UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-09293
Davis Variable Account Fund, Inc.
(Exact name of registrant as specified in charter)
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
(Address of principal executive offices)
Thomas D. Tays
Davis Selected Advisers, LP
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
(Name and address of agent for service)
Registrant's telephone number, including area code: (520) 806-7600
Date of fiscal year end: December 31
Date of reporting period: January 1, 2003 - June 30, 2003
ITEM 1. REPORTS TO STOCKHOLDERS
SEMI-ANNUAL REPORT
JUNE 30, 2003
DAVIS VALUE PORTFOLIO
(PORTFOLIO OF DAVIS VARIABLE ACCOUNT FUND, INC.)
[DAVIS FUNDS LOGO]
TABLE OF CONTENTS
Management's Discussion and Analysis......................................2
Schedule of Investments...................................................4
Statement of Assets and Liabilities.......................................7
Statement of Operations...................................................8
Statements of Changes in Net Assets.......................................9
Notes to Financial Statements............................................10
Financial Highlights.....................................................13
Directors and Officers...................................................14
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
MARKET ENVIRONMENT
During the six months ended June 30, 2003, the stock market, as measured by the
Standard & Poor's 500(R) Index, returned 11.76%.(1) This performance reflected a
vigorous rally over the last three months. In the first three months, stock
prices were depressed by investor apprehension about geopolitical tensions and
generally glum economic news. Although the U.S. military campaign in Iraq was
brief and successful, economic uncertainty remained. Consumer spending stayed
strong, but the job market deteriorated. The broad economy registered anemic
growth. In March the market increased, and it continued in a positive trend
through the end of June.
DAVIS VALUE PORTFOLIO
PERFORMANCE OVERVIEW
The Davis Value Portfolio returned 11.59% for the six-month period ended June
30, 2003(2), compared with a return of 11.76% for the Standard & Poor's 500(R)
Index.(1) The Portfolio's investment strategy is to seek out growing companies
that can be purchased at value prices and held for the long-term.
The Portfolio's largest sector weightings were in banks and savings & loans and
financial services. The Portfolio's financial services holdings outperformed the
S&P 500(R) Index, but the Portfolio's banks and savings & loan holdings
underperformed the S&P 500(R) Index. The Portfolio's cash position reduced
relative performance during the strong bull market.
The principal holdings contributing to performance were: Progressive
Corporation(3), a property/casualty insurance company, American Express, a
financial services company, and Costco, a retailing company. The Portfolio held
substantial positions in all three companies and all three did well over the
six-month period, Progressive Corporation increased by 47.41%, American Express
by 18.55% and Costco by 30.43%.
The principal detractors from performance were: Kraft Foods, Safeway, and
American International Group. Kraft Foods, a food & restaurants company,
decreased by 15.55%, Safeway, a retailing company, decreased by 12.41% and
American International Group, a multi-line insurance company, decreased by
4.45%.
TOP 10 HOLDINGS AS OF JUNE 30, 2003 % OF NET ASSETS
- ----------------------------------- ---------------
American Express Co. 7.82%
Altria Group, Inc. 6.06%
American International Group, Inc. 5.54%
Citigroup Inc. 4.27%
Berkshire Hathaway Inc., Class A 4.13%
Wells Fargo & Co. 3.96%
Sealed Air Corp. 3.82%
Costco Wholesale Corp. 3.73%
HSBC Holdings PLC 3.57%
Progressive Corp. (Ohio) 3.55%
2
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
This Semi-Annual Report is authorized for use by existing shareholders.
Prospective shareholders must receive a current Davis Value Portfolio
prospectus, which contains more information about risks, charges and expenses.
Please read the prospectus carefully before investing or sending money.
Davis Value Portfolio's investment objective is long-term growth of capital.
There can be no assurance that the Portfolio will achieve its objective. The
primary risks of an investment in Davis Value Portfolio are: (1) market risk,
(2) company risk; (3) headline risk; and (4) selection risk. See the prospectus
for a full description of each risk.
(1) The S&P 500(R) 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. Investments cannot be made directly into the index.
(2) 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 periods ended June 30, 2003.
