.
Particularly in a difficult market when you have to be a good stock picker, it
is useful to identify a theme. Over the next decade, technology is almost
certain to be a key investment trend, whether it be the inventors of technology
or traditional companies that successfully apply technology in their business
models. American Express(3) is one example of a company that is likely to
benefit as consumers buy more and more over the Internet, charging purchases on
their credit cards. In addition, there are a number of financial and other
companies that will use the Internet to drive down their costs or to leverage
their brand power and broaden their marketing reach. If these companies are also
multinational, so much the better because they can do this all over the world.
Of course, no one knows for sure exactly what the next few years will bring. But
regardless of election results, inflation, interest rates or profit trends, we
will continue to manage money according to the same generational philosophy we
have applied for decades in all types of markets. Investing is a batting average
business, full of strikeouts and mistakes as well as home runs. Rest assured
that we will try to do sensible things every day when we come to work and do the
best we can because our money is invested side by side with our fellow
shareholders. We continue to believe that stocks are the best way to build
long-term wealth. Staying invested puts time on our side and gives compounding
the opportunity to work for us all.(4)
Sincerely,
/s/ Shelby M.C. Davis
-----------------------
Shelby M.C. Davis
Senior Research Adviser
August 4, 2000
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DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
DAVIS VALUE PORTFOLIO
PERFORMANCE OVERVIEW
The Davis Value Portfolio delivered a total return of 7.02% for the six-month
period and 9.85% for the one-year period from July 1, 1999 (commencement of
operations) to June 30, 2000,(5) outpacing the performance of the Lipper
Large-Cap Value Index(6) and the Standard & Poor's 500 Index.(6) The Lipper
Large-Cap Value Index provided a return of (1.99)% and (2.38)%, respectively,
over the latest six-month and one-year periods while the S&P 500 returned
(0.43)% and 7.25%, respectively, over the same time frames.
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS
Q. How would you describe the performance of the Portfolio so far this year?
A. As Ken and I have often said, performance over any half-year, one-year or
even two-year period is often unpredictable and rarely significant. Thus, we are
reluctant to read too much into the strong relative results of the Davis Value
Portfolio in the first six months of the year 2000.
That said, with regard to individual holdings, we have been very pleased with
the performance of several companies that were relatively recent additions to
the portfolio. In general, these companies were purchased while their stock
prices languished under clouds of uncertainty or even scandal. In such cases,
Ken and I believe that while we are taking what might be called "headline" risk,
the fact that we are buying the companies after bad news has been disclosed
often limits our economic risk.
Our purchase of American Home Products,(3) for example, came at a time when the
company was facing litigation concerning unforeseen side effects with one of its
drugs. While there was always a risk that the consequences of this litigation
could have been much worse than we anticipated, we believed that the stock price
more than discounted the likely outcome and that, as the clouds of uncertainty
lifted, investors would again recognize the powerful new products and strong
position of this company. Our colleague Danton Goei was an important resource in
the Portfolio's opportunistic purchase of this company at significantly lower
prices.
Similarly, our purchase of Tyco came at a time when the company was undergoing
SEC scrutiny regarding its accounting for a number of mergers and acquisitions.
Ken led an incredibly thorough research effort on this complex company and was
ably assisted by Adam Seessel in reconstructing all of the company's recent
acquisitions.
Although these companies could still prove to be disappointing investments if
bad news subsequently comes to light, we think both are illustrative of our
willingness to purchase companies opportunistically while others are anxiously
selling. Such decisions can only be made with conviction based on thorough and
independent research and on the recognition that short-term movements in stock
prices often reflect changes in psychology rather than changes in economics.
4
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DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS - CONTINUED
Q. Could you comment on the overall market environment this year and its impact
on the Portfolio's investments?
A. Turning from those specifics of the portfolio to the market in general, the
year 2000 has proven to be another period of enormous stock price volatility.
The relative flatness of the market averages masks enormous underlying gyrations
in the prices of individual issues. The best way to demonstrate this is by
examining the portfolio holdings of the Portfolio.
Over the past 12 months, 32 of our top 40 holdings--representing more than 70%
of the portfolio--had a range of more than 50% between their lowest low and
their highest high. Even more telling, 15 of the Portfolio's top 40 positions
had a range of more than 100%, five a range of more than 150% and two a range of
more than 200% between their lowest and highest price for the period.
Given that we generally own more established companies, as opposed to Internet
start-ups, these sorts of ranges are remarkable. A natural consequence of such
volatility, other factors being equal, is a tendency toward higher turnover.
These enormous price swings mean companies are more likely to advance from a
range of fair value to levels at which Ken and I would consider them overvalued
and therefore candidates for sale, or conversely to decline to such prices that
we would consider adding to our positions.
Another recent characteristic of the market has been a constant lowering of the
quality of reported earnings. As anyone who runs a business can attest,
perfectly predictable and consistent results can rarely be achieved in precise
12-week intervals. Yet Wall Street has come to place such a premium on
consistent results that increasingly corporate America is torturing accounting
policies to create the illusion of predictability and consistency in these short
quarterly periods. As a result, earnings are frequently not what they seem, and
reported results often include nonrecurring items such as favorable changes in
pension fund assumptions, gains on sales of operations or securities, expense
reductions from previously incurred restructuring charges and other financial
gimmicks. Thus, most companies' quarterly earnings must be scrutinized much more
intensively than ever before.
While we hope not to own many of the most flagrant offenders in the Davis Value
Portfolio, we would expect that over the next several years the newspapers will
be full of companies forced to come clean when their bag of accounting tricks is
empty. Once a company starts down this path, it is difficult to stop as inflated
results in the current quarter become increasingly difficult comparisons for
future quarters.
Q. What final thoughts would you like to leave with your fellow shareholders?
A. While these observations may sound pessimistic, I am reminded of my father's
comment last year that our goal is to be neither optimistic nor pessimistic, but
to do our best to be realistic. As we have said in the past, the reality is that
returns in the next decade are unlikely to be near the levels enjoyed in the
last two decades. The danger is that as investors move from a position of almost
universal optimism to a more realistic stance equity valuations could suffer
significantly. It is the tendency of markets, like pendulums, not to move to the
middle ground and stop, but instead to swing markedly to the other side. While
such a significant correction would create many buying opportunities, it is
unlikely that investors would have the stomach to pursue them. Therein lies the
biggest danger facing investors.
5
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DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS - CONTINUED
This danger was illustrated in the March issue of Mutual Funds magazine, which
featured the following statistic. According to the magazine, "Between 1984 and
the end of 1998, the average stock fund gained 509%, or 12.8% per year over 15
years. Meanwhile, the typical mutual fund investor, whose average holding period
was less than three years, earned just 186% or 7.25% a year." This staggering
underperformance of the average fund investor was self-inflicted as it came from
money flowing into the funds with great short-term performance and then flowing
out of those funds when future results were disappointing.
If Ken and I can leave any message with our fellow shareholders, it is to fight
the very human tendency to feel elated and optimistic when prices are high (as
they are today) and discouraged and pessimistic when prices are low. Now when
times are good is the right time to sound the cautious note. In doing so, we
hope that we will all be better positioned to be optimistic and opportunistic
when times look more bleak.(4)
DAVIS FINANCIAL PORTFOLIO
PERFORMANCE OVERVIEW
The Davis Financial Portfolio returned 7.88% for the six-month period and 0.14%
for the one-year period from July 1, 1999 (commencement of operations) to June
30, 2000.(5) Over the same time frames, the Standard & Poor's 500 Index returned
(0.43)% and 7.25%, respectively,(6) while the Lipper Financial Services Fund
Index returned (1.54)% and (11.08)%, respectively.(6)
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS
Q. Could you recap the performance of the Portfolio and financial stocks during
the first half of 2000?
