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: June 30, 2005
ITEM 1. REPORTS TO STOCKHOLDERS
SEMI-ANNUAL REPORT
JUNE 30, 2005
DAVIS VALUE PORTFOLIO
DAVIS FINANCIAL PORTFOLIO
DAVIS REAL ESTATE PORTFOLIO
(PORTFOLIOS OF DAVIS VARIABLE ACCOUNT FUND, INC.)
[LOGO OMITTED]
DAVIS
FUNDS
OVER 35 YEARS OF RELIABLE INVESTING*
TABLE OF CONTENTS
Management's Discussion and Analysis:
Davis Value Portfolio.................................................2
Davis Financial Portfolio.............................................3
Davis Real Estate Portfolio...........................................4
Fund Overview:
Davis Value Portfolio.................................................7
Davis Financial Portfolio.............................................8
Davis Real Estate Portfolio...........................................9
Expense Example...............................................................10
Schedule of Investments:
Davis Value Portfolio................................................12
Davis Financial Portfolio............................................16
Davis Real Estate Portfolio..........................................18
Statements of Assets and Liabilities..........................................21
Statements of Operations......................................................22
Statements of Changes in Net Assets...........................................23
Notes to Financial Statements.................................................25
Financial Highlights:
Davis Value Portfolio................................................30
Davis Financial Portfolio............................................31
Davis Real Estate Portfolio..........................................32
Fund Information..............................................................33
Director Approval of Advisory Agreements......................................34
Directors and Officers........................................................37
DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
MARKET ENVIRONMENT
During the six-month period ended June 30, 2005, the stock market, as measured
by the Standard & Poor's 500(R) Index(1), declined by 0.81%. Inflation-adjusted
gross domestic product, the most comprehensive measure of economic activity,
increased 3.4% in the second quarter after increasing 3.8% in the first quarter.
Interest rates, as measured by the 10-year Treasury bond, were stable for the
first two months of the year, rose sharply in March, and then slowly declined
over the second quarter of 2005.
DAVIS VALUE PORTFOLIO
PERFORMANCE OVERVIEW
Davis Value Portfolio returned 1.27% for the six-month period ended June 30,
2005(2), compared to its benchmark, the Standard & Poor's 500(R) Index(1), which
declined by 0.81%.
Energy companies were the most important contributors(3) to the Portfolio's
performance over the six-month period. Energy companies were also the strongest
performing sector of the S&P 500(R) Index. The Portfolio benefited both by
investing a larger percentage of its assets in energy companies than did the
Index, and as a group, the individual energy companies that the Portfolio owned
out-performed the average energy company included in the Index. All of the
Portfolio's energy companies performed well, with EOG Resources(4),
ConocoPhillips, Occidental Petroleum, and Devon Energy, all among the
Portfolio's top contributors to performance for the six-month period.
Industrial companies were the most important detractors from the Portfolio's
performance over the six-month period. Tyco International was among the top
detractors from performance.
The Portfolio's largest industry group holdings were in insurance companies.
Insurance companies turned in a mixed performance over the six-month period,
with Progressive and Loews among the top contributors to performance, and
American International Group and Berkshire Hathaway among the Portfolio's top
detractors from performance.
The Portfolio also held significant investments in diversified financial
companies. Overall, the Portfolio's diversified financial companies detracted
from performance over the six-month period. American Express and JPMorgan Chase
were both among the top detractors from performance.
Individual companies making important contributions to the Portfolio's
performance over the period included HCA, a health care equipment and services
company; Altria Group, a food, beverage, and tobacco company; and H&R Block, a
consumer services company.
Individual companies detracting from performance over the period included
Comcast, a media company; and Lexmark International, a technology hardware and
equipment company.
The Portfolio managers have identified a number of investment opportunities in
foreign companies. The Portfolio ended the period with approximately 11% of its
portfolio invested in foreign companies. As a group, the foreign companies owned
by the Portfolio slightly under-performed the S&P 500(R) Index over the
six-month period.
2
DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
DAVIS FINANCIAL PORTFOLIO
PERFORMANCE OVERVIEW
Davis Financial Portfolio declined by 2.65% for the six-month period ended June
30, 2005(2), compared to its benchmark, the Standard & Poor's 500(R) Index(1),
which declined by 0.81%. Financial sector companies as a group under-performed
the S&P 500(R) Index over the six-month period. The Portfolio's insurance,
diversified financial, and banking companies all reflected this difficult market
for financial companies.
The Portfolio's largest holdings were in insurance companies. Over the six-month
period insurance companies as a whole were the largest detractors(3) from the
Portfolio's performance. While Progressive(4), Loews, and Everest Re Group were
among the top contributors to the Portfolio's performance, this was offset by
Transatlantic Holdings, American International Group, Markel, Cincinnati
Financial, Berkshire Hathaway, and FPIC Insurance Group, which were all among
the top detractors from the Portfolio's performance.
The Portfolio's diversified financial holdings also under-performed the S&P
500(R) Index. Julius Baer, Moody's, and Providian were among the top
contributors to performance. American Express and JPMorgan Chase were among the
top detractors from performance. The Portfolio no longer owns Julius Baer or
Providian.
The Portfolio's bank holdings slightly out-performed the S&P 500(R) Index.
Golden West Financial was among the top contributors to performance. Fifth Third
Bancorp was among the top detractors from the Portfolio's performance over the
six-month period. The Portfolio no longer owns Fifth Third Bancorp.
Among the Portfolio's non-financial holdings, H&R Block and Altria Group were
among the top contributors to performance, while Tyco International was among
the top detractors from performance over the six-month period.
3
DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
DAVIS REAL ESTATE PORTFOLIO
PERFORMANCE OVERVIEW
Davis Real Estate Portfolio returned 3.96% for the six-month period ended June
30, 2005(2), compared with a return of 6.79% for the Dow Jones Wilshire Real
Estate Securities Index(1).
The sector contributing(3) the most to the Portfolio's six-month performance was
office property REITs. The Portfolio had more invested in office property REITs
than in any other sector. The specific office property REITs that the Portfolio
owned did not perform as well as the office property REITs included in the Dow
Jones Wilshire Real Estate Securities Index, which reduced performance relative
to the Index. Kilroy Realty(4), SL Green Realty, and CarrAmerica Realty, were
each among the top contributors to the Portfolio's performance. Parkway
Properties and Arden Realty were both among the top detractors from performance.
The Portfolio no longer owns Parkway Properties.
The sector detracting the most from the Portfolio's six-month performance was
warehouse and industrial REITs. Catellus Development was among the top
contributors to performance. Centerpoint Properties and Prologis were both among
the top detractors from performance.
Regional mall REITs turned in a strong six-month performance. While this sector
represents a large portion of the Index, the Portfolio invested a smaller
portion of its assets in this sector. Among the Portfolio's regional mall REITs,
General Growth Properties was among the top contributors to the Portfolio's
performance and Mills Corp. was among the top detractors from the Portfolio's
performance.
Diversified REITs represented a significant proportion of Portfolio assets.
These companies turned in mixed performance. Capital Automotive and Vornado
Realty Trust were both among the top contributors to performance, while Duke
Realty and iStar Financial were both among the top detractors from performance.
Individual companies making important contributions to the Portfolio's six-month
performance included Forest City, a real estate operations and development
company; and Gramercy Capital, a mortgage REIT. Individual companies detracting
from the Portfolio's six-month performance included Plum Creek Timber, a
forestry REIT; and Starwood Hotels & Resorts, a hotels & lodging company. The
Portfolio no longer owns Plum Creek Timber or Starwood Hotels & Resorts.
- ------------------------------
This Semi-Annual Report is authorized for use by existing shareholders.
Prospective shareholders must receive a current Davis Variable Account Funds
prospectus, which contains more information about investment strategies, 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) financial services risk, (4) foreign country risk, (5)
headline risk, and (6) selection risk. See the prospectus for a full description
of each risk.
4
DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
Davis Financial 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 Financial Portfolio are: (1) market
risk, (2) company risk, (3) concentrated financial services portfolio risk, (4)
foreign country risk, (5) headline risk, and (6) selection risk. See the
prospectus for a full description of each risk.
Davis Financial Portfolio concentrates its investments in the financial sector,
and it may be subject to greater risks than a portfolio that does not
concentrate its investments in a particular sector. The Portfolio's investment
performance, both good and bad, is expected to reflect the economic performance
of the financial sector more than a portfolio that does not concentrate its
portfolio.
Davis Real Estate Portfolio's investment objective is total return through a
combination of growth and income. There can be no assurance that the Portfolio
will achieve its objective. The primary risks of an investment in Davis Real
Estate Portfolio are: (1) market risk, (2) company risk, (3) concentrated real
estate portfolio risk, (4) focused portfolio risk, (5) small and medium
capitalization risk, (6) foreign country risk, (7) headline risk, and (8)
selection risk. See the prospectus for a full description of each risk.
Davis Real Estate Portfolio concentrates its investments in the real estate
sector, and it may be subject to greater risks than a portfolio that does not
concentrate its investments in a particular sector. The Portfolio's investment
performance, both good and bad, is expected to reflect the economic performance
of the real estate sector much more than a portfolio that does not concentrate
its portfolio.
Davis Real Estate Portfolio is allowed under its charter to focus its
investments in fewer companies, and it may be subject to greater risks than a
more diversified portfolio that is not allowed to focus its investments in a few
companies. Should the portfolio manager determine that it is prudent to focus
the Portfolio's portfolio in a few companies, the Portfolio's investment
performance, both good and bad, is expected to reflect the economic performance
of its more focused portfolio.
(1) The definitions of indices quoted in this report appear below. Investments
cannot be made directly in the indices.
I. 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.
II. The Dow Jones Wilshire Real Estate Securities Index is a broad measure of
the performance of publicly traded real estate securities, such as Real Estate
Investment Trusts (REITs) and Real Estate Operating Companies (REOCs). The Index
is capitalization-weighted. The beginning date was January 1, 1978, and the
Index is rebalanced monthly and returns are calculated on a buy and hold basis.
5
DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
(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, 2005.
- ---------------------------------------------------------------------------------------
INCEPTION
PORTFOLIO NAME 1-YEAR 5-YEAR (July 1, 1999)
- ---------------------------------------------------------------------------------------
Davis Value Portfolio 8.92% 2.50% 3.69%
- ---------------------------------------------------------------------------------------
Davis Financial Portfolio 4.18% 5.13% 4.28%
- ---------------------------------------------------------------------------------------
Davis Real Estate Portfolio 30.12% 18.34% 15.15%
- ---------------------------------------------------------------------------------------
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) A company's or sector's contribution to the Portfolio's performance is a
product both of its appreciation or depreciation and it's weighting within the
portfolio. For example, a 5% holding that rises 20% has twice as much impact as
a 1% holding that rises 50%.
(4) 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 each Portfolio's holdings of each company
discussed.
Shares of the Davis Variable Account 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.
6
DAVIS VARIABLE ACCOUNT FUND, INC.
FUND OVERVIEW
DAVIS VALUE PORTFOLIO
At June 30, 2005 (Unaudited)
================================================================================
[2 PIECHARTS OMITTED]
PORTFOLIO MAKEUP (% OF FUND NET ASSETS)
Short Term Investments, Convertible Bond, Other Assets & Liabilities 0.8%
Common Stocks 99.2%
SECTOR WEIGHTINGS (% OF STOCK HOLDINGS)
Banks 11.3%
Materials 4.5%
Technology 4.2%
Capital Goods 4.0%
Health Care 4.2%
Food & Staples Retailing 3.6%
Insurance 17.8%
Diversified Financials 16.2%
Energy 11.0%
Food, Beverage and Tobacco 8.3%
Media 5.5%
Other 9.4%
TOP 10 HOLDINGS
STOCK SECTOR % OF FUND NET ASSETS
- -----------------------------------------------------------------------------------------------------------
American Express Co. Consumer Finance 5.92%
Altria Group, Inc. Food, Beverage, & Tobacco 5.03%
Berkshire Hathaway Inc., Class A Property & Casualty Insurance 4.58%
American International Group, Inc. Multi-Line Insurance 4.53%
Tyco International Ltd. Capital Goods 3.97%
JPMorgan Chase & Co. Diversified Financial Services 3.65%
HSBC Holdings PLC Commercial Banks 3.37%
Comcast Corp., Special Class A Media 3.27%
Progressive Corp. (Ohio) Property & Casualty Insurance 3.20%
Golden West Financial Corp. Thrifts & Mortgage Finance 3.17%
7
DAVIS VARIABLE ACCOUNT FUND, INC.