- -------------------------------- ----------------- -------------------
INCEPTION
PORTFOLIO NAME 1 YEAR (July 1, 1999)
- -------------------------------- ----------------- -------------------
Davis Value Portfolio 3.86% (1.55%)
- -------------------------------- ----------------- -------------------
Performance numbers are net of all portfolio operating expenses, but do not
include any insurance charges imposed by your insurance company's separate
account. If performance information included the effect of these additional
charges, the total return would be lower.
Portfolio performance changes over time and current performance may be higher or
lower than stated. For more current information please call Davis Funds
Shareholder Services at 1-800-279-0279.
(3) This Management Discussion & Analysis discusses a number of individual
companies. The information provided in this report does not provide information
reasonably sufficient upon which to base an investment decision and should not
be considered a recommendation to purchase or sell any particular security. The
schedule of investments lists the Portfolio's holdings of each company
discussed.
Shares of the Davis Funds are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the FDIC or any other agency, and
involve investment risks, including possible loss of the principal amount
invested.
3
DAVIS VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 2003 (Unaudited)
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (93.34%)
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (15.36%)
335,100 Bank One Corp. .............................................................. $ 12,459,018
138,700 Golden West Financial Corp. ................................................. 11,097,387
1,078,827 HSBC Holdings PLC............................................................ 12,767,669
119,700 Lloyds TSB Group PLC, ADR.................................................... 3,472,497
24,300 State Street Corp. .......................................................... 957,420
281,400 Wells Fargo & Co. ........................................................... 14,182,560
-------------
54,936,551
-------------
BUILDING MATERIALS - (1.39%)
70,700 Martin Marietta Materials, Inc. ............................................. 2,376,227
70,300 Vulcan Materials Co. ........................................................ 2,606,021
-------------
4,982,248
-------------
BUSINESS SERVICES - (1.06%)
92,600 D&B Corp.*................................................................... 3,805,860
-------------
CONSUMER PRODUCTS - (6.06%)
477,200 Altria Group, Inc. .......................................................... 21,683,968
-------------
DIVERSIFIED MANUFACTURING - (4.56%)
122,100 Dover Corp. ................................................................. 3,658,116
666,858 Tyco International Ltd. ..................................................... 12,656,965
-------------
16,315,081
-------------
ELECTRONICS - (0.77%)
618,800 Agere Systems Inc., Class A*................................................. 1,441,804
82,200 Applied Materials, Inc.*..................................................... 1,303,692
-------------
2,745,496
-------------
ENERGY - (5.68%)
156,471 ConocoPhillips............................................................... 8,574,611
141,600 Devon Energy Corp. .......................................................... 7,561,440
100,000 EOG Resources, Inc. ......................................................... 4,184,000
-------------
20,320,051
-------------
FINANCIAL SERVICES - (15.44%)
669,500 American Express Co. ........................................................ 27,991,795
357,033 Citigroup Inc. .............................................................. 15,281,012
143,100 Loews Corp. ................................................................. 6,767,199
86,200 Moody's Corp. ............................................................... 4,543,602
69,200 Providian Financial Corp.*................................................... 640,792
-------------
55,224,400
-------------
FOOD/BEVERAGE & RESTAURANT - (3.25%)
129,500 Diageo PLC, ADR.............................................................. 5,666,920
49,700 Hershey Foods Corp. ......................................................... 3,462,102
76,100 Kraft Foods Inc., Class A.................................................... 2,477,055
-------------
11,606,077
-------------
4
DAVIS VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS - Continued
JUNE 30, 2003 (Unaudited)
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - CONTINUED
HOTELS & MOTELS - (0.81%)
75,300 Marriott International, Inc., Class A........................................ $ 2,893,026
-------------
INDUSTRIAL - (3.82%)
286,800 Sealed Air Corp.*............................................................ 13,668,888
-------------
INSURANCE BROKERS - (1.08%)
161,000 Aon Corp. ................................................................... 3,876,880
-------------
INVESTMENT FIRMS - (1.64%)
63,800 Janus Capital Group Inc. .................................................... 1,046,320
113,100 Morgan Stanley............................................................... 4,835,025
-------------
5,881,345
-------------
LIFE INSURANCE - (0.63%)
50,300 Principal Financial Group, Inc. ............................................. 1,622,175
30,700 Sun Life Financial Services of Canada Inc. .................................. 637,689
-------------
2,259,864
-------------
MEDIA - (0.37%)
33,100 WPP Group PLC, ADR........................................................... 1,325,655
-------------
MULTI-LINE INSURANCE - (5.54%)
