<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS VALUE PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
================================================================================================================
<S> <C> <C>
COMMON STOCK - (94.82%)
ADVERTISING AGENCIES - (0.13%)
200 WPP Group PLC ............................................................. $ 16,575
AGRICULTURAL - (0.22%)
800 Monsanto Co. .............................................................. 28,500
-------------
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (6.34%)
5,300 Golden West Financial Corp................................................... 177,550
4,200 U.S. Bancorp................................................................. 100,013
13,000 Wells Fargo Co. ............................................................. 525,688
-------------
803,251
-------------
BUILDING MATERIALS - (2.72%)
8,700 Masco Corp................................................................... 220,763
3,100 Vulcan Materials Company..................................................... 123,806
-------------
344,569
CONSUMER PRODUCTS - (1.64%)
900 Colgate-Palmolive Co......................................................... 58,500
1,200 Gillette Co.................................................................. 49,425
4,300 Philip Morris Cos., Inc. .................................................... 99,706
-------------
207,631
-------------
DIVERSIFIED - (1.94%)
3 Berkshire Hathaway Inc., Class A*............................................ 168,300
42 Berkshire Hathaway Inc., Class B*............................................ 76,860
-------------
245,160
DIVERSIFIED MANUFACTURING - (1.78%)
5,800 Tyco International Ltd....................................................... 225,475
-------------
ELECTRONICS - (8.57%)
2,400 Applied Materials, Inc.*..................................................... 303,975
400 Koninklijke Philips Electronics N.V.......................................... 54,000
1,900 Molex Inc.................................................................... 107,647
6,400 Texas Instruments Inc........................................................ 620,000
-------------
1,085,622
-------------
ENERGY - (1.97%)
2,200 Devon Energy Corporation..................................................... 72,325
3,900 Dover Corp................................................................... 176,962
-------------
249,287
-------------
FINANCIAL - (17.65%)
4,800 American Express Company..................................................... 798,000
10,500 Citigroup, Inc............................................................... 583,406
5,000 Freddie Mac.................................................................. 235,312
10,500 Household International, Inc................................................. 391,125
2,500 Providian Financial Corp. ................................................... 227,656
-------------
2,235,499
-------------
</TABLE>
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS VALUE PORTFOLIO - CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
================================================================================================================
<S> <C> <C>
COMMON STOCK - CONTINUED
FOOD/BEVERAGE & RESTAURANT - (3.66%)
11,500 McDonald's Corp.............................................................. $ 463,594
-------------
HOTELS & MOTELS - (0.82%)
3,300 Marriott International, Inc.................................................. 104,156
-------------
INDUSTRIAL - (1.10%)
2,700 Sealed Air Corp.*............................................................ 139,894
-------------
INSURANCE - (0.43%)
1,700 UnumProvident Corp. ......................................................... 54,506
-------------
INVESTMENT FIRMS - (5.15%)
800 Donaldson, Lufkin & Jenrette, Inc............................................ 38,700
4,300 Morgan Stanley Dean Witter & Co.............................................. 613,825
-------------
652,525
-------------
PHARMACEUTICAL AND HEALTH CARE - (4.72%)
5,800 American Home Products Corp.................................................. 228,737
500 Bristol-Myers Squibb Co...................................................... 32,094
700 Merck & Co., Inc............................................................. 46,944
3,000 Pfizer Inc................................................................... 97,313
3,000 SmithKline Beecham PLC - ADR................................................. 193,313
-------------
598,401
-------------
PROPERTY/CASUALTY INSURANCE - (7.65%)
5,425 American International Group, Inc. .......................................... 586,578
1,000 Chubb Corp................................................................... 56,312
1,900 Progressive Corp. (Ohio)..................................................... 138,938
2,400 Transatlantic Holdings, Inc.................................................. 187,350
-------------
969,178
-------------
PUBLISHING - (2.44%)
600 Dow Jones & Co., Inc. ....................................................... 40,800
1,600 Gannett Co., Inc............................................................. 130,500