FUND OVERVIEW
DAVIS FINANCIAL PORTFOLIO
At June 30, 2005 (Unaudited)
================================================================================
[2 PIECHARTS OMITTED]
PORTFOLIO MAKEUP (% OF FUND NET ASSETS)
Short Term Investments, Other Assets & Liabilities 7.5%
Common Stocks 92.5%
SECTOR WEIGHTINGS (% OF STOCK HOLDINGS)
Banks 15.5%
Materials 2.1%
Capital Goods 5.0%
Insurance 42.6%
Food, Beverage and Tobacco 2.6%
Diversified Financials 26.5%
Consumer Services 3.0%
Commercial Services & Supplies 2.7%
TOP 10 HOLDINGS
STOCK SECTOR % OF FUND NET ASSETS
- -----------------------------------------------------------------------------------------------------------
American Express Co. Consumer Finance 10.81%
Transatlantic Holdings, Inc. Reinsurance 8.83%
Moody's Corp. Diversified Financial Services 5.41%
American International Group, Inc. Multi-Line Insurance 5.32%
Golden West Financial Corp. Thrifts & Mortgage Finance 5.31%
Wells Fargo & Co. Commercial Banks 4.90%
Citigroup Inc. Diversified Financial Services 4.87%
Tyco International Ltd. Capital Goods 4.63%
Cincinnati Financial Corp. Property & Casualty Insurance 4.57%
Loews Corp. Multi-Line Insurance 4.37%
8
DAVIS VARIABLE ACCOUNT FUND, INC.
FUND OVERVIEW
DAVIS REAL ESTATE PORTFOLIO
At June 30, 2005 (Unaudited)
================================================================================
[2 PIECHARTS OMITTED]
PORTFOLIO MAKEUP (% OF FUND NET ASSETS)
Short Term Investments, Preferred Stocks, Other Assets & Liabilities 5.5%
Common Stocks 94.5%
SECTOR WEIGHTINGS (% OF STOCK HOLDINGS)
Real Estate Operations/Development 8.1%
Regional Mall REITS 8.7%
Warehouse & Industrial REITS 13.5%
Mortgage REITS 1.7%
Shopping Center REITS 13.2%
Office Property REITS 25.8%
Residential/Commercial Building 1.1%
Diversified REITS 15.1%
Apartment REITS 10.8%
Health Care REITS 2.0%
TOP 10 HOLDINGS
STOCK SECTOR % OF FUND NET ASSETS
- -----------------------------------------------------------------------------------------------------------
Centerpoint Properties Trust Warehouse & Industrial REITS 6.38%
SL Green Realty Corp. Office Property REITS 4.20%
Forest City Enterprises, Inc., Class A Real Estate Operations/Development 3.86%
Vornado Realty Trust Diversified REITS 3.81%
ProLogis Warehouse & Industrial REITS 3.73%
General Growth Properties, Inc. Regional Mall REITS 3.68%
Capital Automotive REIT Diversified REITS 3.67%
Developers Diversified Realty Corp. Shopping Center REITS 3.61%
Alexandria Real Estate Equities, Inc. Office Property REITS 3.40%
Cousins Properties, Inc. Diversified REITS 3.18%
9
DAVIS VARIABLE ACCOUNT FUND, INC.
EXPENSE EXAMPLE (Unaudited)
================================================================================
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(01/01/05) (06/30/05) (01/01/05-06/30/05)
---------- ---------- -------------------
DAVIS VALUE PORTFOLIO
Actual...................................... $1,000.00 $1,012.74 $4.04
Hypothetical................................ $1,000.00 $1,020.78 $4.06
DAVIS FINANCIAL PORTFOLIO
Actual...................................... $1,000.00 $ 973.48 $4.16
Hypothetical................................ $1,000.00 $1,020.58 $4.26
DAVIS REAL ESTATE PORTFOLIO
Actual...................................... $1,000.00 $1,039.59 $4.40
Hypothetical................................ $1,000.00 $1,020.48 $4.36
Hypothetical assumes 5% annual return before expenses.
*Expenses are equal to each Fund's annualized expense ratio, multiplied by the
average account value over the period, multiplied by 181/365 (to reflect the
one-half year period). See page 11 for a description of the "Expense Example".
The annualized expense ratios for the six-month period ended June 30, 2005 are
as follows:
ANNUALIZED
EXPENSE
RATIO
-----
Davis Value Portfolio..................................... 0.81%
Davis Financial Portfolio................................. 0.85%
Davis Real Estate Portfolio............................... 0.87%
10
DAVIS VARIABLE ACCOUNT FUND, INC.
EXPENSE EXAMPLE (Unaudited) - Continued
================================================================================
THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING THE FUNDS'
EXPENSE EXAMPLE. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE
EXAMPLE FOR EACH FUND.
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs only, including advisory
and administrative fees and other Fund expenses. The Expense Example is intended
to help you understand your ongoing costs (in dollars) of investing in each Fund
and to compare these costs with the ongoing costs of investing in other mutual
funds. The Expense Example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire period indicated, which for each
Fund is from 01/01/05 to 6/30/05. Please note that the Expense Example is
general and does not reflect charges imposed by your insurance company's
separate account or account specific costs, which may increase your total costs
of investing in the funds. If these charges or account specific costs were
included in the Expense Example, the expenses would have been higher.
ACTUAL EXPENSES
The information represented in the row entitled "Actual" provides information
about actual account values and actual expenses. You may use the information in
this row, together with the amount you invested, to estimate the expenses that
you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number under the heading "Expenses Paid During Period" to estimate
the expenses you paid for on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The information represented in the row entitled "Hypothetical" provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. Therefore, the information in the row entitled
"Hypothetical" is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds.
11
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS VALUE PORTFOLIO
June 30, 2005 (Unaudited)
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (99.17%)
AUTOMOBILES & COMPONENTS - (0.69%)
92,700 Harley-Davidson, Inc. ....................................................... $ 4,597,920
-------------
AUTOMOTIVE RETAIL - (0.76%)
54,500 AutoZone, Inc.*.............................................................. 5,039,070
-------------
CAPITAL GOODS - (3.97%)
905,958 Tyco International Ltd. ..................................................... 26,453,974
-------------
CAPITAL MARKETS - (0.97%)
96,600 Morgan Stanley............................................................... 5,068,602
28,100 State Street Corp. .......................................................... 1,355,825
-------------
6,424,427
-------------
COMMERCIAL BANKS - (8.09%)
161,000 Fifth Third Bancorp.......................................................... 6,629,175
1,406,940 HSBC Holdings PLC............................................................ 22,435,254
161,700 Lloyds TSB Group PLC, ADR.................................................... 5,505,885
312,800 Wells Fargo & Co. ........................................................... 19,262,224
-------------
53,832,538
-------------
COMMERCIAL SERVICES & SUPPLIES - (1.30%)
94,400 D&B Corp.*................................................................... 5,819,760
986,400 Rentokil Initial PLC......................................................... 2,823,315
-------------
8,643,075
-------------
CONSUMER DURABLES & APPAREL - (0.17%)
22,000 Hunter Douglas NV............................................................ 1,100,341
-------------
CONSUMER FINANCE - (7.00%)
740,200 American Express Co. ........................................................ 39,400,846
127,300 Providian Financial Corp.*................................................... 2,244,299
73,100 Takefuji Corp. .............................................................. 4,943,197
-------------
46,588,342
-------------
CONSUMER SERVICES - (2.01%)
229,000 H&R Block, Inc. ............................................................. 13,362,150
-------------
DIVERSIFIED FINANCIAL SERVICES - (8.16%)
402,833 Citigroup Inc. .............................................................. 18,622,970
687,648 JPMorgan Chase & Co. ........................................................ 24,287,727
200,200 Moody's Corp. ............................................................... 9,000,992
57,800 Principal Financial Group, Inc. ............................................. 2,421,820
-------------
54,333,509
-------------
ENERGY - (10.93%)
344,742 ConocoPhillips............................................................... 19,819,218
319,000 Devon Energy Corp. .......................................................... 16,166,920
272,700 EOG Resources, Inc. ......................................................... 15,489,360
206,800 Occidental Petroleum Corp. .................................................. 15,909,124
12
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS VALUE PORTFOLIO - (CONTINUED)
June 30, 2005 (Unaudited)
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (CONTINUED)
ENERGY - (CONTINUED)
99,500 Transocean Inc.*............................................................. $ 5,370,015
-------------
72,754,637
-------------
FOOD & STAPLES RETAILING - (3.54%)
455,700 Costco Wholesale Corp. ...................................................... 20,385,739
66,500 Wal-Mart Stores, Inc. ....................................................... 3,205,300
-------------
23,591,039
-------------
FOOD, BEVERAGE, & TOBACCO - (8.31%)
517,600 Altria Group, Inc. .......................................................... 33,468,016
158,000 Diageo PLC, ADR.............................................................. 9,369,400
210,940 Heineken Holding NV.......................................................... 5,896,714
106,500 Hershey Co. ................................................................. 6,613,650
-------------
55,347,780
-------------
HEALTH CARE EQUIPMENT & SERVICES - (2.88%)
127,200 Cardinal Health, Inc. ....................................................... 7,324,176
13,100 Caremark Rx, Inc.*........................................................... 583,212
198,300 HCA Inc. .................................................................... 11,237,661
-------------
19,145,049
-------------
HOUSEHOLD & PERSONAL PRODUCTS - (0.24%)
42,600 Avon Products, Inc. ......................................................... 1,612,410
-------------
INSURANCE BROKERS - (1.56%)
174,100 Aon Corp. ................................................................... 4,359,464
217,500 Marsh & McLennan Cos, Inc. .................................................. 6,024,750
-------------
10,384,214
-------------
INTERNET RETAIL - (0.42%)
117,100 IAC/InterActiveCorp*......................................................... 2,812,156
-------------
LIFE & HEALTH INSURANCE - (0.18%)
35,900 Sun Life Financial Inc. ..................................................... 1,209,830
-------------
MATERIALS - (4.43%)
79,600 Martin Marietta Materials, Inc. ............................................. 5,501,952
373,500 Sealed Air Corp.*............................................................ 18,596,565
82,800 Vulcan Materials Co. ........................................................ 5,381,172
-------------
29,479,689
-------------
MEDIA - (5.44%)
728,400 Comcast Corp., Special Class A*.............................................. 21,775,518
40,700 Gannett Co., Inc. ........................................................... 2,894,991
124,700 Lagardere S.C.A. ............................................................ 9,242,973
5,700 NTL Inc.*.................................................................... 389,652
37,800 WPP Group PLC, ADR........................................................... 1,934,415
-------------
36,237,549
-------------
13
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS VALUE PORTFOLIO - (CONTINUED)
June 30, 2005 (Unaudited)
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (CONTINUED)
MULTI-LINE INSURANCE - (6.56%)
519,337 American International Group, Inc. .......................................... $ 30,173,480
173,800 Loews Corp. ................................................................. 13,469,500
-------------
43,642,980
-------------
PHARMACEUTICALS & BIOTECHNOLOGY - (1.30%)
99,600 Eli Lilly and Co. ........................................................... 5,548,716
65,000 Novartis AG, Registered...................................................... 3,096,566
-------------
8,645,282
-------------
PROPERTY & CASUALTY INSURANCE - (8.22%)
365 Berkshire Hathaway Inc., Class A*............................................ 30,477,500
42 Berkshire Hathaway Inc., Class B*............................................ 116,907
25,400 Chubb Corp. ................................................................. 2,174,494
1,800 Markel Corp.*................................................................ 610,200
215,700 Progressive Corp. (Ohio)..................................................... 21,313,317
-------------
54,692,418
-------------
REAL ESTATE - (1.55%)
244,600 Centerpoint Properties Trust................................................. 10,346,580
-------------
REINSURANCE - (1.22%)
145,937 Transatlantic Holdings, Inc. ................................................ 8,146,203
-------------
SOFTWARE & SERVICES - (2.20%)
291,400 Iron Mountain Inc.*.......................................................... 9,039,228
227,100 Microsoft Corp. ............................................................. 5,637,757
-------------
14,676,985
-------------
TECHNOLOGY HARDWARE & EQUIPMENT - (1.94%)
153,800 Hewlett-Packard Co. ......................................................... 3,615,838