A. After a disappointing 1999, we are pleased to report to shareholders that the
Portfolio's return of 7.88% outpaced the S&P 500's return of (0.43)% during the
first six months of 2000. Although these short-term results are clearly more fun
for us to write about, as investors we all know it is the long-term result that
matters. As stewards of your capital, Chris and I feel that our performance
should be evaluated in two ways, both measured over a holding period of five
years or more: First, how has our Portfolio performed versus the S&P 500?
Second, how does the Portfolio stack up versus its peer group of financial
sector funds?
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DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS - CONTINUED
As we wrote to you in January, financial stocks often lead the market down
during periods of Federal Reserve tightening, but then rally and lead the market
up once investors sense that the central bank has nearly finished its job of
slowing down the overall economy in order to keep inflationary pressures from
accelerating. Therefore, we expected the environment for financial stocks would
remain volatile until there was greater clarity regarding the direction of
inflation and interest rates. It is fair to say that we are pleasantly surprised
at how quickly investor sentiment toward financial stocks has improved, despite
the fact that it is still unclear whether inflation has been contained and that
the central bank remains poised to continue raising short-term interest rates if
necessary.
Q. Have all financial stocks benefited from this improved investor sentiment?
A. No. We continue to believe that this is a market that will especially reward
careful stock picking. The combination of falling interest rates, subdued
inflation and a robust economy that has kept credit losses artificially low and
lifted the fortunes of most financial companies during the past decade is
unlikely to be repeated. In fact, bank stocks have been severely punished this
year for several reasons. First, revenue growth has been more difficult to
achieve. In addition, net interest margins have contracted as funding costs have
risen at the same time that competition has lowered the rates banks can charge
on loans. Finally, the impact of rising credit losses despite a continuing
healthy economy is now unfolding. The adverse effect of these developments can
be seen in the performance of well managed banks such as Wachovia and SunTrust,
which are down 18% and 32%, respectively, through July 17. While we do own a few
bank stocks such as Wells Fargo(3) and Fifth Third Bancorp, part of our
Portfolio's favorable relative performance has been due to significantly
underweighting the banking sector.
Conversely, we have been surprised by the strong performance of brokerage
stocks--particularly given the dramatic slowdown in many of their business
lines, including the high-margin initial public offering (IPO) market (hurt by
Internet stocks crashing back to earth), fixed-income issuance (hurt by rising
interest rates, which dampen the enthusiasm of both issuers and investors) and
merchant banking/venture capital operations (where gains were more difficult to
generate as technology stocks declined). We were glad to have some exposure to
the brokerage sector through quality firms such as Morgan Stanley Dean Witter,
Donaldson Lufkin & Jenrette, Charles Schwab and Legg Mason. However, we admit
that we missed some big moves in companies such as Merrill Lynch that we
considered owning but were waiting for a more attractive entry price.
Q. What holdings were important contributors to performance?
A. We were fortunate to find several investment opportunities where we thought
the market was significantly undervaluing the true worth of the company. Two
examples worth mentioning are Kansas City Southern Industries (KSU) and Sun Life
Financial of Canada.
7
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DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS - CONTINUED
KSU is a holding company that, in addition to owning a small regional railroad,
also happened to own 82% of a fast-growing mutual fund company with over $300
billion in assets under management led by the Janus family of funds. In
addition, KSU held a 32% stake in an information-processing subsidiary called
DST Systems. KSU had been in the process of trying to boost shareholder value by
spinning off the mutual fund company and its interest in DST Systems into a
separately traded company called Stilwell Financial. However, KSU shares
remained quite depressed due to the well publicized and long-running dispute
between the management of the railroad company, which had effective control over
the mutual fund company through its 82% majority ownership of Janus, and the
management of Janus itself, which owned only 18% but was clearly responsible for
creating over 90% of the value of the KSU holding company.
The fear among many investors was that well regarded portfolio managers might
express their dissatisfaction by leaving the firm rather than work for a parent
that refused to give the senior management of Janus an appropriate stake in and
governance of the soon-to-be-spun-off Stilwell Financial. While the risk of
employee defections was a real possibility, we felt that KSU's incredibly cheap
stock price far more than compensated for this risk. After backing out the
expected value for the railroad company, we were in effect able to buy Stilwell
Financial at an extraordinarily favorable multiple of only 11 times our estimate
of 2001 earnings. This was not only a compelling absolute valuation, but also a
40% discount to several peer companies. We built the KSU position into one of
our top holdings. To date, Janus management has stayed on, the spin-off of
Stilwell Financial has finally occurred and the price/earnings (P/E) multiple on
the newly traded shares has expanded nicely from the implied value when buried
within the KSU holding company. Given the strong share price performance, this
position became a significant contributor to our first-half returns to
shareholders.
Sun Life of Canada is a mutual life insurance company that recently
"demutualized" to become a publicly traded company. Normally, we avoid IPOs in
financial services and for good reason. The company is usually dressed up for
sale to often naive investors as management has done everything possible to show
both near-term revenue and earnings growth, often at the expense of underwriting
discipline and accounting conservatism. Ultimately, however, chickens do come
home to roost. We have noticed over the years that when poor results begin to
materialize the share prices of insurance and consumer finance companies can
plummet as much as 90% from their IPO price. These are treacherous investments
even in the best of times.
However, Sun Life was different. We got to know senior management well and
determined that they were honest, focused on expanding their business and
genuinely interested in creating value for shareholders. Importantly, the
accounting was conservative and dramatically understated the true worth of Sun
Life since the reported book value of the company carried its ownership of the
high-quality MFS mutual fund family at cost. We thought the true value of MFS by
itself (which represented one-third of total company earnings) was worth almost
the IPO price of the entire company. Because of the poor performance of
financial stocks in the first quarter, we were able to buy shares in April at
very attractive prices. Given the fact that the share price has risen 100% in
four months, the obvious question is what were we thinking to not buy even more?
8
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DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS - CONTINUED
Q. Given the increased volatility in the market has turnover in the Portfolio
increased?
A. Not really, although the increasing number of momentum investors with
short-term performance goals will likely provide us greater opportunities going
forward to both sell holdings that become significantly overvalued and initiate
positions at temporarily depressed and, therefore, attractive prices. Volatility
can be an investor's friend, particularly if a well-informed long-term investor
can take advantage of market overreactions to short-term events.
During the second quarter, we were able to build large positions in two
outstanding, well managed nonfinancial companies, Costco Wholesale(3) and
Tellabs, whose shares collapsed due to slightly disappointing near-term
earnings. In both cases, however, the earnings shortfall was more the result of
ramping up investment to support growth opportunities in the business rather
than the result of a fundamental deterioration in the company. We had followed
both companies for years and always wished to become shareholders. But the P/E
multiples never became cheap enough to establish a position as the market had
pushed the price of each company to 40 times earnings--clearly pricing each
business for perfection and leaving zero margin of safety for new owners.
Fortunately our patience was rewarded--it isn't always--as we received an entry
point at much lower prices. We expect to do very well as shareholders, given the
terrific no-nonsense, performance-oriented cultures, attractive business models
and long-term growth opportunities at both companies.