2,500 Tribune Co................................................................... 137,656
-------------
308,956
-------------
REAL ESTATE - (1.24%)
200 Avalonbay Communities, Inc................................................... 6,862
2,600 CenterPoint Properties Corp. ................................................ 93,275
1,300 Crescent Real Estate Equities Co............................................. 23,887
1,000 Vornado Realty Trust......................................................... 32,500
-------------
156,524
-------------
RETAIL - (0.04%)
210 The Neiman Marcus Group, Inc., Class B* ..................................... 5,657
-------------
</TABLE>
2
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS VALUE PORTFOLIO - CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
================================================================================================================
<S> <C> <C>
COMMON STOCK - CONTINUED
TECHNOLOGY - (19.28%)
6,300 Hewlett-Packard Co........................................................... $ 717,806
3,300 Intel Corp................................................................... 271,528
4,800 International Business Machines Corp......................................... 518,400
2,000 Lexmark International Group, Inc., Class A*.................................. 181,000
4,000 Novell, Inc.*................................................................ 159,625
2,800 Oracle Corp.*................................................................ 313,688
4,900 SAP AG ...................................................................... 255,106
800 Unisys Corp.* ............................................................... 25,550
-------------
2,442,703
-------------
TELECOMMUNICATIONS - (5.19%)
300 Agilent Technologies, Inc.*.................................................. 23,194
300 AT&T Corp.................................................................... 15,225
1,500 Globalstar Telecommunications Limited* ...................................... 66,047
4,000 Loral Space & Communications, Ltd.*.......................................... 97,250
1,900 MediaOne Group, Inc.*........................................................ 145,944
2,100 Motorola, Inc................................................................ 309,225
-------------
656,885
-------------
WASTE MANAGEMENT SERVICES - (0.14%)
1,000 Waste Management, Inc........................................................ 17,188
-------------
Total Common Stock - (identified cost $11,071,755)........................... 12,011,736
-------------
SHORT TERM INVESTMENTS - (4.68%)
$ 593,000 State Street Corporation Repurchase Agreement, 2.75%, 01/03/00, dated
12/31/99, repurchase value $593,136 (collateralized by $635,000 par
value Fannie Mae DN, Zero Cpn., 08/17/00, market value $611,188)
- (identified cost $593,000).............................................. 593,000
-------------
Total Investments - (99.50%) - (identified cost $ 11,664,755) - (a).......... 12,604,736
Other Assets Less Liabilities - (0.50%)...................................... 63,148
-------------
Net Assets - (100%).......................................................... $ 12,667,884
=============
*Non-Income Producing Security
(a) Aggregate cost for Federal Income Tax purposes is $11,692,120. At December
31, 1999 unrealized appreciation (depreciation) of securities for Federal Income
Tax purposes is as follows:
Unrealized appreciation.................................................................. $ 1,425,648
Unrealized depreciation.................................................................. (513,032)
-------------
Net unrealized appreciation ............................................................. $ 912,616
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS FINANCIAL PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
================================================================================================================
<S> <C> <C>
COMMON STOCK - (88.71%)
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (12.73%)
3,100 Bank of New York Company, Inc................................................ $ 124,000
200 Fifth Third Bancorp.......................................................... 14,669
1,600 Golden West Financial Corp................................................... 53,600
1,002 Lloyds TSB Group PLC......................................................... 12,446
400 State Street Corporation..................................................... 29,225
1,600 U.S. Bancorp ................................................................ 38,100
4,200 Wells Fargo Co............................................................... 169,838
-------------
441,878
-------------
BUILDING MATERIALS - (3.66%)
2,800 Masco Corp................................................................... 71,050
1,400 Vulcan Materials Company..................................................... 55,913
-------------
126,963
-------------
CONSUMER PRODUCTS - (1.20%)
1,800 Philip Morris Cos., Inc...................................................... 41,737
-------------
DIVERSIFIED - (2.57%)
1 Berkshire Hathaway Inc., Class A*............................................ 56,100