112,800 Lexmark International, Inc., Class A*........................................ 7,312,824
121,000 Nokia Oyj, ADR............................................................... 2,013,440
-------------
12,942,102
-------------
TELECOMMUNICATION SERVICES - (0.68%)
142,900 SK Telecom Co., Ltd., ADR.................................................... 2,915,160
71,800 Telewest Global, Inc.*....................................................... 1,634,527
-------------
4,549,687
-------------
THRIFTS & MORTGAGE FINANCE - (3.17%)
327,300 Golden West Financial Corp. ................................................. 21,071,574
-------------
TRANSPORTATION - (1.28%)
1,119,998 China Merchants Holdings International Co. Ltd............................... 2,176,293
940,000 Cosco Pacific Ltd. .......................................................... 1,826,535
14
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS VALUE PORTFOLIO - (CONTINUED)
June 30, 2005 (Unaudited)
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (CONTINUED)
TRANSPORTATION - (CONTINUED)
1,500 Kuehne & Nagel International AG, Registered.................................. $ 318,377
60,600 United Parcel Service, Inc., Class B......................................... 4,191,096
--------------
8,512,301
--------------
Total Common Stock - (identified cost $522,690,047)...................... 660,175,811
--------------
CONVERTIBLE BONDS - (0.22%)
TELECOMMUNICATION SERVICES - (0.22%)
$ 1,600,000 Level 3 Communications, Inc., Conv. Sr. Notes, 10.00%, 05/01/11 (b)
(identified cost $1,600,000)............................................... 1,425,760
--------------
SHORT TERM INVESTMENTS - (0.27%)
593,000 Goldman, Sachs & Co., Joint Repurchase Agreement, 3.43%,
07/01/05, dated 06/30/05, repurchase value of $593,056
(collateralized by: U.S. Government agency obligations in a pooled cash
account, total market value $604,860)..................................... 593,000
634,000 Nomura Securities International, Inc. Joint Repurchase Agreement, 3.44%,
07/01/05, dated 06/30/05, repurchase value of $634,061
(collateralized by: U.S. Government agency obligations in a pooled cash
account, total market value $646,680)..................................... 634,000
571,000 UBS Financial Services Inc. Joint Repurchase Agreement, 3.43%,
07/01/05, dated 06/30/05, repurchase value of $571,054
(collateralized by: U.S. Government agency obligations in a pooled cash
account, total market value $582,420)..................................... 571,000
--------------
Total Short Term Investments - (identified cost $1,798,000)......... 1,798,000
--------------
Total Investments - (99.66%) - (identified cost $526,088,047) - (a).......... 663,399,571
Other Assets Less Liabilities - (0.34%)...................................... 2,281,701
--------------
Net Assets - (100%)...................................................... $ 665,681,272
==============
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $527,271,540. At June 30,
2005 unrealized appreciation (depreciation) of securities for Federal Income Tax
purposes is as follows:
Unrealized appreciation...................................................... $ 146,680,897
Unrealized depreciation...................................................... (10,552,866)
--------------
Net unrealized appreciation.............................................. $ 136,128,031
==============
(b) Illiquid security: See Note 6 of the Notes to Financial Statements.
SEE NOTES TO FINANCIAL STATEMENTS
15
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS FINANCIAL PORTFOLIO
June 30, 2005 (Unaudited)
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (92.52%)
CAPITAL GOODS - (4.63%)
174,000 Tyco International Ltd. ..................................................... $ 5,080,800
-------------
COMMERCIAL BANKS - (9.06%)
150,400 Commerce Bancorp, Inc. ...................................................... 4,558,624
87,300 Wells Fargo & Co. ........................................................... 5,375,934
-------------
9,934,558
-------------
COMMERCIAL SERVICES & SUPPLIES - (2.47%)
44,000 D&B Corp.*................................................................... 2,712,600
-------------
CONSUMER FINANCE - (10.81%)
222,800 American Express Co. ........................................................ 11,859,644
-------------
CONSUMER SERVICES - (2.77%)
52,100 H&R Block, Inc. ............................................................. 3,040,035
-------------
DIVERSIFIED FINANCIAL SERVICES - (13.65%)
115,600 Citigroup Inc. .............................................................. 5,344,188
104,448 JPMorgan Chase & Co. ........................................................ 3,689,103
132,000 Moody's Corp. ............................................................... 5,934,720
-------------
14,968,011
-------------
FOOD, BEVERAGE, & TOBACCO - (2.41%)
40,800 Altria Group, Inc. .......................................................... 2,638,128
-------------
LIFE & HEALTH INSURANCE - (0.64%)
25,600 China Life Insurance Co., Ltd., ADR*......................................... 698,880
-------------
MATERIALS - (1.96%)
43,200 Sealed Air Corp.*............................................................ 2,150,928
-------------
MULTI-LINE INSURANCE - (9.69%)
100,387 American International Group, Inc. .......................................... 5,832,485
61,800 Loews Corp. ................................................................. 4,789,500
-------------
10,621,985
-------------
PROPERTY & CASUALTY INSURANCE - (17.83%)
7 Berkshire Hathaway Inc., Class A*............................................ 584,500
1,635 Berkshire Hathaway Inc., Class B*............................................ 4,551,023
126,619 Cincinnati Financial Corp. .................................................. 5,010,947
44,100 FPIC Insurance Group, Inc.*.................................................. 1,289,043
11,400 Markel Corp.*................................................................ 3,864,600
43,100 Progressive Corp. (Ohio)..................................................... 4,258,711
-------------
19,558,824
-------------
REINSURANCE - (11.29%)
29,000 Everest Re Group, Ltd. ...................................................... 2,697,000
173,437 Transatlantic Holdings, Inc. ................................................ 9,681,253
-------------
12,378,253
-------------
16
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS FINANCIAL PORTFOLIO - (CONTINUED)
June 30, 2005 (Unaudited)
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (CONTINUED)
THRIFTS & MORTGAGE FINANCE - (5.31%)
90,400 Golden West Financial Corp. ................................................. $ 5,819,952
--------------
Total Common Stock - (identified cost $83,940,956)....................... 101,462,598
--------------
SHORT TERM INVESTMENTS - (7.36%)
$ 2,659,000 Goldman, Sachs & Co., Joint Repurchase Agreement, 3.43%,
07/01/05, dated 06/30/05, repurchase value of $2,659,253
(collateralized by: U.S. Government agency obligations in a pooled cash
account, total market value $2,712,180)................................... 2,659,000
2,847,000 Nomura Securities International, Inc. Joint Repurchase Agreement, 3.44%,
07/01/05, dated 06/30/05, repurchase value of $2,847,272
(collateralized by: U.S. Government agency obligations in a pooled cash
account, total market value $2,903,940)................................... 2,847,000
2,563,000 UBS Financial Services Inc. Joint Repurchase Agreement, 3.43%,
07/01/05, dated 06/30/05, repurchase value of $2,563,244
(collateralized by: U.S. Government agency obligations in a pooled cash
account, total market value $2,614,260)................................... 2,563,000
--------------
Total Short Term Investments - (identified cost $8,069,000)......... 8,069,000
--------------
Total Investments - (99.88%) - (identified cost $92,009,956) - (a)........... 109,531,598
Other Assets Less Liabilities - (0.12%)...................................... 131,933
--------------
Net Assets - (100.00%)................................................... $ 109,663,531
==============
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $92,335,227. At June 30,
2005 unrealized appreciation (depreciation) of securities for Federal Income Tax
purposes is as follows:
Unrealized appreciation...................................................... $ 18,518,837
Unrealized depreciation...................................................... (1,322,466)
--------------
Net unrealized appreciation.............................................. $ 17,196,371
==============
SEE NOTES TO FINANCIAL STATEMENTS
17
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS REAL ESTATE PORTFOLIO
June 30, 2005 (Unaudited)
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (94.53%)
APARTMENT REITS - (10.08%)
3,500 American Campus Communities, Inc. ........................................... $ 79,380
32,700 Archstone-Smith Trust........................................................ 1,262,874
21,700 Camden Property Trust........................................................ 1,166,375
22,900 Essex Property Trust, Inc. .................................................. 1,902,074
76,400 United Dominion Realty Trust, Inc. .......................................... 1,837,420
-------------
6,248,123
-------------
DIVERSIFIED REITS - (14.27%)
59,700 Capital Automotive REIT...................................................... 2,276,660
66,600 Cousins Properties, Inc. .................................................... 1,970,028
51,800 Duke Realty Corp. ........................................................... 1,639,988
14,300 iStar Financial Inc. ........................................................ 594,737
29,331 Vornado Realty Trust......................................................... 2,358,212
-------------
8,839,625
-------------
HEALTH CARE REITS - (1.91%)
39,200 Ventas, Inc. ................................................................ 1,183,840
-------------
MORTGAGE REITS - (1.58%)
40,100 Gramercy Capital Corp. ...................................................... 980,846
-------------
OFFICE PROPERTY REITS - (24.47%)
28,700 Alexandria Real Estate Equities, Inc. ....................................... 2,108,015
41,100 Arden Realty, Inc. .......................................................... 1,478,778
25,800 Boston Properties, Inc. ..................................................... 1,806,000
47,500 Brandywine Realty Trust...................................................... 1,455,875
47,000 CarrAmerica Realty Corp. .................................................... 1,700,460
20,700 Columbia Equity Trust, Inc.*................................................. 317,745
62,400 Corporate Office Properties Trust............................................ 1,837,680
39,000 Kilroy Realty Corp. ......................................................... 1,852,110
40,370 SL Green Realty Corp. ....................................................... 2,603,865
-------------
15,160,528
-------------
REAL ESTATE OPERATIONS/DEVELOPMENT - (7.70%)
133,500 Brixton PLC.................................................................. 852,122
6,400 Derwent Valley Holdings PLC.................................................. 136,456
33,700 Forest City Enterprises, Inc., Class A....................................... 2,392,700
18,300 Hammerson PLC................................................................ 291,650
46,000 Liberty International PLC.................................................... 798,220
32,000 Slough Estates PLC........................................................... 298,999
-------------
4,770,147
-------------
18
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS REAL ESTATE PORTFOLIO - (CONTINUED)
June 30, 2005 (Unaudited)
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (CONTINUED)
REGIONAL MALL REITS - (8.26%)
55,442 General Growth Properties, Inc. ............................................. $ 2,278,112
24,600 Mills Corp. ................................................................. 1,495,434
18,500 Simon Property Group, Inc. .................................................. 1,341,065
-------------
5,114,611
-------------
RESIDENTIAL/COMMERCIAL BUILDING - (1.00%)
19,300 WCI Communities, Inc.*....................................................... 618,179
-------------
SHOPPING CENTER REITS - (12.47%)
48,625 Developers Diversified Realty Corp. ......................................... 2,234,805
31,400 Kimco Realty Corp. .......................................................... 1,849,774
26,700 Pan Pacific Retail Properties, Inc. ......................................... 1,772,346
32,700 Regency Centers Corp. ....................................................... 1,870,440
-------------
7,727,365
-------------
WAREHOUSE & INDUSTRIAL REITS - (12.79%)
50,566 Catellus Development Corp. .................................................. 1,658,565
93,500 Centerpoint Properties Trust................................................. 3,955,050
57,400 ProLogis..................................................................... 2,309,776
-------------
7,923,391
-------------
Total Common Stock - (identified cost $42,963,832).................. 58,566,655
-------------
PREFERRED STOCK - (0.22%)
APARTMENT REITS - (0.22%)
2,000 Equity Residential, 7.00%, Series E, Cum. Conv. Pfd. ........................ 82,500
1,600 Equity Residential, 8.60%, Series D, Cum. Pfd. .............................. 42,616
400 Equity Residential, 9.125%, Series C, Cum. Pfd. ............................. 10,512
-------------
Total Preferred Stock - (identified cost $113,921).................. 135,628
-------------
19
DAVIS VARIABLE ACCOUNT FUND, INC.