Q. How would you characterize your current outlook for financial stocks?
A. Chris and I remain optimistic about the long-term outlook for financial
companies. We continue to find well managed companies with valuable consumer
franchises, strong balance sheets and positive long-term growth opportunities
whose business fundamentals remain quite favorable in the current environment.
While we expect price volatility in financial stocks to continue, carefully
selected financial services companies should offer outstanding investment
opportunities for our shareholders.(4)
DAVIS REAL ESTATE PORTFOLIO
PERFORMANCE OVERVIEW
The Davis Real Estate Portfolio generated a total return of 12.59% for the
six-month period and 0.43% for the one-year period from July 1, 1999
(commencement of operations) to June 30, 2000.(5) By way of comparison, the
Morgan Stanley REIT (Real Estate Investment Trust) Index provided average
returns of 13.31% and 3.37%, respectively,(6) over the same time periods.
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER
Q. Could you provide some perspective on the performance of real estate so far
in the year 2000?
A. The real estate sector is much more in favor than it was last year and is
performing better and better as the days go by. The last phase of what I think
will be the full recovery of real estate stock prices will occur when the higher
growth, smaller cap companies start to climb, and I believe we may be nearing or
at that point now.
9
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DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER - CONTINUED
Typically, when real estate stocks first begin to rally, non-real-estate equity
funds and other large investors return to the sector by purchasing the biggest,
most liquid names in order to obtain exposure to real estate. That tends to
drive up the prices of these larger companies, even though their growth rates
might be only average or below average in some cases. Then, as the rally
continues and investors as a whole look seriously at the group, they recognize
that it makes little sense to buy a company with an 8% earnings growth rate at a
multiple of 10 times earnings when they can find companies whose earnings are
growing at a 13% rate for the same multiple. After all, earnings always drive
stock prices in the long run.
For the first quarter of 2000, 85% to 90% of the companies in the real estate
sector reported earnings in-line or better than expectations. I expect that
number to be the same or higher for the second quarter, with very few or no
surprises. Real estate just continues along, and it is finally getting some
notice from investors.
Q. What do you believe has caused the turnaround in real estate stocks?
A. I believe that a key reason for the improved performance may simply be that
the industry has a little more history under its belt. The REIT world as we know
it today was born in 1991 at the end of the last major downturn in real estate
and has not yet gone through a complete economic cycle. But every quarter that
goes by where these companies perform better and better--whether the economy is
surging or slowing, whether interest rates are rising or falling--simply
increases their credibility, and every bit of added credibility adds to their
multiples.
I think the better companies in the industry should trade at a multiple of 10 to
11 times earnings because they should be able to grow their earnings at a rate
in the low to mid teens. I am optimistic that real estate will continue to be
what I call a growth cyclical business where every new top is hopefully a little
higher than the last top and every bottom is a little higher than the last
bottom.
Perhaps the most important difference in this real estate cycle versus other
cycles historically has been the absence of overbuilding. This is a big positive
for the industry because it means when the economy turns down as it inevitably
will and demand slows, real estate companies will not be burdened by excess new
supply as they were in the late 1980s and early 1990s. Instead, the real estate
industry should enter the next recession in good shape relative to supply and
demand, and that can make a huge difference in the long-term rate of return in
any business. I think we will continue to see greater consistency in company
earnings, and consistency is a virtue highly valued by investors.
Q. What are your favorite holdings now?
A. The Portfolio has enjoyed good returns from Avalon Bay Communities(3), an
apartment REIT, and Boston Properties, an office REIT, which are two of its
largest holdings. The performance of two other big positions, Apartment
Investment & Management Company and Alexandria Real Estate Equities, another
office REIT, has not yet lived up to expectations. While these stocks are up for
the year, they are not up enough given the superior growth rates of these two
fine companies. However, I feel confident that these companies will receive the
investor recognition they deserve.
Another favored holding is Centerpoint Properties, an industrial REIT. The
company has grown its earnings 15% annually, year after year, but its stock
price performance last year was disappointing. Although the stock has done much
better in the year 2000, recently hitting a new high, we expect even more from
the shares.
10
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DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER - CONTINUED
The Portfolio also looks for opportunities in companies that are essentially a
play on real estate even though they do not operate as REITs. An example is Six
Flags, formerly known as Premier Parks, a leading theme park developer. While
the stock has underperformed dramatically this year, I have high hopes for the
company because of its track record in acquiring and turning around troubled
amusement parks.
Q. What is your outlook for real estate?
A. Real estate is not only the largest asset class in this country, it has
historically been one of the least volatile asset classes, and its performance
is not closely correlated with the S&P 500. Given today's high stock prices,
real estate can help to diversify and anchor a well-balanced portfolio.
While the performance of real estate as a whole is better, I think the best is
yet to come as investors increasingly recognize that real estate is not the same
industry that it was in the past. Company balance sheets are stronger.
Managements are more seasoned and smarter, and they are operating with a new
business model that is producing superior returns relative to the old business
model.
I am pleased with the quality of the companies we hold in the Davis Real Estate
Portfolio. These are well-run businesses purchased at attractive valuations that
are capable of generating steadily increasing rental income and solid returns on
capital over time.(4)
-----------------------------
This Semi-Annual Report is authorized for distribution only when accompanied or
preceded by a current prospectus of Davis Variable Account Funds which contains
more information about risks, fees and expenses. Please read the prospectus
carefully before investing or sending money.
1 Historically, common stocks have outperformed both bonds and cash. There is no
assurance that this will continue to be true in the future.
2 This hypothetical example illustrates the power of compounding over a 30-year
period, and is not intended to be indicative of future investment results which
may be higher or lower than the assumed 7% rate.
3 See each Portfolio's Schedule of Investments for a detailed list of portfolio
holdings.
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DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
4 This report reflects the professional opinions of Shelby M.C. Davis and the
Davis Variable Account Funds' portfolio managers. All investments involve some
degree of risk, and there can be no assurance that the Portfolios' investment
strategies will be successful. Prices of shares will vary, so that when
redeemed, an investor's shares could be worth more or less than their original
cost.
Because Davis Financial Portfolio concentrates its investments in the banking
and financial sectors it may be subject to greater risks than a portfolio that
does not concentrate its investments in a particular sector. The Portfolio's
investment performance, both good and bad, is expected to reflect the economic
performance of the banking and financial sectors much more than a portfolio that
does not concentrate its portfolio.
Because Davis Real Estate Portfolio concentrates its investments in the real
estate sector it may be subject to greater risks than a portfolio that does not
concentrate its investments in a particular sector. The Portfolio's investment
performance, both good and bad, is expected to reflect the economic performance
of the real estate sector much more than a portfolio that does not concentrate
its portfolio.
5 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. The following table lists the average
annual total returns for the period from July 1, 1999 (commencement of
operations) through June 30, 2000.
--------------------------------------------------------------
FUND NAME INCEPTION
July 1, 1999
--------------------------------------------------------------
Davis Value Portfolio 9.85%
--------------------------------------------------------------
Davis Financial Portfolio 0.14%
--------------------------------------------------------------
Davis Real Estate Portfolio 0.43%
--------------------------------------------------------------
6 The definitions of indices quoted in this annual report appear below.
Investments cannot be made directly in any of these indices.
I. The S&P 500 Index is an unmanaged index of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The index is adjusted for
dividends, weighted towards stocks with large market capitalizations, and
represents approximately two-thirds of the total market value of all domestic
common stocks.
II. The Lipper Large-Cap Value Index is an equally weighted index of 30
large-cap value mutual funds. Returns are adjusted for the reinvestment of
capital gain distributions and income dividends.