358,937 American International Group, Inc. .......................................... 19,806,144
-------------
PHARMACEUTICAL AND HEALTH CARE - (3.41%)
89,100 Eli Lilly and Co. ........................................................... 6,145,227
32,600 Merck & Co., Inc. ........................................................... 1,973,930
119,660 Pfizer Inc. ................................................................. 4,086,389
-------------
12,205,546
-------------
PROPERTY/CASUALTY INSURANCE - (8.37%)
204 Berkshire Hathaway Inc., Class A*............................................ 14,790,000
42 Berkshire Hathaway Inc., Class B*............................................ 102,060
22,200 Chubb Corp. ................................................................. 1,332,000
1,700 Markel Corp.*................................................................ 435,200
173,700 Progressive Corp. (Ohio)..................................................... 12,697,470
12,414 Travelers Property Casualty Corp., Class A................................... 197,383
25,505 Travelers Property Casualty Corp., Class B................................... 402,214
-------------
29,956,327
-------------
PUBLISHING - (0.79%)
36,900 Gannett Co., Inc. ........................................................... 2,834,289
-------------
REAL ESTATE - (1.96%)
5,600 Avalonbay Communities, Inc. ................................................. 238,784
110,400 Centerpoint Properties Trust................................................. 6,762,000
-------------
7,000,784
-------------
REINSURANCE - (1.67%)
86,450 Transatlantic Holdings, Inc. ................................................ 5,978,017
-------------
5
DAVIS VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS - Continued
JUNE 30, 2003 (Unaudited)
SHARES/ VALUE
PRINCIPAL SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - CONTINUED
RETAILING - (5.38%)
364,700 Costco Wholesale Corp.*...................................................... $ 13,346,196
101,900 RadioShack Corp. ............................................................ 2,680,989
157,400 Safeway Inc.*................................................................ 3,220,404
--------------
19,247,589
--------------
TECHNOLOGY - (3.22%)
100,500 BMC Software, Inc.*.......................................................... 1,641,165
87,800 Lexmark International, Inc.*................................................. 6,213,606
142,600 Microsoft Corp. ............................................................. 3,652,699
--------------
11,507,470
--------------
TRANSPORTATION - (1.08%)
60,600 United Parcel Service, Inc., Class B......................................... 3,860,220
--------------
Total Common Stock - (identified cost $336,931,664)...................... 333,921,776
--------------
SHORT TERM INVESTMENTS - (6.65%)
$ 7,775,000 Banc of America Securities, LLC Joint Repurchase Agreement, 1.27%,
07/01/03, dated 06/30/03, repurchase value of $7,775,274
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $7,930,500)............................................ 7,775,000
9,933,000 Nomura Securities International, Inc. Joint Repurchase Agreement, 1.27%,
07/01/03, dated 06/30/03, repurchase value of $9,933,350
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $10,131,660)........................................... 9,933,000
6,070,000 UBS Financial Services Inc. Joint Repurchase Agreement, 1.18%,
07/01/03, dated 06/30/03, repurchase value of $6,070,199
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $6,191,400)............................................ 6,070,000
--------------
Total Short Term Investments - (identified cost $23,778,000)........ 23,778,000
--------------
Total Investments - (99.99%) - (identified cost $360,709,664) - (a).......... 357,699,776
Other Assets Less Liabilities - (0.01%)...................................... 37,590
--------------
Net Assets - (100%)...................................................... $ 357,737,366
==============
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $361,737,624. At June 30,
2003 unrealized appreciation (depreciation) of securities for Federal Income Tax
purposes is as follows:
Unrealized appreciation...................................................... $ 27,549,454
Unrealized depreciation...................................................... (31,587,302)
--------------
Net unrealized depreciation............................................ $ (4,037,848)
==============
SEE NOTES TO FINANCIAL STATEMENTS
6
DAVIS VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
At June 30, 2003 (Unaudited)
================================================================================
ASSETS:
Investments in securities, at value
* (see accompanying Schedule of Investments).................................................... $ 357,699,776
Cash.............................................................................................. 10,957
Receivables:
Dividends and interest.......................................................................... 443,249
Capital stock sold.............................................................................. 347,861
Prepaid expenses.................................................................................. 2,300
---------------
Total assets............................................................................... 358,504,143
---------------
LIABILITIES:
Payables:
Capital stock reacquired........................................................................ 1,482
Investment securities purchased................................................................. 497,256
Accrued expenses.................................................................................. 268,039