SCHEDULE OF INVESTMENTS
DAVIS REAL ESTATE PORTFOLIO - (CONTINUED)
June 30, 2005 (Unaudited)
VALUE
PRINCIPAL SECURITY (NOTE 1)
==============================================================================================================
SHORT TERM INVESTMENTS - (4.84%)
$ 989,000 Goldman, Sachs & Co., Joint Repurchase Agreement, 3.43%,
07/01/05, dated 06/30/05, repurchase value of $989,094
(collateralized by: U.S. Government agency obligations in a pooled
cash account, total market value $1,008,780).............................. $ 989,000
1,060,000 Nomura Securities International, Inc. Joint Repurchase Agreement, 3.44%,
07/01/05, dated 06/30/05, repurchase value of $1,060,101
(collateralized by: U.S. Government agency obligations in a pooled
cash account, total market value $1,081,200).............................. 1,060,000
954,000 UBS Financial Services Inc. Joint Repurchase Agreement, 3.43%,
07/01/05, dated 06/30/05, repurchase value of $954,091
(collateralized by: U.S. Government agency obligations in a pooled
cash account, total market value $973,080)................................ 954,000
-------------
Total Short Term Investments - (identified cost $3,003,000)......... 3,003,000
-------------
Total Investments - (99.59%) - (identified cost $46,080,753) - (a)........... 61,705,283
Other Assets Less Liabilities - (0.41%)...................................... 252,242
-------------
Net Assets - (100.00%)................................................... $ 61,957,525
=============
* Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $46,084,588. At June 30,
2005 unrealized appreciation (depreciation) of securities for Federal Income Tax
purposes is as follows:
Unrealized appreciation...................................................... $ 15,642,699
Unrealized depreciation...................................................... (22,004)
-------------
Net unrealized appreciation.............................................. $ 15,620,695
=============
SEE NOTES TO FINANCIAL STATEMENTS
20
DAVIS VARIABLE ACCOUNT FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
At June 30, 2005 (Unaudited)
================================================================================
DAVIS
DAVIS DAVIS REAL
VALUE FINANCIAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
ASSETS:
Investments in securities, at value
* (see accompanying Schedules
of Investments).............................. $ 663,399,571 $ 109,531,598 $ 61,705,283
Cash........................................... 315,546 40,611 156,629
Receivables:
Dividends and interest....................... 1,057,777 141,314 226,053
Capital stock sold........................... 39,969 73,755 1,993
Investment securities sold................... 5,325,820 - 464,906
Prepaid expenses............................... 10,950 2,000 905
--------------- -------------- --------------
Total assets......... 670,149,633 109,789,278 62,555,769
--------------- -------------- --------------
LIABILITIES:
Payables:
Capital stock reacquired..................... 413,914 38,336 154,128
Investment securities purchased.............. 3,574,646 - 389,395
Accrued expenses............................... 53,365 17,569 15,813
Accrued management fees........................ 426,436 69,842 38,908
--------------- -------------- --------------
Total liabilities.... 4,468,361 125,747 598,244
--------------- -------------- --------------
NET ASSETS ....................................... $ 665,681,272 $ 109,663,531 $ 61,957,525
=============== ============== ==============
SHARES OUTSTANDING (NOTE 4)....................... 55,799,326 8,789,260 3,572,282
=============== ============== ==============
NET ASSET VALUE, offering and
redemption price per share (Net
Assets (divided by) Shares Outstanding)...... $ 11.93 $ 12.48 $ 17.34
=========== ========== ==========
NET ASSETS CONSIST OF:
Par value of shares of capital stock........... $ 55,799 $ 8,789 $ 3,572
Additional paid-in capital..................... 562,811,048 95,024,049 43,413,787
Undistributed net investment income............ 3,231,603 305,194 507,424
Accumulated net realized gains (losses) from
investments and foreign currency transactions (37,727,069) (3,196,143) 2,408,411
Net unrealized appreciation on investments and
foreign currency transactions................ 137,309,891 17,521,642 15,624,331
--------------- -------------- --------------
$ 665,681,272 $ 109,663,531 $ 61,957,525
=============== ============== ==============
* Including cost of $526,088,047, $92,009,956, and $46,080,753 for Davis Value
Portfolio, Davis Financial Portfolio, and Davis Real Estate Portfolio,
respectively.
SEE NOTES TO FINANCIAL STATEMENTS
21
DAVIS VARIABLE ACCOUNT FUND, INC.
STATEMENTS OF OPERATIONS
For the six months ended June 30, 2005 (Unaudited)
================================================================================
DAVIS
DAVIS DAVIS REAL
VALUE FINANCIAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
INVESTMENT INCOME:
Income:
Dividends*..................................... $ 5,778,764 $ 661,072 $ 1,087,882
Interest....................................... 131,854 107,041 60,392
--------------- --------------- ---------------
Total income............................... 5,910,618 768,113 1,148,274
--------------- --------------- ---------------
Expenses:
Management fees (Note 2)....................... 2,473,231 407,508 214,448
Custodian fees................................. 92,472 18,741 13,663
Transfer agent fees............................ 5,719 3,545 3,299
Audit fees..................................... 7,800 6,000 6,000
Accounting fees (Note 2)....................... 3,000 3,000 3,000
Legal fees..................................... 4,337 714 352
Reports to shareholders........................ 31,306 8,506 450
Directors' fees and expenses................... 44,768 7,432 3,695
Registration and filing fees................... 10,007 2,006 874
Miscellaneous.................................. 6,425 3,337 2,568
--------------- --------------- ---------------
Total expenses............................. 2,679,065 460,789 248,349
Expenses paid indirectly (Note 5).......... (50) (16) (20)
--------------- --------------- ---------------
Net expenses............................... 2,679,015 460,773 248,329
--------------- --------------- ---------------
Net investment income.................... 3,231,603 307,340 899,945
--------------- --------------- ---------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investment transactions...................... (648,636) (811,991) 1,560,426
Foreign currency transactions................ (7,591) (906) 545
Net increase (decrease) in unrealized
appreciation of investments and foreign
currency transactions 5,501,158 (2,545,949) (105,304)
--------------- --------------- ---------------
Net realized and unrealized gain (loss) on
investments and foreign currency............. 4,844,931 (3,358,846) 1,455,667
--------------- --------------- ---------------
Net increase (decrease) in net assets
resulting from operations................ $ 8,076,534 $ (3,051,506) $ 2,355,612
=============== =============== ===============
*Net of foreign taxes withheld as follows......... $ 193,898 $ - $ 3,356
SEE NOTES TO FINANCIAL STATEMENTS
22
DAVIS VARIABLE ACCOUNT FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the six months ended June 30, 2005 (Unaudited)
================================================================================
DAVIS
DAVIS DAVIS REAL
VALUE FINANCIAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
OPERATIONS:
Net investment income........................ $ 3,231,603 $ 307,340 $ 899,945
Net realized gain (loss) from investment
and foreign currency transactions.......... (656,227) (812,897) 1,560,971
Net increase (decrease) in unrealized
appreciation of investments and foreign
currency transactions...................... 5,501,158 (2,545,949) (105,304)
------------- ------------- ------------
Net increase (decrease) in net assets resulting
from operations............................ 8,076,534 (3,051,506) 2,355,612
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income........................ - - (392,521)
CAPITAL SHARE TRANSACTIONS
(NOTE 4)..................................... (27,118,199) 3,441,288 1,715,816
------------- ------------- ------------
Total increase (decrease) in net assets.......... (19,041,665) 389,782 3,678,907
NET ASSETS:
Beginning of period.......................... 684,722,937 109,273,749 58,278,618
------------- ------------- ------------
End of period*............................... $ 665,681,272 $ 109,663,531 $ 61,957,525
============= ============= ============
*Including undistributed
net investment income of................. $ 3,231,603 $ 305,194 $ 507,424
SEE NOTES TO FINANCIAL STATEMENTS
23
DAVIS VARIABLE ACCOUNT FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31, 2004
================================================================================
DAVIS
DAVIS DAVIS REAL
VALUE FINANCIAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
OPERATIONS:
Net investment income........................ $ 5,306,186 $ 358,935 $ 1,016,323
Net realized gain (loss) from investment
and foreign currency transactions.......... (3,112,993) (1,009,400) 3,277,505
Net increase in unrealized appreciation of
investments and foreign currency
transactions............................... 69,125,469 9,637,834 9,199,069
------------- ------------- -------------
Net increase in net assets resulting
from operations............................ 71,318,662 8,987,369 13,492,897
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income........................ (5,273,618) (364,973) (1,497,449)
Return of capital............................ (115,109) - -
Realized gains from investment transactions.. - - (1,939,529)
CAPITAL SHARE TRANSACTIONS
(NOTE 4)..................................... 133,790,608 29,472,122 12,559,434
------------- ------------- -------------
Total increase in net assets..................... 199,720,543 38,094,518 22,615,353
NET ASSETS:
Beginning of year............................ 485,002,394 71,179,231 35,663,265
------------- ------------- -------------
End of year*................................. $ 684,722,937 $ 109,273,749 $ 58,278,618
============= ============= =============
*Including undistributed
net investment loss of................... - $ (2,146) -
SEE NOTES TO FINANCIAL STATEMENTS
24
DAVIS VARIABLE ACCOUNT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2005 (Unaudited)
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Davis Variable Account Fund, Inc. consists of three series of Funds,
Davis Value Portfolio, Davis Financial Portfolio, and Davis Real Estate
Portfolio (collectively "the Funds"). Davis Value Portfolio and Davis Financial
Portfolio are registered under the Investment Company Act of 1940, as amended,
as diversified, open-end management investment companies. Davis Real Estate
Portfolio is registered under the Investment Company Act of 1940, as amended, as
a non-diversified, open-end management investment company. Shares of the Funds
may only be purchased by insurance companies for the purpose of funding variable
annuity or variable life insurance contracts. The Funds account 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.
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,
or whose values have been affected by a significant event occurring after the
close of their primary markets, 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 Funds, 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 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.
25
DAVIS VARIABLE ACCOUNT FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2005 (Unaudited)
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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 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. The Funds include 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.
E. 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, 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, 2005, Davis Value Portfolio and Davis Financial Portfolio
had approximately $1,625,000 and $148,000, respectively, of post October 2004
losses available to offset future capital gains if any, which expire in 2013.
Additionally, Davis Financial Portfolio had $2,000 of post October 2004 foreign
currency losses which were deferred. At June 30, 2005, the Funds had available
for federal income tax purposes unused capital loss carryforwards as follows:
DAVIS DAVIS
VALUE FINANCIAL
PORTFOLIO PORTFOLIO
--------- ---------
EXPIRING
--------
12/31/2009 $ 6,568,000 $ 650,000
12/31/2010 19,386,000 -
12/31/2011 4,776,000 328,000
12/31/2012 3,532,000 926,000
-------------- ------------
TOTAL $ 34,262,000 $ 1,904,000
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.