18 Berkshire Hathaway Inc., Class B*............................................ 32,940
-------------
89,040
-------------
DIVERSIFIED MANUFACTURING - (3.81%)
3,400 Tyco International Ltd....................................................... 132,175
-------------
FINANCIAL SERVICES - (56.75%)
INSURANCE - (17.96%)
925 American International Group, Inc............................................ 100,016
300 Chubb Corp. ................................................................. 16,894
1,900 Cincinnati Financial Corp.................................................... 59,078
1,500 Everest Reinsurance Holding, Inc............................................. 33,469
1,100 FPIC Insurance Group, Inc.*.................................................. 18,322
3,200 Horace Mann Educators Corp................................................... 62,800
100 Markel Corp.*................................................................ 15,500
800 Progressive Corp. (Ohio)..................................................... 58,500
1,900 ReliaStar Financial Corp..................................................... 74,456
2,100 Transatlantic Holdings Inc................................................... 163,931
600 Travelers Property Casualty Corp. Class A.................................... 20,550
-------------
623,516
-------------
OTHER FINANCIAL SERVICES - (38.79%)
2,000 American Express Company..................................................... 332,500
2,600 Capital One Financial Corp................................................... 125,287
900 Charles Schwab Corp.......................................................... 34,538
4,300 Citigroup, Inc............................................................... 238,919
1,400 Donaldson, Lufkin & Jenrette Inc............................................. 67,725
</TABLE>
4
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS FINANCIAL PORTFOLIO - CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
================================================================================================================
<S> <C> <C>
COMMON STOCK - CONTINUED
OTHER FINANCIAL SERVICES - CONTINUED
1,400 Freddie Mac.................................................................. $ 65,887
4,100 Household International, Inc................................................. 152,725
900 Legg Mason, Inc.............................................................. 32,625
1,900 MBNA Corp. ................................................................ 51,775
500 Morgan Stanley Dean Witter & Co.............................................. 71,375
1,900 Providian Financial Corp..................................................... 173,019
-------------
1,346,375
-------------
RESTAURANT & FOOD - (4.30%)
3,700 McDonald's Corp. ............................................................ 149,156
-------------
TECHNOLOGY - (2.83%)
200 Hewlett-Packard Co. ......................................................... 22,787
700 International Business Machines Corp......................................... 75,600
-------------
98,387
-------------
TRANSPORTATION - (0.86%)
400 Kansas City Southern Industries, Inc......................................... 29,850
-------------
Total Common Stock - (identified cost $3,135,059)............................ 3,079,077
-------------
SHORT TERM - (11.38%)
$ 395,000 State Street Bank and Trust Co. Repurchase Agreement, 2.75%, 01/03/00,
dated 12/31/99, repurchase value $395,091 (collateralized by $425,000
par value Fannie Mae DN Zero Cpn., 08/17/00, market value $409,063)
- (identified cost $395,000................................................. 395,000
-------------
Total Investments - (100.09%) - (identified cost $3,530,059) - (a) 3,474,077
Liabilities Less Other Assets - (0.09%)...................................... (3,074)
--------------
Net Assets - (100%) ........................................................ $ 3,471,003
==============
* Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $3,545,742. At December
31, 1999 unrealized appreciation (depreciation) of securities for Federal Income
Tax purposes is as follows:
Unrealized appreciation...................................................... $ 139,555
Unrealized depreciation...................................................... (211,220)
--------------
Net unrealized depreciation.................................................. $ (71,665)
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS REAL ESTATE PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
================================================================================================================
<S> <C> <C>
COMMON STOCK - (83.90%)
APARTMENTS - (3.38%)
2,400 Boardwalk Equities, Inc.*.................................................... $ 20,617
-------------
APARTMENTS (REITS) - (22.26%)
700 Apartment Investment & Management Co......................................... 27,869
1,000 Archstone Communities Trust.................................................. 20,500
600 Avalon Bay Communities, Inc.................................................. 20,587
400 Equity Residential Property Trust............................................ 17,075
