<PAGE>
DAVIS VALUE PORTFOLIO
(PORTFOLIO OF DAVIS VARIABLE ACCOUNT FUND, INC.)
June 30, 2000
SEMI-ANNUAL REPORT
[DAVIS LOGO]
<PAGE>
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
===============================================================================
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.
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.
2
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DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
===============================================================================
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
3
<PAGE>
DAVIS VALUE PORTFOLIO
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 VALUE PORTFOLIO
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
<PAGE>
DAVIS VALUE PORTFOLIO
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)
--------------------------
This Semi-Annual Report is authorized for distribution only when accompanied or
preceded by a current prospectus of Davis Value Portfolio 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 Davis Value Portfolio's Schedule of Investments for a detailed list of
portfolio holdings.
4 This report reflects the professional opinions of Shelby M.C. Davis,
Christopher Davis, and Kenneth Feinberg. All investments involve some degree of
risk, there can be no assurance that Davis Value Portfolio's 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.
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 return 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%
------------------------------- ------------------------------
6
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DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
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.
An investment in Davis Value Portfolio is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
7
<PAGE>
DAVIS VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
============================================================================================================
<S> <C> <C>
COMMON STOCK - (88.64%)
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
-------------
8
<PAGE>
DAVIS VALUE PORTFOLIO - CONTINUED
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (Unaudited)
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
============================================================================================================
<S> <C> <C>
COMMON STOCK - CONTINUED
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
9
<PAGE>
DAVIS VALUE PORTFOLIO - CONTINUED
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (Unaudited)
<CAPTION>
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
============================================================================================================
<S> <C> <C>
COMMON STOCK - CONTINUED
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
10
<PAGE>
DAVIS VALUE PORTFOLIO
STATEMENTS OF ASSETS AND LIABILITIES
At June 30, 2000 (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
* (see accompanying Schedules of Investments)................................................... $ 37,710,109
Cash.............................................................................................. 10,220
Receivables:
Dividends and interest.......................................................................... 22,174
Capital stock sold.............................................................................. 826,636
Investments sold................................................................................ 442,494
Due from adviser................................................................................ 11,595
Prepaid expenses.................................................................................. 6,025
---------------
Total assets...................................................................................... 39,029,253
---------------
LIABILITIES:
Payables:
Investment securities purchased................................................................ 1,778,482
Capital stock required.......................................................................... 4,070
Accrued expenses................................................................................ 38,438
---------------
Total liabilities................................................................................. 1,820,990
---------------
NET ASSETS .......................................................................................... $ 37,208,263
===============
SHARES OUTSTANDING (NOTE 4).......................................................................... 3,391,368
===============
NET ASSET VALUE, offering and
redemption price per share (Net Assets (divided by) shares outstanding)......................... $ 10.97
===========
NET ASSETS CONSIST OF:
Undistributed net investment income............................................................... $ 34,344
Par value of shares of capital stock.............................................................. 3,391
Additional paid-in capital........................................................................ 35,531,791
Accumulated net realized gain..................................................................... 593,129
Net unrealized appreciation on investments........................................................ 1,045,608
---------------
$ 37,208,263
===============
</TABLE>
* Including a repurchase agreement of $4,729,000 and cost of $36,664,501.
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
DAVIS VALUE PORTFOLIO
STATEMENTS OF OPERATIONS
For the six months ended June 30, 2000 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends..................................................................................... $ 73,591
Interest...................................................................................... 52,018
---------------
Total income.............................................................................. 125,609
---------------
Expenses:
Management fees (Note 2)...................................................................... 68,449
Custodian fees................................................................................ 20,023
Transfer agent fees........................................................................... 4,803
Audit fees.................................................................................... 4,025
Accounting fees (Note 2)...................................................................... 3,000
Legal fees.................................................................................... 9,801
Reports to shareholders....................................................................... 1,746
Directors fees and expenses................................................................... 10,730
Registration and filing fees.................................................................. 1,935
Miscellaneous................................................................................. 2,524
---------------
Total expenses............................................................................ 127,036
Expenses paid indirectly (Note 5)......................................................... (72)
Reimbursement of expenses by adviser (Note 2)............................................. (35,699)
---------------
Net expenses.............................................................................. 91,265
---------------
Net investment income..................................................................... 34,344
---------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions................................................ 651,730
Net increase in unrealized appreciation of investments during the period..................... 105,627
---------------
Net realized and unrealized gain on investments........................................... 757,357
---------------
Net increase in net assets resulting from operations...................................... $ 791,701
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
DAVIS VALUE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
===============================================================================
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, PERIOD ENDED
2000 DECEMBER 31,
(UNAUDITED) 1999
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income ......................................... $ 34,344 $ 14,023
Net realized gain (loss) from investment transactions ......... 651,730 (58,601)
Net increase in unrealized appreciation of investments ........ 105,627 939,981
------------ ------------
Net increase in net assets resulting from operations .......... 791,701 895,403
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ......................................... -- (14,023)
Return of capital ............................................. -- (2,540)
CAPITAL SHARE TRANSACTIONS (NOTE 4) ............................... 23,748,678 11,789,044
------------ ------------
Total increase in net assets ...................................... 24,540,379 12,667,884
NET ASSETS:
Beginning of period ........................................... 12,667,884 --
------------ ------------
End of Period (Including undistributed net investment income of
$34,344 in 2000) ............................................ $ 37,208,263 $ 12,667,884
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
DAVIS VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
===============================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a separate series of Davis Variable Account Fund, Inc., which is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment companies. The following is a
summary of significant accounting policies followed by the Fund in the
preparation of financial statements.