26
DAVIS VARIABLE ACCOUNT FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2005 (Unaudited)
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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 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
Advisory fees are paid monthly to Davis Advisors, the Funds' investment
adviser (the "Adviser"). The fee for each of the Davis Value Portfolio, Davis
Financial Portfolio, and Davis Real Estate Portfolio is 0.75% of the respective
Fund's average annual net assets.
State Street Bank and Trust Company ("State Street Bank") is the Funds'
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, 2005 was
$22 for Davis Value Portfolio and $13 each for Davis Financial Portfolio and
Davis Real Estate Portfolio. State Street Bank is the Funds' primary accounting
provider. Fees for such services are included in the custodian fee as State
Street Bank also serves as the Funds' custodian. The Adviser is also paid for
certain accounting services. The fee for the six months ended June 30, 2005 for
Davis Value Portfolio, Davis Financial Portfolio, and Davis Real Estate
Portfolio amounted to $3,000 for each fund. 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.
NOTE 3 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the six months ended June 30, 2005 were as follows:
DAVIS DAVIS DAVIS
VALUE FINANCIAL REAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
Cost of purchases........................ $ 38,490,571 $ 14,583,038 $ 9,812,212
Proceeds of sales........................ $ 53,229,905 $ 10,675,526 $ 4,949,660
27
DAVIS VARIABLE ACCOUNT FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2005 (Unaudited)
================================================================================
NOTE 4 - CAPITAL STOCK
At June 30, 2005, there were 5 billion shares of capital stock ($0.001 par
value per share) authorized. Transactions in capital stock were as follows:
SIX MONTHS ENDED
JUNE 30, 2005
(UNAUDITED)
--------------------------------------------
DAVIS DAVIS DAVIS
VALUE FINANCIAL REAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
Shares sold .......................................... 2,186,637 854,427 580,245
Shares issued in reinvestment of distributions........ -- -- 25,489
------------ ------------ ------------
2,186,637 854,427 605,734
Shares redeemed ...................................... (4,491,441) (587,740) (501,703)
------------ ------------ ------------
Net increase (decrease) ........................ (2,304,804) 266,687 104,031
============ ============ ============
Proceeds from shares sold ............................ $ 25,671,002 $ 10,740,438 $ 9,433,106
Proceeds from shares issued in
reinvestment of distributions .................... -- -- 392,521
------------ ------------ ------------
25,671,002 10,740,438 9,825,627
Cost of shares redeemed .............................. (52,789,201) (7,299,150) (8,109,811)
------------ ------------ ------------
Net increase (decrease) ........................ $(27,118,199) $ 3,441,288 $ 1,715,816
============ ============ ============
YEAR ENDED
DECEMBER 31, 2004
-----------------------------------------------
DAVIS DAVIS DAVIS
VALUE FINANCIAL REAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- -------------
Shares sold .......................................... 16,736,008 3,238,473 1,356,048
Shares issued in reinvestment of distributions........ 456,672 28,469 215,308
------------- ------------- -------------
17,192,680 3,266,942 1,571,356
Shares redeemed ...................................... (4,984,466) (848,124) (751,119)
------------- ------------- -------------
Net increase ................................... 12,208,214 2,418,818 820,237
============= ============= =============
Proceeds from shares sold ............................ $ 182,733,878 $ 39,191,938 $ 19,825,910
Proceeds from shares issued in
reinvestment of distributions .................... 5,388,727 364,973 3,436,978
------------- ------------- -------------
188,122,605 39,556,911 23,262,888
Cost of shares redeemed .............................. (54,331,997) (10,084,789) (10,703,454)
------------- ------------- -------------
Net increase ................................... $ 133,790,608 $ 29,472,122 $ 12,559,434
============= ============= =============
NOTE 5 - EXPENSES PAID INDIRECTLY
Under an agreement with the custodian bank, each Fund's custodian fee is
reduced for earnings on cash balances maintained at the custodian by the Funds.
Such reductions amounted to $50, $16, and $20 for Davis Value Portfolio, Davis
Financial Portfolio, and Davis Real Estate Portfolio, respectively, during the
six months ended June 30, 2005.
28
DAVIS VARIABLE ACCOUNT FUND, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2005 (Unaudited)
================================================================================
NOTE 6 - ILLIQUID SECURITIES
Securities may be considered illiquid if they lack a readily available
market or if valuation has not changed for a certain period of time. The
aggregate value of illiquid securities in Davis Value Portfolio amounted to
$1,425,760 or 0.22% of the Fund's net assets, as of June 30, 2005.
Valuation per Unit
Acquisition Cost per as of June 30,
Funds Security Date Principal Unit 2005
- ----- -------- ------------ --------- ---------- -----------
Davis Value Level 3 Communications, Inc.,
Portfolio Conv. Sr. Notes, 10.00%,
05/01/11 4/4/05 1,600,000 $100.00 $ 89.11
29
DAVIS VARIABLE ACCOUNT FUND, INC.
FINANCIAL HIGHLIGHTS
DAVIS VALUE PORTFOLIO
================================================================================
The following financial information represents data for each share of capital
stock outstanding throughout each period:
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2005 ------------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period ...... $ 11.78 $ 10.57 $ 8.20 $ 9.87 $ 11.06 $ 10.25
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) From Investment Operations
Net Investment Income .................... 0.06 0.09 0.07 0.06 0.04 0.03
Net Realized and Unrealized
Gains (Losses) ........................ 0.09 1.21 2.37 (1.66) (1.19) 0.92
---------- ---------- ---------- ---------- ---------- ----------
Total From Investment Operations ...... 0.15 1.30 2.44 (1.60) (1.15) 0.95
Dividends and Distributions
Dividends from Net Investment Income ..... -- (0.09) (0.07) (0.06) (0.04) (0.03)
Return of Capital ........................ -- --(3) -- (0.01) --(3) --(3)
Distributions from Realized Gains ........ -- -- -- -- -- (0.11)
---------- ---------- ---------- ---------- ---------- ----------
Total Dividends and Distributions ..... -- (0.09) (0.07) (0.07) (0.04) (0.14)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ............ $ 11.93 $ 11.78 $ 10.57 $ 8.20 $ 9.87 $ 11.06
========== ========== ========== ========== ========== ==========
Total Return(1) ........................... 1.27% 12.33% 29.76% (16.26)% (10.39)% 9.30%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ... $665,681 $684,723 $485,002 $283,039 $278,958 $120,209
Ratio of Expenses to Average Net Assets ... 0.81%* 0.81% 0.82% 0.83% 0.87% 1.00%(4)
Ratio of Net Investment Income to
Average Net Assets .................... 0.98%* 0.87% 0.90% 0.70% 0.55% 0.73%
Portfolio Turnover Rate(2) ................ 6% 4% 7% 24% 18% 10%
(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
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% for 2000.
* Annualized
SEE NOTES TO FINANCIAL STATEMENTS
30
DAVIS VARIABLE ACCOUNT FUND, INC.
FINANCIAL HIGHLIGHTS
DAVIS FINANCIAL PORTFOLIO
================================================================================
The following financial information represents data for each share of capital
stock outstanding throughout each period:
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2005 ---------------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period ..... $ 12.82 $ 11.66 $ 8.85 $ 10.67 $ 11.91 $ 9.26
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) From Investment Operations
Net Investment Income ................... 0.03 0.04 0.04 0.02 -- 0.01
Net Realized and Unrealized
Gains (Losses) ....................... (0.37) 1.16 2.81 (1.82) (1.24) 2.84
---------- ---------- ---------- ---------- ---------- ----------
Total From Investment Operations ..... (0.34) 1.20 2.85 (1.80) (1.24) 2.85
Dividends and Distributions
Dividends from Net Investment Income .... -- (0.04) (0.04) (0.02) --(3) (0.01)
Return of Capital ....................... -- -- -- -- --(3) --(3)
Distributions from Realized Gains ....... -- -- -- -- -- (0.19)
---------- ---------- ---------- ---------- ---------- ----------
Total Dividends and Distributions .... -- (0.04) (0.04) (0.02) -- (0.20)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ........... $ 12.48 $ 12.82 $ 11.66 $ 8.85 $ 10.67 $ 11.91
========== ========== ========== ========== ========== ==========
Total Return(1) .......................... (2.65)% 10.32% 32.15% (16.84)% (10.37)% 30.97%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) .. $ 109,664 $ 109,274 $71,179 $31,709 $24,587 $14,770
Ratio of Expenses to Average Net Assets .. 0.85%* 0.85% 0.90% 0.99% 1.00%(4) 1.00%(4)
Ratio of Net Investment Income to
Average Net Assets ................... 0.57%* 0.40% 0.48% 0.32% 0.04% 0.18%
Portfolio Turnover Rate(2) ............... 11% 6% 10% 23% 24% 26%
(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
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 1.04% and 1.55% for 2001 and 2000,
respectively.
* Annualized
SEE NOTES TO FINANCIAL STATEMENTS
31
DAVIS VARIABLE ACCOUNT FUND, INC.
FINANCIAL HIGHLIGHTS
DAVIS REAL ESTATE PORTFOLIO
================================================================================
The following financial information represents data for each share of capital
stock outstanding throughout each period:
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2005 ---------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
--------- --------- --------- --------- --------- ---------
Net Asset Value, Beginning of Period ...... $ 16.80 $ 13.47 $ 10.49 $ 10.35 $ 10.38 $ 8.71
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income .................... 0.25 0.34 0.44 0.36 0.36 0.33
Net Realized and Unrealized
Gains ................................. 0.40 4.07 3.34 0.25 0.19 1.67
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ...... 0.65 4.41 3.78 0.61 0.55 2.00
Dividends and Distributions
Dividends from Net Investment Income ..... (0.11) (0.48) (0.55) (0.36) (0.36) (0.33)
Return of Capital ........................ -- -- -- (0.11) (0.07) --
Distributions from Realized Gains ........ (0.60) (0.25) -- (0.11) --
Distributions in Excess of Net
Investment Income ..................... -- -- -- -- (0.04) --
--------- --------- --------- --------- --------- ---------
Total Dividends and Distributions ..... (0.11) (1.08) (0.80) (0.47) (0.58) (0.33)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period ............ $ 17.34 $ 16.80 $ 13.47 $ 10.49 $ 10.35 $ 10.38
========= ========= ========= ========= ========= =========
Total Return(1) ........................... 3.96% 33.35% 36.79% 5.89% 5.50% 23.33%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted).... $61,958 $58,279 $35,663 $ 18,806 $10,029 $4,853
Ratio of Expenses to Average Net Assets.... 0.87%* 0.89% 0.98% 1.00%(3) 1.00%(3) 1.07%(3,4)
Ratio of Net Investment Income to
Average Net Assets .................... 3.15%* 2.30% 3.74% 3.54% 3.70% 4.31%
Portfolio Turnover Rate(2) ................ 9% 32% 22% 52% 45% 16%
(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
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) Had the Adviser not absorbed certain expenses the ratio of expenses to
average net assets would have been 1.10%, 1.39%, and 3.15%, for 2002, 2001,
and 2000, respectively.
(4) Ratio of expenses to average net assets after the reduction of expenses
paid indirectly was 1.00% for 2000.
* Annualized
SEE NOTES TO FINANCIAL STATEMENTS
32
DAVIS VARIABLE ACCOUNT FUND, INC.
FUND INFORMATION
================================================================================
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES
The Funds have adopted Portfolio Proxy Voting Policies and Procedures under
which the Funds vote proxies relating to securities held by the Funds. A
description of the Funds' Portfolio Proxy Voting Policies and Procedures is
available (i) without charge, upon request, by calling the Funds toll-free at
1-800-279-0279, (ii) on the Funds' website at www.davisfunds.com, and (iii) on
the SEC's website at www.sec.gov.