----------------
Total liabilities.......................................................................... 766,777
---------------
NET ASSETS .......................................................................................... $ 357,737,366
===============
SHARES OUTSTANDING (NOTE 4).......................................................................... 39,110,070
===============
NET ASSET VALUE, offering and
redemption price per share (Net Assets / Shares Outstanding).................................... $ 9.15
============
NET ASSETS CONSIST OF:
Par value of shares of capital stock.............................................................. $ 39,110
Additional paid-in capital........................................................................ 390,298,147
Undistributed net investment income............................................................... 1,388,371
Accumulated net realized loss from investments and foreign currency transactions.................. (30,978,374)
Net unrealized depreciation on investments........................................................ (3,009,888)
---------------
$ 357,737,366
===============
* Including a repurchase agreement of $23,778,000 and cost of $360,709,664.
SEE NOTES TO FINANCIAL STATEMENTS
7
DAVIS VALUE PORTFOLIO
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (Unaudited)
================================================================================
INVESTMENT INCOME:
Income:
Dividends (Net of foreign withholding taxes of $27,546)....................................... $ 2,509,889
Interest...................................................................................... 137,210
--------------
Total income.............................................................................. 2,647,099
--------------
Expenses:
Management fees (Note 2)...................................................................... 1,137,405
Custodian fees................................................................................ 51,328
Transfer agent fees........................................................................... 6,096
Audit fees.................................................................................... 6,000
Accounting fees (Note 2)...................................................................... 3,000
Legal fees.................................................................................... 5,409
Reports to shareholders....................................................................... 18,819
Directors' fees and expenses.................................................................. 26,294
Registration and filing fees.................................................................. 2,734
Miscellaneous................................................................................. 1,710
--------------
Total expenses............................................................................ 1,258,795
Expenses paid indirectly (Note 5)......................................................... (67)
--------------
Net expenses.............................................................................. 1,258,728
--------------
Net investment income.................................................................. 1,388,371
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investment transactions................................................................... (3,996,035)
Foreign currency transactions............................................................ 73
Net decrease in unrealized depreciation of investments....................................... 38,350,948
--------------
Net realized and unrealized gain on investments and foreign currency...................... 34,354,986
--------------
Net increase in net assets resulting from operations................................... $ 35,743,357
==============
SEE NOTES TO FINANCIAL STATEMENTS
8
DAVIS VALUE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31,
(UNAUDITED) 2002
----------- -----
OPERATIONS:
Net investment income.............................................. $ 1,388,371 $ 1,990,225
Net realized loss from investment and foreign currency
transactions..................................................... (3,995,962) (19,267,559)
Net change in unrealized appreciation (depreciation) of investments 38,350,948 (34,278,032)
---------------- ----------------
Net increase (decrease) in net assets resulting from operations.... 35,743,357 (51,555,366)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................. - (1,990,246)
Return of capital.................................................. - (231,807)
CAPITAL SHARE TRANSACTIONS (NOTE 4).................................... 38,954,829 57,858,147
---------------- ----------------
Total increase in net assets........................................... 74,698,186 4,080,728
NET ASSETS:
Beginning of period................................................ 283,039,180 278,958,452
---------------- ----------------
End of period (including undistributed net investment income of
$1,388,371 in 2003)............................................. $ 357,737,366 $ 283,039,180
================ ================
SEE NOTES TO FINANCIAL STATEMENTS
9
DAVIS VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (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 company. Shares of the Fund may only
be purchased by insurance companies for the purpose of funding variable annuity
or variable life insurance contracts. 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 - Portfolio 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 average of closing bid and
asked prices. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by the Board of Directors.