III. The Lipper Financial Services Fund Index is an equally weighted index of
ten mutual funds within the Financial Services industry. Returns are adjusted
for the reinvestment of capital gain distributions and income dividends.
IV. The Morgan Stanley REIT (Real Estate Investment Trust) Index is a
capitalization-weighted index, with dividends reinvested, of the most actively
traded real estate investment trusts and is designed to be a measure of real
estate equity performance.
An investment in Davis Variable Account 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.
12
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS VALUE PORTFOLIO
JUNE 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (88.64%)
<S> <C> <C>
ADVERTISING AGENCIES - (0.06%)
300 WPP Group PLC ............................................................. $ 21,703
-----------
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (5.14%)
19,000 Golden West Financial Corp................................................... 775,438
29,300 Wells Fargo & Co............................................................. 1,135,375
-----------
1,910,813
-----------
BUILDING MATERIALS - (3.73%)
7,600 Martin Marietta Materials, Inc............................................... 307,325
42,000 Masco Corp................................................................... 758,625
7,500 Vulcan Materials Co.......................................................... 320,157
-----------
1,386,107
-----------
CONSUMER PRODUCTS - (1.37%)
3,100 Gillette Co.................................................................. 108,306
15,100 Philip Morris Cos., Inc. .................................................... 401,094
-----------
509,400
-----------
DIVERSIFIED - (1.79%)
11 Berkshire Hathaway Inc., Class A*............................................ 591,800
42 Berkshire Hathaway Inc., Class B*............................................ 73,920
-----------
665,720
-----------
DIVERSIFIED MANUFACTURING - (3.23%)
25,400 Tyco International Ltd....................................................... 1,203,325
-----------
ELECTRONICS - (4.44%)
1,800 Applied Materials, Inc.*..................................................... 163,181
4,000 Koninklijke Philips Electronics N.V.......................................... 190,000
5,700 Molex Inc.................................................................... 274,669
14,900 Texas Instruments Inc........................................................ 1,023,444
-----------
1,651,294
-----------
ENERGY - (1.54%)
3,500 Devon Energy Corp............................................................ 196,656
9,300 Dover Corp................................................................... 377,231
-----------
573,887
-----------
FINANCIAL - (15.25%)
35,500 American Express Co.......................................................... 1,850,438
25,000 Citigroup, Inc............................................................... 1,506,250
12,600 Freddie Mac.................................................................. 510,300
30,900 Household International, Inc................................................. 1,284,281
5,800 Providian Financial Corp. ................................................... 522,000
-----------
5,673,269
-----------
FOOD/BEVERAGE & RESTAURANT - (2.57%)
29,000 McDonald's Corp.............................................................. 955,188
-----------
</TABLE>
13
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS VALUE PORTFOLIO - Continued
JUNE 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - CONTINUED
<S> <C> <C>
HOTELS & MOTELS - (0.77%)
8,000 Marriott International, Inc.................................................. $ 288,500
-----------
INDUSTRIAL - (1.42%)
10,100 Sealed Air Corp.*............................................................ 528,988
-----------
INVESTMENT FIRMS - (2.95%)
2,500 Donaldson, Lufkin & Jenrette, Inc............................................ 106,094
11,900 Morgan Stanley Dean Witter & Co.............................................. 990,674
-----------
1,096,768
-----------
LIFE INSURANCE - (0.15%)
3,400 Sun Life Financial Services of Canada*....................................... 57,375
-----------
PHARMACEUTICAL AND HEALTH CARE - (8.63%)
23,600 American Home Products Corp.................................................. 1,386,500
14,900 Bristol-Myers Squibb Co...................................................... 867,925
2,500 Eli Lilly & Co............................................................... 249,688
1,800 Merck & Co., Inc............................................................. 137,925
1,800 Pharmacia Corp............................................................... 93,038
7,300 SmithKline Beecham PLC - ADR................................................. 475,869
-----------
3,210,945
-----------
PROPERTY/CASUALTY INSURANCE - (6.70%)
12,425 American International Group, Inc. .......................................... 1,459,937
2,500 Chubb Corp................................................................... 153,750
5,100 Progressive Corp. (Ohio)..................................................... 377,400
6,000 Transatlantic Holdings, Inc.................................................. 502,500
-----------
2,493,587
-----------
PUBLISHING - (1.48%)
1,400 Dow Jones & Co., Inc. ....................................................... 102,550
4,000 Gannett Co., Inc............................................................. 239,250
6,000 Tribune Co................................................................... 210,000
-----------
551,800
-----------
REAL ESTATE - (1.45%)
600 Avalonbay Communities, Inc................................................... 25,050
12,600 Centerpoint Properties Corp. ................................................ 513,450
-----------
538,500
-----------
TECHNOLOGY - (13.52%)
10,600 BMC Software, Inc.*.......................................................... 386,568
13,600 Hewlett-Packard Co........................................................... 1,698,300
5,700 Intel Corp................................................................... 761,841
11,500 International Business Machines Corp......................................... 1,259,969
11,100 Lexmark International Group, Inc., Class A*.................................. 746,475
</TABLE>
14
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS VALUE PORTFOLIO - Continued
JUNE 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - CONTINUED
<S> <C> <C>
TECHNOLOGY - Continued
9,700 Novell, Inc.*................................................................ $ 89,877
1,900 SAP AG ...................................................................... 89,181
-----------
5,032,211
-----------
TELECOMMUNICATIONS - (9.90%)
5,380 Agilent Technologies, Inc.*.................................................. 396,775
14,990 AT&T Corp.................................................................... 474,058
3,900 AT&T Wireless Group*......................................................... 108,712
3,500 Globalstar Telecommunications Limited* ...................................... 31,281
9,500 Loral Space & Communications, Ltd.*.......................................... 65,906
13,400 Lucent Technologies Inc...................................................... 793,950
22,700 Motorola, Inc................................................................ 659,719
1,500 Sprint Corp.................................................................. 76,500
14,500 Tellabs, Inc.*............................................................... 992,797
1,800 WorldCom, Inc.*.............................................................. 82,631
-----------
3,682,329
-----------
TRANSPORTATION - (0.12%)
500 Kansas City Southern Industries, Inc......................................... 44,344
-----------
WHOLESALE - (2.43%)
27,400 Costco Wholesale Corp.*...................................................... 905,056
-----------
Total Common Stock - (identified cost $31,935,501)........................... 32,981,109
-----------
SHORT TERM INVESTMENTS - (12.71%)
$ 4,729,000 State Street Corporation Repurchase Agreement, 6.60%, 07/03/00, dated
06/30/00, repurchase value $4,731,601 (collateralized by $4,780,000 par
value Federal Home Loan Bank, 7.00%, 08/28/01, market value $4,875,600)
- (identified cost $4,729,000)............................................. 4,729,000
-----------
Total Investments - (101.35%) - (identified cost $36,664,501) - (a).......... 37,710,109
Liabilities Less Other Assets - (1.35%)...................................... (501,846)
-----------
Net Assets - (100%).......................................................... $37,208,263
===========
*Non-Income Producing Security
(a) Aggregate cost for Federal Income Tax purposes is $36,680,647. At June 30,
2000 unrealized appreciation (depreciation) of securities for Federal Income Tax
purposes is as follows:
Unrealized appreciation...................................................... $ 2,443,959
Unrealized depreciation...................................................... $(1,414,497)
-----------
Net unrealized appreciation ................................................. $ 1,029,462