In addition, the Funds are required to file Form N-PX, with their complete
proxy voting record for the 12 months ended June 30th, no later than August 31st
of each year. The Funds' Form N-PX filing is available (i) without charge, upon
request, by calling the Funds toll-free at 1-800-279-0279, (ii) on the Funds'
website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.
FORM N-Q
The Funds file their complete schedule of portfolio holdings with the SEC
for the first and third quarters of each fiscal year on Form N-Q. The Funds'
Form N-Q is available without charge upon request by calling 1-800-279-0279 or
on the Funds' website at www.davisfunds.com or on the SEC's website at
www.sec.gov. The Funds' Form N-Q may be reviewed and copied at the SEC's Public
Reference Room in Washington, DC, and that information on the operation of the
Public Reference Room may be obtained by calling 1-800-SEC-0330.
33
DAVIS VARIABLE ACCOUNT FUND, INC.
DIRECTOR APPROVAL OF ADVISORY AGREEMENTS
================================================================================
PROCESS OF ANNUAL REVIEW
The Board of Directors of the Davis Funds oversees the management of each Davis
Fund and, as required by law, determines annually whether to approve the
continuance of each Davis Fund's advisory agreement with Davis Selected
Advisers, L.P. and sub-advisory agreement with Davis Selected Advisers-NY, Inc.
(jointly "Davis Advisors" and "Advisory Agreements").
As a part of this process the Independent Directors, with the assistance of
counsel for the Independent Directors, prepares questions which it submits to
Davis Advisors in anticipation of the annual contract review. In a separate
meeting held prior to the March 2005 board meeting, the Independent Directors
reviewed and evaluated all information which they deemed reasonably necessary in
the circumstances. Upon completion of this review, the Independent Directors
recommended that the full Board of Directors approve the continuance of the
Advisory Agreements, which occurred at the March 2005 board meeting.
REASONS THE INDEPENDENT DIRECTORS APPROVED CONTINUATION OF THE ADVISORY
AGREEMENTS
The Independent Directors' determinations were based upon a comprehensive
consideration of all information provided to the Independent Directors and were
not the result of any single factor. The following facts and conclusions were
important, but not exclusive, in the Independent Directors' recommendation to
renew the Advisory Agreements for each of the Davis Funds described below.
The Independent Directors noted the importance of reviewing quantitative
measures, but also recognize that qualitative factors, some of which are
mentioned below, could be equally or more important in assessing whether Davis
Fund shareholders have been, or are likely to be, well served by the renewal of
the management contract. They noted both the value and shortcomings of purely
quantitative measures, including the data provided by independent service
providers, and concluded that while such measures and data can inform, they
should not supersede the judgment of the Independent Directors who take many
factors, including those listed below, into consideration in representing the
shareholders of Davis Funds. In connection with reviewing comparative
performance information, the Independent Directors generally give weight to
longer-term measurements.
The Independent Directors believe that shareholders of Davis Funds should, and
will, expect Davis Advisors to employ a disciplined, company specific, research
driven, businesslike, long-term investment philosophy. The Independent Directors
concluded that the willingness of Davis Advisors and related persons to invest a
substantial amount of their own money alongside and on the same terms as other
shareholders in the Davis Funds demonstrates a good alignment of interest
between Davis Advisors and Davis Fund shareholders.
The Independent Directors recognized Davis Advisors' (a) efforts to minimize
transaction costs by generally having a long-term time horizon and low portfolio
turnover; (b) record of generally producing satisfactory results over the
long-term (c) efforts towards fostering healthy investor behavior by, among
other things, providing informative and substantial educational material; and
(d) efforts to promote shareholder interests by actively speaking out on
corporate governance issues.
34
DAVIS VARIABLE ACCOUNT FUND, INC.
DIRECTOR APPROVAL OF ADVISORY AGREEMENTS - (Continued)
================================================================================
The Independent Directors also noted that Davis Advisers provides a number of
services to the Davis Funds in addition to investment management. Non-investment
management services provided by Davis Advisors to the Davis Funds include (a)
responsibility for complying with legal duties, and regulatory obligations; and
(b) responsibility for general administrative and business services. Davis
Advisors is reimbursed a portion of its costs in providing some, but not all, of
these services.
The Independent Directors reviewed (a) comparative fee and expense information
for competitive funds, as selected and analyzed by a nationally recognized
independent service provider; (b) information regarding fees charged by Davis
Advisors to other advisory clients, including funds which it sub-advises and
private accounts, as well as the differences in the services provided to such
other clients; and (c) the fee schedules of the various Davis Variable Account
Funds, including an assessment of competitive fee schedules.
The Independent Directors reviewed the profitability of each Davis Fund to Davis
Advisors. The Independent Directors considered various potential benefits that
Davis Advisors may receive in connection with the services it provides under the
Advisory Agreements with each Davis Fund, including a review of portfolio
brokerage practices. The Independent Directors noted that Davis Advisors does
not use client commissions to pay for publications that are available to the
general public or third-party research services.
DAVIS VALUE PORTFOLIO
- ---------------------
The Independent Directors noted that Davis Value Portfolio out-performed its
benchmark, the Standard & Poor's 500(R) Index, and exceeded the average
performance of its peer group, as determined by an independent service provider,
over the longer-term investment horizon.
The Independent Directors considered the expense ratio for Davis Value Portfolio
and concluded that it is reasonable and competitive with the range of average
expense ratios of its peer group as determined by an independent service
provider.
DAVIS FINANCIAL PORTFOLIO
- -------------------------
The Independent Directors noted that Davis Financial Portfolio out-performed its
benchmark, the Standard & Poor's 500(R) Index, over the longer-term investment
horizon, but under-performed the Index over the one-year investment period.
Davis Financial Portfolio exceeded the average performance of its peer group, as
determined by an independent service provider, over the longer-term investment
horizon, but under-performed the average performance of its peer group, over the
shorter investment horizon.
The Independent Directors considered the expense ratio for Davis Financial
Portfolio and concluded that it is reasonable and competitive with the range of
average expense ratios of its peer group as determined by an independent service
provider.
DAVIS REAL ESTATE PORTFOLIO
- ---------------------------
The Independent Directors noted that Davis Real Estate Portfolio out-performed
its benchmark, the Dow Jones Wilshire Real Estate Index, over the 3-year
investment horizon, but under-performed the index over the 1 and 5-year
investment horizons. Davis Real Estate Portfolio exceeded or equaled the average
performance of its peer group, as determined by an independent service provider,
over the shorter investment horizon, but trailed the peer group over the 5-year
investment horizon. The Fund also had strong absolute performance over all
reviewed periods.
35
DAVIS VARIABLE ACCOUNT FUND, INC.
DIRECTOR APPROVAL OF ADVISORY AGREEMENTS - (Continued)
- --------------------------------------------------------------------------------
DAVIS REAL ESTATE PORTFOLIO - (CONTINUED)
The Independent Directors considered the expense ratio for Davis Real Estate
Portfolio and concluded that it is reasonable and competitive with the range of
average expense ratios of its peer group as determined by an independent service
provider.
APPROVAL OF ADVISORY ARRANGEMENTS
After their review of all factors, the Independent Directors determined that the
advisory fee for each Fund of Davis Variable Account Funds is reasonable in
light of the nature, quality and extent of the services being provided to each
Fund, the costs incurred by Davis Advisors in providing such service, and in
comparison to the range of the average advisory fees of its peer group as
determined by an independent service provider.
The Independent Directors considered the advisory fee schedule for each Fund of
Davis Variable Account Funds (each schedule a fixed fee which was typical for
many competitive funds) and concluded that it represents an appropriate sharing
between Fund shareholders and Davis Advisors of such economies of scale as may
exist in the management of the Fund at current asset levels.
The Independent Directors therefore recommended continuation of the advisory
agreements.
36
DAVIS VARIABLE ACCOUNT FUND, INC.
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. Subject to exceptions and exemptions which may be granted by the
Independent Directors, 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
POSITION(S) OFFICE AND PRINCIPAL FUND COMPLEX
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, Bass & Associates 12 none
BASS, JR. since 1990 (financial consulting);
(born 8/21/31) 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 Officer, World 12 Director, Legg Mason Trust
(born 9/9/42) since 1986 Total Return Fund, LLLP; Of (asset management company)
Counsel to Gordon, Feinblatt, and Rodney Trust Company
Rothman, Hoffberger and (Delaware).
Hollander, LLC (law firm).
THOMAS S. GAYNER Director director Executive Vice President and 12 none
(born 12/16/61) since 2004 Chief Investment Officer,
Markel Corporation (insurance
company).
JERRY D. GEIST Director director Chairman, Santa Fe Center 12 Director, CH2M-Hill, Inc.
(born 5/23/34) since 1986 Enterprises (energy project (engineering); Chairman,
development); Retired Chairman Santa Fe Center Enterprises;
and President, Public Service Investment Committee for
Company of New Mexico. Microgeneration Technology
Fund, UTECH Funds.
37
DAVIS VARIABLE ACCOUNT FUND, INC.
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 Technology, Inc. 12 Director, Intel Corp.
(born 3/7/36) since 1982 (semi-conductor manufacturer). (semi-conductor
manufacturer), Cirrus Logic
Corp. (semi-conductor
manufacturer), Alliance
Technology Fund (a mutual
fund), Micro Component
Technology, Inc.
(micro-circuit handling and
testing equipment
manufacturer), LogicVision,
Inc. (semi-conductor software
company), and Tessera
Technologies, Inc.
(semi-conductor packaging
company).
G. BERNARD Director director Managing General Partner, 12 none
HAMILTON since 1978 Avanti Partners, L.P.
(born 3/18/37) (investment partnership).
ROBERT P. Director director Chairman, Northroad Capital 12 none
MORGENTHAU since 2002 Management, LLC (an investment
(born 3/22/57) management firm) since June
2002; President of Private
Advisory Services, 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, Cantrock Realty and 12 none
SMITH, JR. since 1994 Mayor, Incorporated Village of
(born 12/23/32) Mill Neck, NY.
38
DAVIS VARIABLE ACCOUNT FUND, INC.
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, Tuxedo 12 none
SONNE since 1990 Park Associates (land
(born 5/6/36) holding and development
firm); President and
Chief Executive Officer,
Mulford Securities
Corporation (private
investment fund) until
1990; formerly Vice
President of Goldman
Sachs & Co. (investment
banking).
MARSHA WILLIAMS Director director Executive Vice President 15 Director of the Selected
(born 3/28/51) since 1999 and Chief Financial Funds (consisting of three
Officer, Equity Office portfolios) since 1996;
Properties Trust (a real Director, Modine
estate investment Manufacturing, Inc. (heat
trust); Former Chief transfer technology);
Administrative Officer, Director, Chicago Bridge &
Crate & Barrel (home Iron Company, N.V.
furnishings retailer); (industrial construction and
former Vice President engineering).
and Treasurer, Amoco
Corporation (oil & gas
company).
INSIDE DIRECTORS*
JEREMY H. BIGGS Director/ director Vice Chairman, Member of 12 none
(born 8/16/35) Chairman since 1994 the 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.
39
DAVIS VARIABLE ACCOUNT FUND, INC.
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 Davis Funds (consisting of three
Fund and Selected Fund; portfolios) since 1998.
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 Officer, 15 Director of the Selected
DAVIS since 1997 President or Vice Funds (consisting of three
(born 7/13/65) President of each Davis portfolios) since 1998.
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.