Davis Value Portfolio is a diversified, professionally managed stock-
oriented fund.
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 Fund 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 Fund as an unrealized gain or loss. When the forward
currency contract is closed, the Fund 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 Fund 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 Fund's 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 the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to
shareholders. Therefore, no provision for federal income or excise tax is
required. At June 30, 2000, the Fund had approximately $31,000 of capital loss
carryovers available to offset future capital gains, if any, which expire in
2007.
14
<PAGE>
DAVIS VALUE PORTFOLIO
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 Fund.
The Fund adjusts the classification of distributions to shareholders to reflect
the differences between financial statement amounts and distributions determined
in accordance with income tax regulations.
NOTE 2 - INVESTMENT ADVISORY FEES
Advisory fees are paid to Davis Selected Advisers, L.P. (the "Adviser") at
an annual rate of 0.75% of the average annual net assets.
State Street Bank is the Fund's primary transfer agent. 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. State Street Bank & Trust Company
("State Street Bank") is the Fund's primary accounting provider. Fees for such
services are included in the custodian fee as State Street also serves as the
Fund's custodian. The Adviser is also paid for certain accounting services. The
fee for the six months ended June 30, 2000 amounted to $3,000. The Adviser has
agreed to reimburse the Fund for certain expenses incurred in the current fiscal
period, which amounted to $35,699. Certain directors and officers of the Fund
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 Fund. The Fund pays no fees directly to
DSA-NY.
The 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 in commissions on the purchase and sales of portfolio securities
in the Davis Value Portfolio.
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 $22,818,721 and
$2,164,212, respectively.
15
<PAGE>
DAVIS VALUE PORTFOLIO
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 JULY 1, 1999
ENDED (COMMENCEMENT OF
JUNE 30, 2000 OPERATIONS) THROUGH
(UNAUDITED) DECEMBER 31, 1999
--------------- -------------------
<S> <C> <C>
Shares sold............................................... 2,252,968 1,328,411
Shares issued in reinvestment of distributions............ - 1,624
--------------- ------------
2,252,968 1,330,035
Shares redeemed........................................... (97,799) (93,836)
--------------- ------------
Net increase........................................ 2,155,169 1,236,199
=============== ============
Proceeds from shares sold................................. $ 24,784,061 $ 12,681,981
Proceeds from shares issued in
reinvestment of distributions......................... - 16,563
--------------- ------------
24,784,061 12,698,544
Cost of shares redeemed................................... (1,035,383) (909,500)
--------------- -------------
Net increase........................................ $ 23,748,678 $ 11,789,044
=============== ===============
</TABLE>
NOTE 5 - CUSTODIAN FEES
Under an agreement with the custodian bank, custodian fees are reduced for
earnings on cash balances maintained at the custodian by the Fund. Such
reductions amounted to $72 for the six months ended June 30, 2000.
16
<PAGE>
DAVIS VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
===============================================================================
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
17
<PAGE>
DAVIS VALUE PORTFOLIO
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
Christopher C. Davis Kenneth C. Eich
Jerry D. Geist Vice President
D. James Guzy Sharra L. Reed
G. Bernard Hamilton Vice President,
Laurence W. Levine Treasurer & Assistant Secretary
Christian R. Sonne Thomas D. Tays
Marsha Williams Vice President Secretary
Andrew A. Davis
Vice President
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 VALUE PORTFOLIO, INCLUDING MANAGEMENT FEE,
CHARGES AND EXPENSES SEE THE CURRENT PROSPECTUS, WHICH MUST PRECEDE OR ACCOMPANY
THIS REPORT.
================================================================================