Short-term obligations are valued at amortized cost, which approximates fair
value. These valuation procedures are reviewed and subject to approval by the
Board of Directors.
B. MASTER REPURCHASE AGREEMENTS - The Fund, along with other affiliated funds,
may transfer uninvested cash balances into one or more master repurchase
agreement accounts. These balances are invested in one or more repurchase
agreements, secured by U.S. government securities. Securities pledged as
collateral for repurchase agreements are held by a custodian bank until the
agreements mature. Each agreement requires that the market value of the
collateral be sufficient to cover payments of interest and principal; however,
in the event of default by the other party to the agreement, retention of the
collateral may be subject to legal proceedings.
C. CURRENCY TRANSLATION - The market values of all assets and liabilities
denominated 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.
D. FOREIGN CURRENCY - 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 records 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 investments, 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. The Fund includes foreign currency gains and
losses realized on the sale of investments together with market gains and losses
on such investments in the statement of operations.
10
DAVIS VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2003 (Unaudited)
===============================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
E. 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, including
any net realized gains on investments not offset by loss carryovers, to
shareholders. Therefore, no provision for federal income or excise tax is
required. At June 30, 2003 the Fund had available for federal income tax
purposes unused capital loss carryovers of $6,568,000 and $19,386,000, which
expire in 2009 and 2010, respectively.
F. USE OF ESTIMATES IN FINANCIAL STATEMENTS - In preparing financial statements
in conformity with accounting principles generally accepted in the United States
of America, 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.
G. 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. Dividend income is recorded on the
ex-dividend date. Interest income, which includes accretion of discount and
amortization of premium, is accrued as earned.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions to
shareholders are recorded on the ex-dividend date. Net investment income (loss),
net realized gains (losses) and net unrealized appreciation (depreciation) of
investments may differ for financial statement and tax purposes primarily
because of the recognition of certain foreign currency gains (losses) as
ordinary income (loss) for tax purposes and the tax deferral of losses on "wash
sale" transactions. The character of dividends and distributions made during the
fiscal year from net investment income and net realized securities gains may
differ from their ultimate characterization for federal income tax purposes.
Also, due to the timing of dividends and distributions, the fiscal year in which
amounts are distributed may differ from the fiscal year in which income or
realized 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.
11
DAVIS VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2003 (Unaudited)
===============================================================================
NOTE 2 - INVESTMENT ADVISORY FEES
Advisory fees are paid to Davis Advisors (the "Adviser") at an annual rate
of 0.75% of the average annual net assets.
State Street Bank and Trust Company ("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, 2003 was
$27. State Street Bank is the Fund's primary accounting provider. Fees for such
services are included in the custodian fee as State Street Bank also serves as
the Fund's custodian. The Adviser is also paid for certain accounting services.
The fee for the six months ended June 30, 2003 amounted to $3,000. 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.
NOTE 3 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the six months ended June 30, 2003 were $50,505,161 and
$6,347,605, respectively.
NOTE 4 - CAPITAL STOCK
At June 30, 2003, there were 500 million shares of capital stock ($0.001 par
value per share) authorized. Transactions in capital stock were as follows:
SIX MONTHS ENDED
JUNE 30, 2003 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2002
--------------- ------------------
Shares sold............................................... 6,274,556 11,607,393
Shares issued in reinvestment of distributions............ - 271,582
---------------- ------------
6,274,556 11,878,975
Shares redeemed........................................... (1,673,799) (5,621,026)
---------------- -------------
Net increase........................................ 4,600,757 6,257,949
================ ============
Proceeds from shares sold................................. $ 52,620,471 $104,119,645
Proceeds from shares issued in
reinvestment of distributions......................... - 2,222,053
---------------- ------------
52,620,471 106,341,698
Cost of shares redeemed................................... (13,665,642) (48,483,551)
---------------- ------------
Net increase........................................ $ 38,954,829 $ 57,858,147
================ ============
NOTE 5 - EXPENSES PAID INDIRECTLY
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 $67 for the six months ended June 30, 2003.