40
DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101, Tucson, Arizona 85706
- --------------------------------------------------------------------------------
DIRECTORS OFFICERS
Wesley E. Bass, Jr. Jeremy H. Biggs
Jeremy H. Biggs Chairman
Marc P. Blum Christopher C. Davis
Andrew A. Davis President - Davis Value Portfolio, Davis
Christopher C. Davis Financial Portfolio, & Vice President -
Thomas S. Gayner Davis Real Estate Portfolio
Jerry D. Geist Andrew A. Davis
D. James Guzy President - Davis Real Estate Portfolio,
G. Bernard Hamilton Vice President - Davis Value Portfolio &
Robert P. Morgenthau Davis Financial Portfolio
Theodore B. Smith, Jr. Kenneth C. Eich
Christian R. Sonne Executive Vice President &
Marsha Williams Principal Executive Officer
Sharra L. Reed
Vice President & Chief Compliance Officer
Douglas A. Haines
Vice President
& 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
Seyfarth Shaw LLP
55 East Monroe Street, Suite 4200
Chicago, Illinois 60603-5803
AUDITORS
KPMG LLP
707 Seventeenth Street
Suite 2700
Denver, Colorado 80202
================================================================================
FOR MORE INFORMATION ABOUT THE DAVIS VARIABLE ACCOUNT FUND, INC., INCLUDING
MANAGEMENT FEE, CHARGES AND EXPENSES, SEE THE CURRENT PROSPECTUS WHICH MUST
PRECEDE OR ACCOMPANY THIS REPORT. THE FUNDS' STATEMENT OF ADDITIONAL INFORMATION
CONTAINS ADDITIONAL INFORMATION ABOUT THE FUNDS' DIRECTORS AND IS AVAILABLE
WITHOUT CHARGE UPON REQUEST BY CALLING 1-800-279-0279 OR ON THE FUNDS' WEBSITE
AT WWW.DAVISFUNDS.COM. QUARTERLY FACT SHEETS ARE AVAILABLE ON THE FUNDS' WEBSITE
AT WWW.DAVISFUNDS.COM.
================================================================================
41
DAVIS ADVISORS
2949 EAST ELVIRA ROAD
SUITE 101
TUCSON, AZ 85706
1-800-279-0279
www.davisfunds.com
[LOGO OMITTED]
DAVIS
FUNDS
OVER 35 YEARS OF RELIABLE INVESTING*
SEMI-ANNUAL REPORT
JUNE 30, 2005
DAVIS VALUE PORTFOLIO
(PORTFOLIO OF DAVIS VARIABLE ACCOUNT FUND, INC.)
[LOGO OMITTED]
DAVIS FUNDS
OVER 35 YEARS OF RELIABLE INVESTING(TM)
TABLE OF CONTENTS
Management's Discussion and Analysis...........................................2
Fund Overview..................................................................4
Expense Example................................................................5
Schedule of Investments........................................................6
Statement of Assets and Liabilities...........................................10
Statement of Operations.......................................................11
Statements of Changes in Net Assets...........................................12
Notes to Financial Statements.................................................13
Financial Highlights..........................................................16
Fund Information..............................................................17
Director Approval of Advisory Agreements......................................18
Directors and Officers........................................................20
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
MARKET ENVIRONMENT
During the six-month period ended June 30, 2005, the stock market, as measured
by the Standard & Poor's 500(R) Index(1), declined by 0.81%. Inflation-adjusted
gross domestic product, the most comprehensive measure of economic activity,
increased 3.4% in the second quarter after increasing 3.8% in the first quarter.
Interest rates, as measured by the 10-year Treasury bond, were stable for the
first two months of the year, rose sharply in March, and then slowly declined
over the second quarter of 2005.
DAVIS VALUE PORTFOLIO
PERFORMANCE OVERVIEW
Davis Value Portfolio returned 1.27% for the six-month period ended June 30,
2005(2), compared to its benchmark, the Standard & Poor's 500(R) Index(1), which
declined by 0.81%.
Energy companies were the most important contributors(3) to the Portfolio's
performance over the six-month period. Energy companies were also the strongest
performing sector of the S&P 500(R) Index. The Portfolio benefited both by
investing a larger percentage of its assets in energy companies than did the
Index, and as a group, the individual energy companies that the Portfolio owned
out-performed the average energy company included in the Index. All of the
Portfolio's energy companies performed well, with EOG Resources(4),
ConocoPhillips, Occidental Petroleum, and Devon Energy, all among the
Portfolio's top contributors to performance for the six-month period.
Industrial companies were the most important detractors from the Portfolio's
performance over the six-month period. Tyco International was among the top
detractors from performance.
The Portfolio's largest industry group holdings were in insurance companies.
Insurance companies turned in a mixed performance over the six-month period,
with Progressive and Loews among the top contributors to performance, and
American International Group and Berkshire Hathaway among the Portfolio's top
detractors from performance.
The Portfolio also held significant investments in diversified financial
companies. Overall, the Portfolio's diversified financial companies detracted
from performance over the six-month period. American Express and JPMorgan Chase
were both among the top detractors from performance.
Individual companies making important contributions to the Portfolio's
performance over the period included HCA, a health care equipment and services
company; Altria Group, a food, beverage, and tobacco company; and H&R Block, a
consumer services company.
Individual companies detracting from performance over the period included
Comcast, a media company; and Lexmark International, a technology hardware and
equipment company.
The Portfolio managers have identified a number of investment opportunities in
foreign companies. The Portfolio ended the period with approximately 11% of its
portfolio invested in foreign companies. As a group, the foreign companies owned
by the Portfolio slightly under-performed the S&P 500(R) Index over the
six-month period.
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 investment strategies, 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) financial services risk, (4) foreign country risk, (5)
headline risk, and (6) 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 in 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, 2005.
----------------------------------------------------------------
PORTFOLIO NAME 1-YEAR 5-YEAR INCEPTION
(July 1, 1999)
----------------------------------------------------------------
Davis Value Portfolio 8.92% 2.50% 3.69%
----------------------------------------------------------------
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) A company's or sector's contribution to the Portfolio's performance is a
product both of its appreciation or depreciation and it's weighting within the
portfolio. For example, a 5% holding that rises 20% has twice as much impact as
a 1% holding that rises 50%.
(4) 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 Value Portfolio 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
FUND OVERVIEW
At June 30, 2005 (Unaudited)
================================================================================
[GRAPHIC OMITTED]
PORTFOLIO MAKEUP (% OF FUND NET ASSETS)
- ---------------------------------------
Short Term Investments,
Convertible Bonds, Other
Assets & Liabilities 0.8%
Common Stocks 99.2%
[GRAPHIC OMITTED]
SECTOR WEIGHTINGS (% OF STOCK HOLDINGS)
- ---------------------------------------
Other 9.4%
Media 5.5%
Food, Beverage,
and Tobacco 8.3%
Energy 11.0%
Diversified Financials 16.2%
Insurance 17.8%
Food & Staples
Retailing 3.6%
Health Care 4.2%
Capital Goods 4.0%
Technology 4.2%
Materials 4.5%
Banks 11.3%
TOP 10 HOLDINGS
STOCK SECTOR % OF FUND NET ASSETS
- -----------------------------------------------------------------------------------------------------------
American Express Co. Consumer Finance 5.92%
Altria Group, Inc. Food, Beverage, & Tobacco 5.03%
Berkshire Hathaway Inc., Class A Property & Casualty Insurance 4.58%
American International Group, Inc. Multi-Line Insurance 4.53%
Tyco International Ltd. Capital Goods 3.97%
JPMorgan Chase & Co. Diversified Financial Services 3.65%
HSBC Holdings PLC Commercial Banks 3.37%
Comcast Corp., Special Class A Media 3.27%
Progressive Corp. (Ohio) Property & Casualty Insurance 3.20%
Golden West Financial Corp. Thrifts & Mortgage Finance 3.17%
4
DAVIS VALUE PORTFOLIO
EXPENSE EXAMPLE (Unaudited)
================================================================================
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs only, including advisory
and administrative fees and other Fund expenses. The Expense Example is intended
to help you understand your ongoing costs (in dollars) of investing in the Fund
and to compare these costs with the ongoing costs of investing in other mutual
funds. The Expense Example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire period indicated, which for the
Fund is from 01/01/05 to 6/30/05. Please note that the Expense Example is
general and does not reflect charges imposed by your insurance company's
separate account or account specific costs, which may increase your total costs
of investing in the fund. If these charges or account specific costs were
included in the Expense Example, the expenses would have been higher.
ACTUAL EXPENSES
The information represented in the row entitled "Actual" provides information
about actual account values and actual expenses. You may use the information in
this row, together with the amount you invested, to estimate the expenses that
you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number under the heading "Expenses Paid During Period" to estimate
the expenses you paid for on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The information represented in the row entitled "Hypothetical" provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. Therefore, the information in the row entitled
"Hypothetical" is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds.
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(01/01/05) (06/30/05) (01/01/05-06/30/05)
---------- ---------- -------------------
Actual.................................................. $1,000.00 $1,012.74 $4.04
Hypothetical (5% annual return before expenses)......... $1,000.00 $1,020.78 $4.06
*Expenses are equal to the Fund's annualized expense ratio (0.81%), multiplied
by the average account value over the period, multiplied by 181/365 (to reflect
the one-half year period).