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS FINANCIAL PORTFOLIO
JUNE 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (98.61%)
<S> <C> <C>
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (11.46%)
5,300 Bank of New York Co., Inc.................................................... $ 246,450
500 Fifth Third Bancorp.......................................................... 31,641
3,300 Golden West Financial Corp................................................... 134,681
2,830 Lloyds TSB Group PLC......................................................... 26,696
600 State Street Corp............................................................ 63,638
3,600 Wells Fargo & Co............................................................. 139,500
-----------
642,606
-----------
BUILDING MATERIALS - (5.86%)
2,800 Martin Marietta Materials, Inc............................................... 113,225
6,500 Masco Corp................................................................... 117,406
2,300 Vulcan Materials Co.......................................................... 98,181
-----------
328,812
-----------
DIVERSIFIED - (2.48%)
2 Berkshire Hathaway Inc., Class A*............................................ 107,600
18 Berkshire Hathaway Inc., Class B*............................................ 31,680
-----------
139,280
-----------
DIVERSIFIED MANUFACTURING - (5.57%)
6,600 Tyco International Ltd....................................................... 312,675
-----------
FINANCIAL SERVICES - (58.74%)
INSURANCE - (19.65%)
1,425 American International Group, Inc............................................ 167,437
4,500 Cincinnati Financial Corp.................................................... 141,609
2,500 Everest Reinsurance Holding, Inc............................................. 82,188
3,000 FPIC Insurance Group, Inc.*.................................................. 47,156
5,700 Horace Mann Educators Corp................................................... 85,500
100 Markel Corp.*................................................................ 14,163
800 Progressive Corp. (Ohio)..................................................... 59,200
7,600 Sun Life Financial Services of Canada*....................................... 128,250
4,500 Transatlantic Holdings, Inc.................................................. 376,875
-----------
1,102,378
-----------
OTHER FINANCIAL SERVICES - (39.09%)
9,100 American Express Co.......................................................... 474,337
4,500 Capital One Financial Corp................................................... 200,812
2,550 Charles Schwab Corp.......................................................... 85,744
4,300 Citigroup, Inc............................................................... 259,075
3,500 Donaldson, Lufkin & Jenrette Inc............................................. 148,531
2,400 Freddie Mac.................................................................. 97,200
6,500 Household International, Inc................................................. 270,156
1,700 Legg Mason, Inc.............................................................. 85,000
3,300 MBNA Corp. .................................................................. 89,513
</TABLE>
16
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS FINANCIAL PORTFOLIO - CONTINUED
JUNE 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - Continued
<S> <C> <C>
OTHER FINANCIAL SERVICES - CONTINUED
1,900 Morgan Stanley Dean Witter & Co.............................................. $ 158,175
3,600 Providian Financial Corp..................................................... 324,000
-----------
2,192,543
-----------
TECHNOLOGY - (2.52%)
2,100 Lexmark International Group, Inc., Class A*.................................. 141,225
-----------
TELECOMMUNICATIONS - (4.03%)
3,300 Tellabs, Inc.*............................................................... 225,947
-----------
TRANSPORTATION - (5.06%)
3,200 Kansas City Southern Industries, Inc......................................... 283,800
-----------
WHOLESALE - (2.89%)
4,900 Costco Wholesale Corp.*...................................................... 161,853
-----------
Total Investments - (98.61%) - (identified cost $5,195,455) - (a)............ 5,531,119
Other Assets Less Liabilities - (1.39%)...................................... 77,891
-----------
Net Assets - (100%) ........................................................ $ 5,609,010
===========
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $5,195,455. At June 30,
2000 unrealized appreciation (depreciation) of securities for Federal Income Tax
purposes is as follows:
Unrealized appreciation...................................................... $ 553,739
Unrealized depreciation...................................................... (218,075)
-----------
Net unrealized appreciation.................................................. $ 335,664
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS REAL ESTATE PORTFOLIO
JUNE 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (72.99%)
<S> <C> <C>
APARTMENTS - (3.83%)
5,400 Boardwalk Equities, Inc.*.................................................... $ 51,081
-----------
APARTMENTS (REITS) - (21.18%)
1,300 Apartment Investment & Management Co......................................... 56,225
2,500 Archstone Communities Trust.................................................. 52,656
1,400 Avalon Bay Communities, Inc.................................................. 58,450
900 Equity Residential Property Trust............................................ 41,400
1,900 Home Properties of New York, Inc............................................. 57,000
800 Summit Properties Inc........................................................ 16,800
-----------
282,531
-----------
DIVERSIFIED (REITS) - (13.60%)
2,100 Duke-Weeks Realty Corp....................................................... 46,988
600 Kilroy Realty Corp........................................................... 15,563
800 Liberty Property Trust....................................................... 20,750
1,000 Spieker Properties, Inc...................................................... 46,000
1,500 Vornado Realty Trust......................................................... 52,125
-----------
181,426
-----------
HOTELS & LODGING - (2.71%)
1,000 Marriott International, Inc.................................................. 36,062
-----------
INDUSTRIAL (REITS) - (5.78%)
700 AMB Property Corp............................................................ 15,969
1,500 Centerpoint Properties Corp.................................................. 61,125
-----------
77,094
-----------
MALLS (REITS) - (0.95%)
400 General Growth Properties, Inc............................................ 12,700
-----------
OFFICE SPACE (REITS) - (15.48%)
1,700 Alexandria Real Estate Equities, Inc......................................... 58,331
1,500 Boston Properties, Inc....................................................... 57,938
500 CarrAmerica Realty Corp...................................................... 13,250
1,281 Equity Office Properties Trust............................................... 35,319
400 Parkway Properties Inc....................................................... 12,200
1,100 SL Green Realty Corp......................................................... 29,425
-----------
206,463
-----------
REAL ESTATE DEVELOPMENT - (2.36%)
2,100 Catellus Development Corp.*............................................... 31,500
-----------
RESORTS/THEME PARKS - (1.51%)
600 Premier Parks Inc.*.......................................................... 13,650
400 Vail Resorts, Inc.* ......................................................... 6,525
-----------
20,175
-----------
</TABLE>
18
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS REAL ESTATE PORTFOLIO - CONTINUED
JUNE 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - CONTINUED
<S> <C> <C>
SHOPPING CENTERS (REITS)- (1.54%)
500 Kimco Realty Corp............................................................ $ 20,500
-----------
STORAGE (REITS) - (4.05%)
2,300 Public Storage, Inc.......................................................... 53,906
-----------
Total Common Stock - (identified cost $913,502)................................ 973,438
-----------
CONVERTIBLE PREFERRED STOCK - (7.47%)
APARTMENTS (REITS)- (0.38%)
200 Equity Residential Properties Trust, 7.00%, Series E, Conv. Pfd.............. 5,150
-----------
DIVERSIFIED (REITS) - (0.39%)
100 Vornado Realty Trust, 6.5%, Ser. A, Cum. Conv. Pfd........................... 5,181
-----------
MALLS (REITS) - (3.10%)
1,900 General Growth Properties, 7.25%, Conv. Pfd.................................. 41,325
-----------
RESORTS/THEME PARKS - (2.67%)
800 Premier Parks Inc. 7.50%, Conv. Pfd.......................................... 35,600
-----------
TELECOMMUNICATIONS - (0.93%)
400 DECS Trust V, 7.25%, 8/15/02 Series.......................................... 12,400
-----------
Total Convertible Preferred Stock - (identified cost $105,611)............... 99,656
-----------
SHORT TERM INVESTMENTS - (22.34%)