700 Gables Residential Trust..................................................... 16,800
1,200 Home Properties of New York, Inc. ........................................... 32,925
-------------
135,756
-------------
DIVERSIFIED - (2.48%)
600 Crescent Operating, Inc.* ................................................... 1,613
800 Trizec Hahn Corporation...................................................... 13,500
-------------
15,113
-------------
DIVERSIFIED (REITS) - (13.37%)
1,000 Duke-Weeks Realty Corporation................................................ 19,500
300 Liberty Property Trust....................................................... 7,275
700 Spieker Properties, Inc...................................................... 25,506
900 Vornado Realty Trust......................................................... 29,250
-------------
81,531
-------------
GOLF (REITS) - (2.50%)
900 Golf Trust of America, Inc. ................................................. 15,244
-------------
HOTELS & LODGING - (2.59%)
500 Marriott International, Inc.................................................. 15,781
-------------
INDUSTRIAL (REITS) - (6.47%)
1,100 CenterPoint Properties Corporation........................................... 39,462
-------------
MALLS (REITS) - (0.92%)
200 General Growth Properties, Inc............................................... 5,600
-------------
OFFICE SPACE (REITS) - (18.63%)
900 Alexandria Real Estate Equities, Inc......................................... 28,631
800 Boston Properties, Inc....................................................... 24,900
600 Cornerstone Properties, Inc.................................................. 8,775
200 Crescent Real Estate Equities Co............................................. 3,675
200 Equity Office Properties Trust............................................... 4,925
300 Kilroy Realty Corportion..................................................... 6,600
800 Parkway Properties Inc....................................................... 23,050
600 SL Green Realty Corp......................................................... 13,050
-------------
113,606
-------------
REAL ESTATE DEVELOPMENT - (3.15%)
1,500 Catellus Development Corp.*.................................................. 19,219
-------------
</TABLE>
6
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS REAL ESTATE PORTFOLIO - CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
================================================================================================================
<S> <C> <C>
COMMON STOCK - CONTINUED
RESORTS/THEME PARKS - (0.88%)
300 Vail Resorts, Inc.* ......................................................... $ 5,381
--------------
SHOPPING CENTERS (REITS)- (2.43%)
500 JDN Realty Corp.............................................................. 8,063
200 Kimco Realty Corp............................................................ 6,775
-------------
14,838
-------------
STORAGE (REITS) - (4.84%)
1,300 Public Storage, Inc.......................................................... 29,494
-------------
Total Common Stock - (identified cost $540,457)................................ 511,642
--------------
CONVERTIBLE PREFERRED STOCK - (6.23%)
APARTMENTS (REITS)- (0.39%)
100 Equity Residential Properties Trust, 7.00%, Series E, Conv. Pfd.............. 2,362
-------------
MALLS (REITS) - (2.30%)
700 General Growth Properties, 7.25%, Conv. Pfd.................................. 14,000
--------------
RESORTS/THEME PARKS - (3.54%)
400 Premier Parks Inc. 7.50%, Conv. Pfd.......................................... 21,600
--------------
Total Convertible Preferred Stock - (identified cost $44,491)................ 37,962
--------------
Total Investment - (90.13%) - (identified cost $584,948) - (a)............... 549,604
Other Assets Less Liabilities - (9.87%)...................................... 60,179
--------------
Net Assets - (100%).......................................................... $ 609,783
==============
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $585,703. At December 31,
1999 unrealized appreciation (depreciation) of securities for Federal Income Tax
purposes is as follows:
Unrealized appreciation...................................................... $ 6,755
Unrealized depreciation..................................................... (42,854)
--------------
Net unrealized depreciation ................................................. $ (36,099)
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
At December 31, 1999
<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).............................. $ 12,604,736 $ 3,474,077 $ 549,604
Cash........................................... 1,523 1,104 66,584
Receivables:
Dividends and interest....................... 7,087 2,347 3,486
Capital stock sold........................... 78,348 4,985 125
Due from adviser............................. - 2,678 1,457
--------------- -------------- --------------
Total assets................................... 12,691,694 3,485,191 621,256
--------------- -------------- --------------
LIABILITIES:
Accrued expenses............................... 23,810 14,188 11,473
--------------- -------------- --------------