12
DAVIS VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
================================================================================
The following financial information represents data for each share of capital
stock outstanding throughout each period:
JULY 1, 1999
SIX MONTHS (COMMENCEMENT
ENDED YEAR ENDED DECEMBER 31, OF OPERATIONS)
JUNE 30, 2003 ------------------------------------- THROUGH
(UNAUDITED) 2002 2001 2000 DECEMBER 31, 1999
----------- ---- ---- ---- -----------------
Net Asset Value, Beginning of Period.... $ 8.20 $ 9.87 $ 11.06 $ 10.25 $ 10.00
---------- ---------- ---------- ---------- ----------
Income (Loss) From Investment Operations
Net Investment Income.................. 0.04 0.06 0.04 0.03 0.01
Net Realized and Unrealized
Gains (Losses)...................... 0.91 (1.66) (1.19) 0.92 0.25
---------- ---------- ---------- ---------- ----------
Total From Investment Operations.... 0.95 (1.60) (1.15) 0.95 0.26
Dividends and Distributions
Dividends from Net Investment Income... - (0.06) (0.04) (0.03) (0.01)
Return of Capital...................... - (0.01) (3) (3) (3)
Distributions from Realized Gains...... - - - (0.11) -
---------- ---------- ---------- ---------- -----------
Total Dividends and Distributions... - (0.07) (0.04) (0.14) (0.01)
---------- ---------- ---------- ---------- -----------
Net Asset Value, End of Period.......... $ 9.15 $ 8.20 $ 9.87 $ 11.06 $ 10.25
========== ========== ========== ========== ==========
Total Return(1)......................... 11.59% (16.26)% (10.39)% 9.30% 2.64%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted). $357,737 $283,039 $278,958 $120,209 $ 12,668
Ratio of Expenses to Average Net Assets. 0.83%* 0.83% 0.87% 1.00%(4) 1.00%*(4)
Ratio of Net Investment Income to
Average Net Assets.................. 0.92%* 0.70% 0.55% 0.73% 0.43%*
Portfolio Turnover Rate(2).............. 2% 24% 18% 10% 5%
(1) Assumes hypothetical initial investment on the business day before the first
day of the fiscal period (or inception of offering), with all dividends and
distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Total returns are not annualized for periods of less than one
year and do not reflect charges attributable to your insurance company's
separate account. Inclusion of these charges would reduce the total returns
shown.
(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 1.01% and 2.29% for 2000 and 1999,
respectively.
* Annualized
SEE NOTES TO FINANCIAL STATEMENTS
13
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
===============================================================================
DIRECTORS
For the purposes of their service as directors to the Davis Funds, the business
address for each of the directors is 2949 E. Elvira Road, Suite 101, Tucson, AZ
85706. Each Director serves until their retirement, resignation, death or
removal. Directors must retire at the close of business on the last day of the
calendar year in which the Director attains age seventy-two (72), except that
any person who was a Director on July 1, 1994, and at that date was
seventy-three (73) years of age or less shall retire from the Board of Directors
and cease being a Director at the close of business on the last day of the year
in which the Director attains age seventy-four (74).
NUMBER OF
TERM OF PORTFOLIOS IN
OFFICE AND PRINCIPAL FUND COMPLEX
POSITION(S)HELD LENGTH OF OCCUPATION(S) DURING OVERSEEN BY OTHER DIRECTORSHIPS HELD BY
NAME AND AGE WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR
- ------------------ ---------------- -------------- ---------------------------- ---------------- -------------------------------
INDEPENDENT DIRECTORS
WESLEY E. Director director President of Bass & 11 none
BASS, JR. since 1990 Associates (financial
(born 8/21/31) consulting); formerly
First Deputy City Treasurer,
City of Chicago; and
Executive Vice President,
Chicago Title and Trust
Company (bank and trust).
MARC P. BLUM Director director Chief Executive 11 Director, Mid-Atlantic Realty
(born 9/9/42) since 1986 Officer, World Total Trust (real estate investment
Return Fund, LLP; Of trust), Legg Mason Trust
Counsel to Gordon, (asset management company)
Feinblatt, Rothman, and Rodney Trust Company
Hoffberger and (Delaware); Trustee, College
Hollander, LLC (law of Notre Dame of Maryland,
firm). McDonogh School and other
public charities, private
foundations and businesses.