$ 298,000 State Street Corporation Repurchase Agreement, 6.60%, 07/03/00, dated
06/30/00, repurchase value $298,164 (collateralized by $305,000 par
value Federal Home Loan Bank, 7.00%, 08/28/01, market value $311,100)
- (identified cost $298,000).............................................. 298,000
-----------
Total Investment - (102.80%) - (identified cost $1,317,113) - (a)............ 1,371,094
Liabilities Less Other Assets - (2.80%)...................................... (37,335)
-----------
Net Assets - (100%).......................................................... $ 1,333,759
===========
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $1,317,294. At June 30,
2000 unrealized appreciation (depreciation) of securities for Federal Income Tax
purposes is as follows:
Unrealized appreciation...................................................... $ 67,460
Unrealized depreciation..................................................... (13,660)
-----------
Net unrealized appreciation ................................................. $ 53,800
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
At June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
===================================================================================================
DAVIS
DAVIS DAVIS REAL
VALUE FINANCIAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value
* (see accompanying Schedules
of Investments).............................. $ 37,710,109 $ 5,531,119 $ 1,371,094
Cash........................................... 10,220 166,709 7,412
Receivables:
Dividends and interest....................... 22,174 2,810 6,580
Capital stock sold........................... 826,636 5,873 946
Investments sold............................. 442,494 - -
Due from adviser............................. 11,595 4,812 2,538
Prepaid expenses............................... 6,025 4,525 4,085
------------- ------------ ------------
Total assets......... 39,029,253 5,715,848 1,392,655
------------- ------------ ------------
LIABILITIES:
Payables:
Investment securities purchased........... 1,778,482 17,138 46,821
Capital stock reacquired.................. 4,070 75,657 -
Accrued expenses............................... 38,438 14,043 12,075
------------- ------------ ------------
Total liabilities.... 1,820,990 106,838 58,896
------------- ------------ ------------
NET ASSETS ....................................... $ 37,208,263 $ 5,609,010 $ 1,333,759
============= ============ ============
SHARES OUTSTANDING (NOTE 4)....................... 3,391,368 561,464 137,426
============= ============ ============
NET ASSET VALUE, offering and
redemption price per share (Net
Assets (divided by) shares outstanding)...... $ 10.97 $ 9.99 $ 9.71
=========== ========== ==========
NET ASSETS CONSIST OF:
Undistributed net investment income............ $ 34,344 $ 7,260 $ 10,374
Par value of shares of capital stock........... 3,391 561 137
Additional paid-in capital..................... 35,531,791 5,346,832 1,314,179
Accumulated net realized gain (loss)........... 593,129 (81,307) (44,912)
Net unrealized appreciation on investments..... 1,045,608 335,664 53,981
------------- ------------ ------------
$ 37,208,263 $ 5,609,010 $ 1,333,759
============= ============ ============
</TABLE>
* Including repurchase agreements of $4,729,000 and $298,000 for Davis Value
Portfolio and Davis Real Estate Portfolio, respectively, and cost of
$36,664,501, $5,195,455 and $1,317,113 for Davis Value Portfolio, Davis
Financial Portfolio and Davis Real Estate Portfolio, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
STATEMENTS OF OPERATIONS
For the six months ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
===================================================================================================
DAVIS
DAVIS DAVIS REAL
VALUE FINANCIAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
Investment Income:
Income:
Dividends...................................... $ 73,591 $ 18,592 $ 20,957
Interest....................................... 52,018 10,033 276
---------- ---------- ----------
Total income............................... 125,609 28,625 21,233
---------- ---------- ----------
Expenses:
Management fees (Note 2)....................... 68,449 15,993 2,798
Custodian fees................................. 20,023 7,480 6,261
Transfer agent fees............................ 4,803 4,122 3,989
Audit fees..................................... 4,025 4,025 4,025
Accounting fees (Note 2)....................... 3,000 3,000 3,000
Legal fees..................................... 9,801 2,617 421
Reports to shareholders........................ 1,746 451 99
Directors fees and expenses.................... 10,730 1,887 412
Registration and filing fees................... 1,935 596 128
Miscellaneous.................................. 2,524 3,362 3,359
---------- ---------- ----------
Total expenses............................. 127,036 43,533 24,492
Expenses paid indirectly (Note 5).......... (72) (130) (992)
Reimbursement of expenses by
adviser (Note 2)......................... (35,699) (22,083) (19,770)
---------- ---------- ----------
Net expenses............................... 91,265 21,320 3,730
---------- ---------- ----------
Net investment income...................... 34,344 7,305 17,503
---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) from
investment transactions...................... 651,730 (43,113) (16,716)
Net increase in unrealized
appreciation of investments
during the period............................ 105,627 391,646 89,325
---------- ---------- ----------
Net realized and unrealized gain on
investments.............................. 757,357 348,533 72,609
---------- ---------- ----------
Net increase in net assets resulting from
operations................................. $ 791,701 $ 355,838 $ 90,112
========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the six months ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
=================================================================================================
DAVIS
DAVIS DAVIS REAL
VALUE FINANCIAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
OPERATIONS:
Net investment income....................... $ 34,344 $ 7,305 $ 17,503
Net realized gain (loss) from
investment transactions................... 651,730 (43,113) (16,716)
Net increase in unrealized
appreciation of investments............... 105,627 391,646 89,325
------------ ----------- -----------
Net increase in net assets resulting
from operations........................... 791,701 355,838 90,112
DIVIDENDS TO
SHAREHOLDERS FROM:
Net investment income....................... - - (7,129)
CAPITAL SHARE TRANSACTIONS
(NOTE 4).................................... 23,748,678 1,782,169 640,993
------------ --------- -----------
Total increase in net assets.................... 24,540,379 2,138,007 723,976
NET ASSETS:
Beginning of period......................... 12,667,884 3,471,003 609,783
------------ ----------- -----------
End of Period (Including undistributed net
investment income of $34,344, $7,260
and $10,374 for Davis Value Portfolio,
Davis Financial Portfolio and Davis Real
Estate Portfolio, respectively)........... $ 37,208,263 $ 5,609,010 $ 1,333,759
============ =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the period ended December 31, 1999
<TABLE>
<CAPTION>
==================================================================================================
DAVIS
DAVIS DAVIS REAL
VALUE FINANCIAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
OPERATIONS:
Net investment income....................... $ 14,023 $ 7,321 $ 11,182
Net realized losses from
investment transactions................... (58,601) (38,194) (28,196)
Net increase (decrease) in unrealized
appreciation of investments............... 939,981 (55,982) (35,344)
------------ ----------- ----------
Net increase (decrease) in net
assets resulting from operations.......... 895,403 (86,855) (52,358)
DIVIDENDS TO
SHAREHOLDERS FROM:
Net investment income....................... (14,023) (7,366) (11,182)
Return of capital........................... (2,540) (1,035) (1,876)
CAPITAL SHARE TRANSACTIONS
(NOTE 4).................................... 11,789,044 3,566,259 675,199
------------ ----------- ----------
Total increase in net assets.................... 12,667,884 3,471,003 609,783
NET ASSETS:
Beginning of period......................... - - -
------------ ----------- ----------
End of Period (Including overdistributed
net investment income of $45 for Davis
Financial Portfolio)...................... $ 12,667,884 $ 3,471,003 $ 609,783
============ =========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
23
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Davis Variable Account Fund, Inc. consists of three series of Funds,
Davis Value Portfolio, Davis Financial Portfolio, and Davis Real Estate
Portfolio (collectively "the Funds"). The Funds are registered under the
Investment Company Act of 1940, as amended, as diversified, open-end management
investment companies. The Funds accounts separately for the assets, liabilities
and operations of each series. The following is a summary of significant
accounting policies followed by the Funds in the preparation of financial
statements.