Total liabilities.............................. 23,810 14,188 11,473
--------------- -------------- --------------
NET ASSETS ....................................... $ 12,667,884 $ 3,471,003 $ 609,783
=============== ============== ==============
SHARES OUTSTANDING (NOTE 4)....................... 1,236,199 374,811 69,994
=============== ============== ==============
NET ASSET VALUE, offering and
redemption price per share (Net
Assets ( shares outstanding)................. $ 10.25 $ 9.26 $ 8.71
=========== ========== ==========
NET ASSETS CONSIST OF:
Overdistributed net investment income.......... $ - $ (45) $ -
Par value of shares of capital stock........... 1,236 375 70
Additional paid-in capital..................... 11,785,268 3,564,849 673,253
Accumulated net realized loss.................. (58,601) (38,194) (28,196)
Net unrealized appreciation (depreciation) on
investments.................................. 939,981 (55,982) (35,344)
--------------- -------------- --------------
$ 12,667,884 $ 3,471,003 $ 609,783
=============== ============== ==============
</TABLE>
* Including repurchase agreements of $593,000 and $395,000 for Davis Value
Portfolio and Davis Financial Portfolio, respectively, and cost of $11,664,755,
$3,530,059 and $584,948 for Davis Value Portfolio, Davis Financial Portfolio,
Davis Real Estate Portfolio, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
STATEMENTS OF OPERATIONS
For the period from July 1, 1999 (commencement of operations) to
December 31, 1999
<TABLE>
<CAPTION>
===========================================================================================================
DAVIS
DAVIS DAVIS REAL
VALUE FINANCIAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Income:
Dividends...................................... $ 28,473 $ 9,673 $ 13,405
Interest....................................... 17,858 7.278 341
--------------- --------------- ---------------
Total income............................... 46,331 16,951 13,746
--------------- --------------- ---------------
Expenses:
Management fees (Note 2)....................... 24,434 7,252 1,902
Custodian fees................................. 16,899 9,374 5,205
Transfer agent fees............................ 4,467 4,478 4,282
Audit fees..................................... 7,000 7,000 7,000
Accounting fees (Note 2)....................... 4,000 4,000 4,000
Legal fees..................................... 6,177 3,006 3,276
Reports to shareholders........................ 10,139 4,973 3,501
Directors fees and expenses.................... 897 893 892
Registration and filing fees................... 424 208 147
Miscellaneous.................................. 57 26 16
--------------- --------------- ---------------
Total expenses............................. 74,494 41,210 30,221
Expenses paid indirectly (Note 5).......... (212) (216) (510)
Reimbursement of expenses by
adviser (Note 2)......................... (41,974) (31,364) (27,147)
-------------- --------------- ---------------
Net expenses............................... 32,308 9,630 2,564
--------------- --------------- ---------------
Net investment income...................... 14,023 7,321 11,182
--------------- --------------- ---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized loss from
investment transactions...................... (58,601) (38,194) (28,196)
Net increase (decrease) in unrealized
appreciation of investments
during the period............................ 939,981 (55,982) (35,344)
--------------- -------------- --------------
Net realized and unrealized
gain (loss) on investments............... 881,380 (94,176) (63,540)
--------------- -------------- ---------------
Net increase (decrease) in net
assets resulting from
operations................................. $ 895,403 $ (86,855) $ (52,358)
=============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<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
10
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
================================================================================
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 December 31, 1999, Davis Value Portfolio had approximately $31,000
of capital loss carryovers available to offset future capital gains, if any,
which expire in 2007. At December 31, 1999, 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 December 31, 1999, 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.
11
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1999
================================================================================
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 period ended December 31, 1999 was $8 for
each of the Davis Value Portfolio, 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 period ended
December 31, 1999 for Davis Value Portfolio, Davis Financial Portfolio and Davis
Real Estate Portfolio amounted to $4,000 for each portfolio. The Adviser has
agreed to reimburse the Funds for certain expenses incurred in the current
fiscal period which amounted to $41,974, $31,364 and $27,147 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. For Davis Value Portfolio, SCD received $37 in
commissions on the purchases/sales of portfolio securities.