JERRY D. GEIST Director director Chairman, Santa Fe 11 Director, CH2M-Hill, Inc.
(born 5/23/34) since 1986 Center Enterprises (engineering); Member,
(energy project Investment Committee for
development); Retired Microgeneration Technology
Chairman and Fund, UTECH Funds.
President, Public
Service Company of New
Mexico.
14
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
DIRECTORS - CONTINUED
NUMBER OF
TERM OF PORTFOLIOS IN
OFFICE AND PRINCIPAL FUND COMPLEX
POSITION(S) LENGTH OF OCCUPATION(S) DURING OVERSEEN BY OTHER DIRECTORSHIPS HELD BY
NAME AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR
- ------------------ ---------------- -------------- ----------------------------- ---------------- -------------------------------
INDEPENDENT DIRECTORS - CONTINUED
D. JAMES GUZY Director director Chairman, PLX 11 Director, Intel Corp.
(born 3/7/36) since 1982 Technology, Inc. (semi-conductor
(semi-conductor manufacturer), Cirrus Logic
manufacturer). Corp. (semi-conductor
manufacturer), Alliance
Technology Fund (a mutual
fund), Micro Component
Technology, Inc.
(micro-circuit handling and
testing equipment
manufacturer), Novellus
Systems, Inc. (semi-conductor
manufacturer) and
LogicVision, Inc.
(semi-conductor software
company).
G. BERNARD Director director Managing General 11 none
HAMILTON since 1978 Partner, Avanti
(born 3/18/37) Partners, L.P.
(investment
partnership).
ROBERT P. Director director Chairman, Northroad 11 none
MORGENTHAU since 2002 Capital Management (an
(born 3/22/57) investment management
firm) since June 2002;
President of Asset Management
Group of Bank of America (an
investment management firm)
from 2001 until 2002; prior
to that a managing director
and global head of marketing
and distribution for Lazard
Asset Management (an
investment management firm)
for ten years.
THEODORE B. Director director Chairman, of John 11 Mayor of the Incorporated
SMITH, JR. since 2001 Hassall, Inc. Village of Mill Neck.
(born 12/23/32) (fastener
manufacturing);
Chairman of Cantrock
Realty.
15
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
DIRECTORS - CONTINUED
NUMBER OF
TERM OF PORTFOLIOS IN
OFFICE AND PRINCIPAL FUND COMPLEX
POSITION(S) LENGTH OF OCCUPATION(S) DURING OVERSEEN BY OTHER DIRECTORSHIPS HELD BY
NAME AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR
- ------------------ ---------------- -------------- ------------------------ ---------------- -------------------------------
INDEPENDENT DIRECTORS - CONTINUED
CHRISTIAN R. Director director General Partner of 11 none
SONNE since 1990 Tuxedo Park Associates
(born 5/6/36) (land holding and
development firm);
President and Chief
Executive Officer of
Mulford Securities
Corporation (private
investment fund) until
1990; formerly Vice
President of Goldman
Sachs & Co.
(investment banking).
MARSHA WILLIAMS Director director Executive Vice 15 Director of the Selected
(born 3/28/51) since 1999 President and Chief Funds (consisting of four
Financial Officer of portfolios) since 1996;
Equity Office Director, Modine
Properties Trust (a Manufacturing, Inc. (heat
real estate investment transfer technology);
trust); Former Chief Director, Chicago Bridge &
Administrative Officer Iron Company, N.V.
of Crate & Barrel (industrial construction and
(home furnishings engineering).
retailer); former Vice
President and
Treasurer, Amoco
Corporation (oil & gas
company).
INSIDE DIRECTORS*
JEREMY H. BIGGS Director/ director Vice Chairman, Head of 11 Director of the Van Eck/Chubb
(born 8/16/35) Chairman since 1994 Equity Research, Funds six portfolios, (mutual
Chairman of U.S. fund).
Investment Policy
Committee and Member
of the International
Investment Committee,
all for Fiduciary
Trust Company
International (money
management firm)
Consultant to Davis
Selected Advisers,
L.P.