Davis Value Portfolio, Davis Financial Portfolio and Davis Real Estate
Portfolio are diversified, professionally managed stock-oriented funds.
A. VALUATION OF SECURITIES - Securities listed on national securities exchanges
are valued at the last reported sales price on the day of valuation. Securities
traded in the over the counter market and listed securities for which no sale
was reported on that date are stated at the last quoted bid price. Securities
for which market quotations are not readily available are valued at fair value
as determined by the Board of Directors. Short-term obligations are valued at
amortized cost which approximates fair value as determined by the Board of
Directors. These valuation procedures are reviewed and subject to approval by
the Board of Directors.
B. CURRENCY TRANSLATION - The market values of all assets and liabilities
denomination in foreign currencies are recorded in the financial statements
after translation to the U.S. dollar based upon the mean between the bid and
offered quotations of the currencies against U.S. dollars on the date of
valuation. The cost basis of such assets and liabilities is determined based
upon historical exchange rates. Income and expenses are translated at average
exchange rates in effect as accrued or incurred.
C. FORWARD CURRENCY CONTRACTS - The Funds may enter into forward purchases or
sales of foreign currencies to hedge certain foreign currency denominated assets
and liabilities against declines in market value relative to the U.S. dollar.
Forward currency contracts are marked-to-market daily and the change in market
value is recorded by the Funds as an unrealized gain or loss. When the forward
currency contract is closed, the Funds record a realized gain or loss equal to
the difference between the value of the forward currency contract at the time it
was opened and value at the time it was closed. Investments in forward currency
contracts may expose the Funds to risks resulting from unanticipated movements
in foreign currency exchange rates or failure of the counter-party to the
agreement to perform in accordance with the terms of the contract.
Reported net realized foreign exchange gains or losses arise from the sales and
maturities of short-term sales of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities transactions, the
difference between the amounts of dividends, interest and foreign withholding
taxes recorded on the Funds' books, and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in the value of assets and liabilities other than
investments in securities at fiscal year end, resulting from changes in the
exchange rate.
D. FEDERAL INCOME TAXES - It is each 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 taxable income to
shareholders. Therefore, no provision for federal income or excise tax is
required. At June 30, 2000, Davis Value Portfolio had approximately $31,000 of
capital loss carryovers available to offset future capital gains, if any, which
expire in 2007. At June 30, 2000, Davis Financial Portfolio had approximately
$22,000 of capital loss carryovers and post October losses available to offset
future capital gains, if any, which expire in 2007 and 2008. At June 30, 2000,
Davis Real Estate Portfolio had approximately $27,000 of capital loss carryovers
and post October losses available to offset future capital gains, if any, which
expire in 2007 and 2008.
24
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2000 (Unaudited)
================================================================================
E. 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.
F. 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 and dividend income is recorded on the ex-dividend date. Discounts
and premiums on debt securities (excluding convertible bonds) purchased are
amortized over the lives of the respective securities in accordance with the
requirements of the Internal Revenue Code.
G. 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 Funds.
The Funds adjust the classification of distributions to shareholders to reflect
the differences between financial statement amounts and distributions determined
in accordance with income tax regulations.
NOTE 2 - INVESTMENT ADVISORY FEES
The fee for each of the Davis Value Portfolio, Davis Financial Portfolio and
Davis Real Estate Portfolio is 0.75% of the respective Funds' average annual net
assets.
State Street Bank is the Funds' primary transfer agent. Davis Selected
Advisers, L.P. (the "Adviser") is also paid for certain transfer agent services.
The fee paid to the Adviser for the six months ended June 30, 2000 was $21 for
Davis Value Portfolio, and $17 for each of the Davis Financial Portfolio and
Davis Real Estate Portfolio. State Street Bank & Trust Company ("State Street
Bank") is the Funds' primary accounting provider. Fees for such services are
included in the custodian fee as State Street also serves as the Funds'
custodian. The Adviser is also paid for certain accounting services. The fee for
the six months ended June 30, 2000 for Davis Value Portfolio, Davis Financial
Portfolio and Davis Real Estate Portfolio amounted to $3,000 for each portfolio.
The Adviser has agreed to reimburse the Funds for certain expenses incurred in
the current fiscal period which amounted to $35,699, $22,083 and $19,770 for
Davis Value Portfolio, Davis Financial Portfolio and Davis Real Estate
Portfolio, respectively. Certain directors and officers of the Funds are also
directors and officers 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 Funds. The Funds pay no fees directly to
DSA-NY.
Each Fund has adopted procedures to treat Shelby Cullom Davis & Co. ("SCD")
as an affiliate of the Adviser. During the six months ended June 30, 2000, SCD
received $110 and $15 in commissions on the purchases and sales of portfolio
securities in the Davis Value Portfolio and Davis Financial Portfolio,
respectively.
NOTE 3 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the six months ended June 30, 2000 were as follows:
DAVIS DAVIS DAVIS
VALUE FINANCIAL REAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
Cost of purchases........ $ 22,818,721 $ 2,868,087 $ 596,446
Proceeds of sales........ $ 2,164,212 $ 764,874 $ 145,565
25
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2000 (Unaudited)
================================================================================
NOTE 4 - CAPITAL STOCK
At June 30, 2000, there were 5 billion shares of capital stock ($0.001 par
value per share) authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 (UNAUDITED)
---------------------------------------------
DAVIS DAVIS DAVIS
VALUE FINANCIAL REAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
Shares sold............................................... 2,252,968 268,605 75,283
Shares issued in reinvestment of distributions............ - - 813
----------- ---------- ---------
2,252,968 268,605 76,096
Shares redeemed........................................... (97,799) (81,952) (8,664)
----------- ---------- ---------
Net increase........................................ 2,155,169 186,653 67,432
=========== ========== =========
Proceeds from shares sold................................. $24,784,061 $2,565,602 $ 710,216
Proceeds from shares issued in
reinvestment of distributions......................... - - 7,129
----------- ---------- ---------
24,784,061 2,565,602 717,345
Cost of shares redeemed................................... (1,035,383) (783,433) (76,352)
----------- ---------- ---------
Net increase........................................ $23,748,678 $1,782,169 $ 640,993
=========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
JULY 1, 1999
(COMMENCEMENT OF
OPERATIONS) THROUGH
DECEMBER 31, 1999
-------------------------------------------
DAVIS DAVIS DAVIS
VALUE FINANCIAL REAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
Shares sold............................................... 1,328,411 426,594 68,984
Shares issued in reinvestment of distributions............ 1,624 912 1,495
----------- ---------- --------
1,330,035 427,506 70,479
Shares redeemed........................................... (93,836) (52,695) (485)
----------- ---------- --------
Net increase........................................ 1,236,199 374,811 69,994
=========== ========== ========
Proceeds from shares sold................................. $12,681,981 $4,045,353 $666,302
Proceeds from shares issued in
reinvestment of distributions......................... 16,563 8,401 13,058
----------- ---------- --------
12,698,544 4,053,754 679,360
Cost of shares redeemed................................... (909,500) (487,495) (4,161)
----------- ---------- --------
Net increase........................................ $11,789,044 $3,566,259 $675,199
=========== ========== ========
</TABLE>
NOTE 5 - CUSTODIAN FEES
Under an agreement with the custodian bank, each Fund's custodian fees
are reduced for earnings on cash balances maintained at the custodian by the
Funds. Such reductions amounted to $72, $130 and $992 for Davis Value Portfolio,
Davis Financial Portfolio and Davis Real Estate Portfolio, respectively.