12
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1999
================================================================================
NOTE 3 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the period ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
DAVIS DAVIS DAVIS
VALUE FINANCIAL REAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
Cost of purchases........................ $ 11,479,273 $ 3,343,657 $ 713,295
Proceeds of sales........................ $ 348,828 $ 170,443 $ 98,615
</TABLE>
NOTE 4 - CAPITAL STOCK
At December 31, 1999, there were 5 billion shares of capital stock ($0.001
par value per share) authorized. Transactions in capital stock were as follows:
<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 $212, $216 and $510 for Davis Value
Portfolio, Davis Financial Portfolio and Davis Real Estate Portfolio,
respectively.
13
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
FINANCIAL HIGHLIGHTS
================================================================================
The following financial information represents data for each share of capital
stock outstanding throughout each period:
<TABLE>
<CAPTION>
DAVIS DAVIS DAVIS
VALUE FINANCIAL REAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
JULY 1, 1999 JULY 1, 1999 JULY 1, 1999
(COMMENCEMENT (COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) OF OPERATIONS) OF OPERATIONS)
THROUGH THROUGH THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 10.00 $ 10.00 $ 10.00
------------- ------------ ----------
Income From Investment Operations
Net Investment Income ................. 0.01 0.02 0.18
Net Realized and Unrealized
Gains (Losses) ..................... 0.25 (0.74) (1.26)
------------- ------------ ----------
Total From Investment Operations ... 0.26 (0.72) (1.08)
Dividends and Distributions
Dividends from Net Investment Income .. (0.01) (0.02) (0.18)
Return of Capital ..................... -(3) -(3) (0.03)
------------- ------------ ----------
Total Dividends and Distributions .. (0.01) (0.02) (0.21)
------------- ------------ ----------
Net Asset Value, End of Period ......... $ 10.25 $ 9.26 $ 8.71
============= ============ ==========
Total Return(1)......................... 2.64% (7.17)% (10.79)%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted) ...................... $12,668 $3,471 $610
Ratio of Expenses to Average Net Assets 1.00%*(4) 1.00%*(4) 1.00%*(4)
Ratio of Net Investment Income to
Average Net Assets ................. 0.43%* 0.76%* 4.41%*
Portfolio Turnover Rate(2)............. 5% 9% 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) 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 2.29%, 4.24% and 11.70%, for Davis Value
Portfolio, Davis Financial Portfolio and Davis Real Estate Portfolio,
respectively.
* Annualized
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
DAVIS VARIABLE ACCOUNT FUND, INC.
INDEPENDENT AUDITORS' REPORT
================================================================================
To the Shareholders and Board of Directors
of Davis Variable Account Fund, Inc.:
We have audited the accompanying statements of assets and liabilities of
Davis Value Portfolio, Davis Financial Portfolio and Davis Real Estate
Portfolio, including the schedules of investments as of December 31, 1999 and
the related statements of operations, the statements of changes in net assets,
and the financial highlights for the period from July 1, 1999 (commencement of
operations) to December 31, 1999. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
positions of Davis Value Portfolio, Davis Financial Portfolio and Davis Real
Estate Portfolio as of December 31, 1999, and the results of operations, the
changes in net assets, and the financial highlights for the period from July 1,
1999 (commencement of operations) to December 31, 1999, in conformity with
generally accepted accounting principles.
KPMG LLP
Denver, Colorado
February 4, 2000
15
<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 Shelby M. C. Davis
Andrew A. Davis President
Christopher C. Davis Kenneth C. Eich
Jerry D. Geist Vice President
D. James Guzy Sharra L. Reed
G. Bernard Hamilton Vice President,
Laurence W. Levine Treasurer & Assistant Secretary
Christian R. Sonne Thomas D. Tays
Marsha Williams Vice President Secretary
Christopher C. Davis
Vice President
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
16
<PAGE>
================================================================================
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.
================================================================================
17