16
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
DIRECTORS - CONTINUED
NUMBER OF
TERM OF PORTFOLIOS IN
OFFICE AND PRINCIPAL FUND COMPLEX
POSITION(S) LENGTH OF OCCUPATION(S) DURING OVERSEEN BY OTHER DIRECTORSHIPS HELD BY
NAME AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR
- ------------------ ---------------- -------------- ---------------------------- ---------------- -------------------------------
INSIDE DIRECTORS* - CONTINUED
ANDREW A. DAVIS Director director President or Vice 15 Director of the Selected
(born 6/25/63) since 1997 President of each Funds (consisting of four
Davis Fund and portfolios) since 1998.
Selected Fund;
President, Davis
Selected Advisers,
L.P., and also serves
as an executive
officer in certain
companies affiliated
with the Adviser.
CHRISTOPHER C. Director director Chief Executive 15 Director of the Selected
DAVIS since 1997 Officer, President or Funds (consisting of four
(born 7/13/65) Vice President of each portfolios) since 1998.
Davis Fund and Selected Fund;
Chairman and Chief Executive
Officer, Davis Selected
Advisers, L.P., and also
serves as an executive
officer in certain companies
affiliated with the Adviser,
including sole member of the
Adviser's general partner,
Davis Investments, LLC;
Employee of Shelby Cullom
Davis & Co. (registered
broker/dealer).
* Jeremy H. Biggs, Andrew A. Davis and Christopher C. Davis own partnership
units (directly, indirectly or both) of the Adviser and are considered to be
"interested persons" of the Funds as defined in the Investment Company Act
of 1940. Andrew A. Davis and Christopher C. Davis are brothers.
17
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 Andrew A. Davis
Jerry D. Geist Vice President
D. James Guzy Kenneth C. Eich
G. Bernard Hamilton Executive Vice President &
Robert P. Morgenthau Principal Executive Officer
Theodore B. Smith, Jr. Sharra L. Reed
Christian R. Sonne Vice President, Treasurer
Marsha Williams & Principal Accounting Officer
Thomas D. Tays
Vice President & Secretary
INVESTMENT ADVISER
Davis Selected Advisers, L.P. (Doing business as "Davis Advisors")
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 LLC
111 E. Wacker Drive, Suite 2800
Chicago, Illinois 60601-4205
AUDITORS
KPMG LLP
707 Seventeenth Street
Suite 2700
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. THE FUND'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL
INFORMATION ABOUT THE FUND'S DIRECTORS AND IS AVAILABLE WITHOUT CHARGE UPON
REQUEST BY CALLING 1-800-279-0279. A COPY OF THE FUND'S PROXY VOTING POLICIES
AND PROCEDURES IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY CALLING
1-800-279-2279 OR ON THE FUND'S WEBSITE AT WWW.DAVISFUNDS.COM OR ON THE SEC
WEBSITE AT WWW.SEC.GOV.
================================================================================
18
[GRAPHIC OMITTED]
DAVIS ADVISORS
2949 EAST ELVIRA ROAD
SUITE 101
TUCSON, AZ 85706
1-800-279-0279
WWW.DAVISFUNDS.COM
[DAVIS FUNDS LOGO]
Item 2. Code of Ethics - Not Required
Item 3. Audit Committee Financial Expert - Not Required
Item 4. Principal Accountant Fees and Services - Not Required
Item 5. Audit Committee of Listed Registrants - Not Required
Item 6. Reserved
Item 7. Disclosure of Proxy Voting Polices and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8. Reserved
Item 9. Controls and Procedures
(a) The registrant's principal executive officer and principal financial
have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment Company
Act of 1940, as amended) are effective as of a date within 90 days
of the filing date of this report.
(b) There have been no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls.
Item 10. Exhibits
(a) Code of Ethics - Not Required
(b) Sections 302 and 906 certifications of the Sarbanes-Oxley Act of
2002 are attached as exhibits hereto.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on it behalf by the undersigned, thereunto duly authorized.
DAVIS VALUE PORTFOLIO
By /s/ Kenneth C. Eich
Kenneth C. Eich
Principal Executive Officer
Date: August 25, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Kenneth C. Eich
Kenneth C. Eich
Principal Executive Officer
Date: August 25, 2003
By /s/ Sharra L. Reed
Sharra L. Reed
Principal Financial officer
Date: August 25, 2003