26
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
FINANCIAL HIGHLIGHTS
DAVIS VALUE PORTFOLIO
================================================================================
The following financial information represents data for each share of capital
stock outstanding throughout each period:
<TABLE>
<CAPTION>
JULY 1, 1999
SIX MONTHS (COMMENCEMENT
ENDED OF OPERATIONS)
JUNE 30, 2000 THROUGH
(UNAUDITED) DECEMBER 31, 1999
----------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period............... $ 10.25 $ 10.00
-------- --------
Income From Investment Operations
Net Investment Income............................. 0.01 0.01
Net Realized and Unrealized
Gains (Losses)................................. 0.71 0.25
-------- --------
Total From Investment Operations............... 0.72 0.26
Dividends and Distributions
Dividends from Net Investment Income.............. - (0.01)
Return of Capital................................. - - (3)
-------- --------
Total Dividends and Distributions.............. - (0.01)
-------- --------
Net Asset Value, End of Period..................... $ 10.97 $ 10.25
======== ========
Total Return(1).................................... 7.02% 2.64%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted).................................. $37,208 $12,668
Ratio of Expenses to Average Net Assets........... 1.00%*(4) 1.00%*(4)
Ratio of Net Investment Income to
Average Net Assets............................. 0.38%* 0.43%*
Portfolio Turnover Rate(2)........................ 12% 5%
</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. Total returns are not annualized for periods of less than one year.
2 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.
3 Less than $0.005 per share.
4 Had the Adviser not absorbed certain expenses the ratio of expenses to
average net assets would have been 1.39% and 2.29% for the six months ended
June 30, 2000 and the year ended December 31, 1999, respectively.
* Annualized
SEE NOTES TO FINANCIAL STATEMENTS
27
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
FINANCIAL HIGHLIGHTS
DAVIS FINANCIAL PORTFOLIO
================================================================================
The following financial information represents data for each share of capital
stock outstanding throughout each period:
<TABLE>
<CAPTION>
JULY 1, 1999
SIX MONTHS (COMMENCEMENT
ENDED OF OPERATIONS)
JUNE 30, 2000 THROUGH
(UNAUDITED) DECEMBER 31, 1999
----------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period............... $ 9.26 $ 10.00
------- --------
Income From Investment Operations
Net Investment Income............................. 0.01 0.02
Net Realized and Unrealized
Gains (Losses)................................. 0.72 (0.74)
------- --------
Total From Investment Operations............... 0.73 (0.72)
Dividends and Distributions
Dividends from Net Investment Income.............. - (0.02)
Return of Capital................................. - - (3)
------- --------
Total Dividends and Distributions.............. - (0.02)
------- --------
Net Asset Value, End of Period..................... $ 9.99 $ 9.26
======= ========
Total Return(1).................................... 7.88% (7.17)%
-------------
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted).................................. $5,609 $ 3,471
Ratio of Expenses to Average Net Assets........... 1.01%*(4,5) 1.02%*(4,5)
Ratio of Net Investment Income to
Average Net Assets............................. 0.34%* 0.76%*
Portfolio Turnover Rate(2)........................ 19% 9%
</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. Total returns are not annualized for periods of less than one year.
2 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.
3 Less than $0.005 per share.
4 Had the Adviser not absorbed certain expenses the ratio of expenses to
average net assets would have been 2.04% and 4.26% for the six months ended
June 30, 2000 and the year ended December 31, 1999, respectively.
5 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.00% for the six months ended June
30, 2000 and the year ended December 31, 1999.
* Annualized
SEE NOTES TO FINANCIAL STATEMENTS
28
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
FINANCIAL HIGHLIGHTS
DAVIS REAL ESTATE PORTFOLIO
================================================================================
The following financial information represents data for each share of capital
stock outstanding throughout each period:
<TABLE>
<CAPTION>
JULY 1, 1999
SIX MONTHS (COMMENCEMENT
ENDED OF OPERATIONS)
JUNE 30, 2000 THROUGH
(UNAUDITED) DECEMBER 31, 1999
----------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period............... $ 8.71 $ 10.00
------- ---------
Income From Investment Operations
Net Investment Income............................. 0.16 0.18
Net Realized and Unrealized
Gains (Losses)................................. 0.93 (1.26)
------- ---------
Total From Investment Operations............... 1.09 (1.08)
Dividends and Distributions
Dividends from Net Investment Income.............. (0.09) (0.18)
Return of Capital................................. - (0.03)
------- ---------
Total Dividends and Distributions.............. (0.09) (0.21)
------- ---------
Net Asset Value, End of Period..................... $ 9.71 $ 8.71
======= =========
Total Return(1).................................... 12.59% (10.79)%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted).................................. $1,334 $610
Ratio of Expenses to Average Net Assets........... 1.27%*(3,4) 1.21%*(3,4)
Ratio of Net Investment Income to
Average Net Assets............................. 4.69%* 4.41%*
Portfolio Turnover Rate(2)........................ 20% 21%
</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. Total returns are not annualized for periods of less than one year.
2 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.
3 Had the Adviser not absorbed certain expenses the ratio of expenses to
average net assets would have been 6.57% and 11.91% for the six months
ended June 30, 2000 and the year ended December 31, 1999, respectively.
4 Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.00% for the six months ended June
30, 2000 and the year ended December 31, 1999.
* Annualized
SEE NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC
2949 East Elvira Road, Suite 101, Tucson, Arizona 85706
================================================================================
DIRECTORS OFFICERS
Wesley E. Bass, Jr. Jeremy H. Biggs
Jeremy H. Biggs Chairman
Marc P. Blum Christopher C. Davis
Andrew A. Davis President - Davis Value Portfolio, Davis
Christopher C. Davis Financial Portfolio & Vice President-
Jerry D. Geist Davis Real Estate Portfolio
D. James Guzy Andrew A. Davis
G. Bernard Hamilton President - Davis Real Estate Portfolio,
Laurence W. Levine Vice President-Davis Value Portfolio &
Christian R. Sonne Davis Financial Portfolio
Marsha Williams Kenneth C. Eich
Vice President
Sharra L. Reed
Vice President,
Treasurer & Assistant Secretary
Thomas D. Tays
Vice President & Secretary
INVESTMENT ADVISER
Davis Selected Advisers, L.P.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
(800) 279-0279
DISTRIBUTOR
Davis Distributors, LLC
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
TRANSFER AGENT & CUSTODIAN
State Street Bank and Trust Company
c/o The Davis Funds
P.O. Box 8406
Boston, Massachusetts 02266-8406
COUNSEL
D'Ancona & Pflaum
111 E. Wacker Drive, Suite 2800
Chicago, Illinois 60601-4205
AUDITORS
KPMG LLP
707 Seventeenth Street
Suite 2300
Denver, Colorado 80202
================================================================================
FOR MORE INFORMATION ABOUT THE DAVIS VARIABLE ACCOUNT FUND, INC., INCLUDING
MANAGEMENT FEE, CHARGES AND EXPENSES, SEE THE CURRENT PROSPECTUS WHICH MUST
PRECEDE OR ACCOMPANY THIS REPORT.
================================================================================