5
DAVIS VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 2005 (Unaudited)
VALUE
SHARES SECURITY (NOTE 1)
================================================================================
COMMON STOCK - (99.17%)
AUTOMOBILES & COMPONENTS - (0.69%)
92,700 Harley-Davidson, Inc. ........................ $ 4,597,920
-------------
AUTOMOTIVE RETAIL - (0.76%)
54,500 AutoZone, Inc.*............................... 5,039,070
-------------
CAPITAL GOODS - (3.97%)
905,958 Tyco International Ltd. ...................... 26,453,974
-------------
CAPITAL MARKETS - (0.97%)
96,600 Morgan Stanley................................ 5,068,602
28,100 State Street Corp. ........................... 1,355,825
-------------
6,424,427
-------------
COMMERCIAL BANKS - (8.09%)
161,000 Fifth Third Bancorp........................... 6,629,175
1,406,940 HSBC Holdings PLC............................. 22,435,254
161,700 Lloyds TSB Group PLC, ADR..................... 5,505,885
312,800 Wells Fargo & Co. ............................ 19,262,224
-------------
53,832,538
-------------
COMMERCIAL SERVICES & SUPPLIES - (1.30%)
94,400 D&B Corp.*.................................... 5,819,760
986,400 Rentokil Initial PLC.......................... 2,823,315
-------------
8,643,075
-------------
CONSUMER DURABLES & APPAREL - (0.17%)
22,000 Hunter Douglas NV............................. 1,100,341
-------------
CONSUMER FINANCE - (7.00%)
740,200 American Express Co. ......................... 39,400,846
127,300 Providian Financial Corp.*.................... 2,244,299
73,100 Takefuji Corp. ............................... 4,943,197
-------------
46,588,342
-------------
CONSUMER SERVICES - (2.01%)
229,000 H&R Block, Inc. .............................. 13,362,150
-------------
DIVERSIFIED FINANCIAL SERVICES - (8.16%)
402,833 Citigroup Inc. ............................... 18,622,970
687,648 JPMorgan Chase & Co. ......................... 24,287,727
200,200 Moody's Corp. ................................ 9,000,992
57,800 Principal Financial Group, Inc. .............. 2,421,820
-------------
54,333,509
-------------
ENERGY - (10.93%)
344,742 ConocoPhillips................................ 19,819,218
319,000 Devon Energy Corp. ........................... 16,166,920
272,700 EOG Resources, Inc. .......................... 15,489,360
206,800 Occidental Petroleum Corp. ................... 15,909,124
6
DAVIS VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS - (Continued)
June 30, 2005 (Unaudited)
VALUE
SHARES SECURITY (NOTE 1)
================================================================================
COMMON STOCK - (CONTINUED)
ENERGY - (CONTINUED)
99,500 Transocean Inc.*.............................. $ 5,370,015
-------------
72,754,637
-------------
FOOD & STAPLES RETAILING - (3.54%)
455,700 Costco Wholesale Corp. ....................... 20,385,739
66,500 Wal-Mart Stores, Inc. ........................ 3,205,300
-------------
23,591,039
-------------
FOOD, BEVERAGE, & TOBACCO - (8.31%)
517,600 Altria Group, Inc. ........................... 33,468,016
158,000 Diageo PLC, ADR............................... 9,369,400
210,940 Heineken Holding NV........................... 5,896,714
106,500 Hershey Co. .................................. 6,613,650
-------------
55,347,780
-------------
HEALTH CARE EQUIPMENT & SERVICES - (2.88%)
127,200 Cardinal Health, Inc. ........................ 7,324,176
13,100 Caremark Rx, Inc.*............................ 583,212
198,300 HCA Inc. ..................................... 11,237,661
-------------
19,145,049
-------------
HOUSEHOLD & PERSONAL PRODUCTS - (0.24%)
42,600 Avon Products, Inc. .......................... 1,612,410
-------------
INSURANCE BROKERS - (1.56%)
174,100 Aon Corp. .................................... 4,359,464
217,500 Marsh & McLennan Cos, Inc. ................... 6,024,750
-------------
10,384,214
-------------
INTERNET RETAIL - (0.42%)
117,100 IAC/InterActiveCorp*.......................... 2,812,156
-------------
LIFE & HEALTH INSURANCE - (0.18%)
35,900 Sun Life Financial Inc. ...................... 1,209,830
-------------
MATERIALS - (4.43%)
79,600 Martin Marietta Materials, Inc. ............. 5,501,952
373,500 Sealed Air Corp.*............................. 18,596,565
82,800 Vulcan Materials Co. ......................... 5,381,172
-------------
29,479,689
-------------
MEDIA - (5.44%)
728,400 Comcast Corp., Special Class A*............... 21,775,518
40,700 Gannett Co., Inc. ............................ 2,894,991
124,700 Lagardere S.C.A. ............................. 9,242,973
5,700 NTL Inc.*..................................... 389,652
37,800 WPP Group PLC, ADR............................ 1,934,415
-------------
36,237,549
-------------
7
DAVIS VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS - (Continued)
June 30, 2005 (Unaudited)
VALUE
SHARES SECURITY (NOTE 1)
================================================================================
COMMON STOCK - (CONTINUED)
MULTI-LINE INSURANCE - (6.56%)
519,337 American International Group, Inc. ........... $ 30,173,480
173,800 Loews Corp. .................................. 13,469,500
-------------
43,642,980
-------------
PHARMACEUTICALS & BIOTECHNOLOGY - (1.30%)
99,600 Eli Lilly and Co. ............................ 5,548,716
65,000 Novartis AG, Registered....................... 3,096,566
-------------
8,645,282
-------------
PROPERTY & CASUALTY INSURANCE - (8.22%)
365 Berkshire Hathaway Inc., Class A*............. 30,477,500
42 Berkshire Hathaway Inc., Class B*............. 116,907
25,400 Chubb Corp. .................................. 2,174,494
1,800 Markel Corp.*................................. 610,200
215,700 Progressive Corp. (Ohio)...................... 21,313,317
-------------
54,692,418
-------------
REAL ESTATE - (1.55%)
244,600 Centerpoint Properties Trust.................. 10,346,580
-------------
REINSURANCE - (1.22%)
145,937 Transatlantic Holdings, Inc. ................. 8,146,203
-------------
SOFTWARE & SERVICES - (2.20%)
291,400 Iron Mountain Inc.*........................... 9,039,228
227,100 Microsoft Corp. .............................. 5,637,757
-------------
14,676,985
-------------
TECHNOLOGY HARDWARE & EQUIPMENT - (1.94%)
153,800 Hewlett-Packard Co. .......................... 3,615,838
112,800 Lexmark International, Inc., Class A*......... 7,312,824
121,000 Nokia Oyj, ADR................................ 2,013,440
-------------
12,942,102
-------------
TELECOMMUNICATION SERVICES - (0.68%)
142,900 SK Telecom Co., Ltd., ADR..................... 2,915,160
71,800 Telewest Global, Inc.*........................ 1,634,527
-------------
4,549,687
-------------
THRIFTS & MORTGAGE FINANCE - (3.17%)
327,300 Golden West Financial Corp. .................. 21,071,574
-------------
TRANSPORTATION - (1.28%)
1,119,998 China Merchants Holdings International Co. Ltd 2,176,293
940,000 Cosco Pacific Ltd............................. 1,826,535
8
DAVIS VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS - (Continued)
June 30, 2005 (Unaudited)
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (CONTINUED)
TRANSPORTATION - (CONTINUED)
1,500 Kuehne & Nagel International AG, Registered.................................. $ 318,377
60,600 United Parcel Service, Inc., Class B......................................... 4,191,096
--------------
8,512,301
--------------
Total Common Stock - (identified cost $522,690,047)...................... 660,175,811
--------------
CONVERTIBLE BONDS - (0.22%)
TELECOMMUNICATION SERVICES - (0.22%)
$ 1,600,000 Level 3 Communications, Inc., Conv. Sr. Notes, 10.00%, 05/01/11 (b)
(identified cost $1,600,000)............................................... 1,425,760
--------------
SHORT TERM INVESTMENTS - (0.27%)
593,000 Goldman, Sachs & Co., Joint Repurchase Agreement, 3.43%,
07/01/05, dated 06/30/05, repurchase value of $593,056
(collateralized by: U.S. Government agency obligations in a pooled cash
account, total market value $604,860)..................................... 593,000
634,000 Nomura Securities International, Inc. Joint Repurchase Agreement, 3.44%,
07/01/05, dated 06/30/05, repurchase value of $634,061
(collateralized by: U.S. Government agency obligations in a pooled cash
account, total market value $646,680)..................................... 634,000
571,000 UBS Financial Services Inc. Joint Repurchase Agreement, 3.43%,
07/01/05, dated 06/30/05, repurchase value of $571,054
(collateralized by: U.S. Government agency obligations in a pooled cash
account, total market value $582,420)..................................... 571,000
--------------
Total Short Term Investments - (identified cost $1,798,000)......... 1,798,000
--------------
Total Investments - (99.66%) - (identified cost $526,088,047) - (a).......... 663,399,571
Other Assets Less Liabilities - (0.34%)...................................... 2,281,701
--------------
Net Assets - (100%)...................................................... $ 665,681,272
==============
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $527,271,540. At June 30,
2005 unrealized appreciation (depreciation) of securities for Federal Income Tax
purposes is as follows:
Unrealized appreciation...................................................... $ 146,680,897
Unrealized depreciation...................................................... (10,552,866)
--------------
Net unrealized appreciation.............................................. $ 136,128,031
==============
(b) Illiquid security: See Note 6 of the Notes to Financial Statements.
SEE NOTES TO FINANCIAL STATEMENTS
9
DAVIS VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
At June 30, 2005 (Unaudited)
================================================================================
ASSETS:
Investments in securities, at value
(see accompanying Schedule of Investments)(cost of $526,088,047).................. $ 663,399,571
Cash................................................................................ 315,546
Receivables:
Dividends and interest............................................................ 1,057,777
Capital stock sold................................................................ 39,969
Investment securities sold........................................................ 5,325,820
Prepaid expenses.................................................................... 10,950
---------------
Total assets................................................................. 670,149,633
---------------
LIABILITIES:
Payables:
Capital stock reacquired.......................................................... 413,914
Investment securities purchased................................................... 3,574,646
Accrued expenses.................................................................... 53,365
Accrued management fee.............................................................. 426,436
---------------
Total liabilities............................................................ 4,468,361
---------------
NET ASSETS ............................................................................ $ 665,681,272
===============
SHARES OUTSTANDING (NOTE 4)............................................................ 55,799,326
===============
NET ASSET VALUE, offering and
redemption price per share (Net Assets (divided by) Shares Outstanding)........... $ 11.93
===========
NET ASSETS CONSIST OF:
Par value of shares of capital stock................................................ $ 55,799
Additional paid-in capital.......................................................... 562,811,048
Undistributed net investment income................................................. 3,231,603
Accumulated net realized loss from investments and foreign currency transactions.... (37,727,069)
Net unrealized appreciation on investments and foreign currency transactions........ 137,309,891
---------------
$ 665,681,272
SEE NOTES TO FINANCIAL STATEMENTS
10
DAVIS VALUE PORTFOLIO
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (Unaudited)
================================================================================
INVESTMENT INCOME:
Income:
Dividends (Net of foreign withholding taxes of $193,898)................................ $ 5,778,764
Interest................................................................................ 131,854
---------------
Total income........................................................................ 5,910,618
---------------
Expenses:
Management fees (Note 2)................................................................ 2,473,231
Custodian fees.......................................................................... 92,472
Transfer agent fees..................................................................... 5,719
Audit fees.............................................................................. 7,800
Accounting fees (Note 2)................................................................ 3,000
Legal fees.............................................................................. 4,337
Reports to shareholders................................................................. 31,306
Directors' fees and expenses............................................................ 44,768
Registration and filing fees............................................................ 10,007
Miscellaneous........................................................................... 6,425
---------------
Total expenses...................................................................... 2,679,065
Expenses paid indirectly (Note 5)................................................... (50)
---------------
Net expenses........................................................................ 2,679,015
---------------
Net investment income............................................................ 3,231,603
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from:
Investment transactions............................................................. (648,636)
Foreign currency transactions....................................................... (7,591)
Net increase in unrealized appreciation of investments and foreign
currency transactions............................................................... 5,501,158
---------------
Net realized and unrealized gain on investments and foreign currency................ 4,844,931
---------------
Net increase in net assets resulting from operations............................. $ 8,076,534
===============
SEE NOTES TO FINANCIAL STATEMENTS
11
DAVIS VALUE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31,
(UNAUDITED) 2004
---------- ----
OPERATIONS:
Net investment income.............................................. $ 3,231,603 $ 5,306,186
Net realized loss from investment and foreign currency
transactions..................................................... (656,227) (3,112,993)
Net increase in unrealized appreciation of
investments and foreign currency transactions.................... 5,501,158 69,125,469
---------------- ----------------
Net increase in net assets resulting from operations............... 8,076,534 71,318,662
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................. - (5,273,618)
Return of capital.................................................. - (115,109)
CAPITAL SHARE TRANSACTIONS (NOTE 4).................................... (27,118,199) 133,790,608
---------------- -----------
Total increase (decrease) in net assets............................... (19,041,665) 199,720,543
NET ASSETS:
Beginning of period................................................ 684,722,937 485,002,394
---------------- ----------------
End of period* .................................................... $ 665,681,272 $ 684,722,937
================ ================
*Including undistributed net investment income of.............. $ 3,231,603 -
SEE NOTES TO FINANCIAL STATEMENTS
12
DAVIS VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2005 (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.
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,
or whose values have been affected by a significant event occurring after the
close of their primary markets, 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.
13
DAVIS VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2005 (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, 2005 the Fund had approximately $1,625,000 of post October
2004 losses available to offset future capital gains if any, which expire in
2013. At June 30, 2005 the Fund had available for federal income tax purposes
unused capital loss carryforwards of $6,568,000, $19,386,000, $4,776,000, and
$3,532,000, which expire in 2009, 2010, 2011, and 2012, 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.
NOTE 2 - INVESTMENT ADVISORY FEES
Advisory fees are paid to Davis Advisors, the Fund's investment adviser (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, 2005 was
$22. 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, 2005 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.
14
DAVIS VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2005 (Unaudited)
================================================================================
NOTE 3 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the six months ended June 30, 2005 were $38,490,571 and
$53,229,905, respectively.
NOTE 4 - CAPITAL STOCK
At June 30, 2005, 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 YEAR ENDED
JUNE 30, 2005 DECEMBER 31,
(UNAUDITED) 2004
----------- ----
Shares sold............................................... 2,186,637 16,736,008
Shares issued in reinvestment of distributions............ - 456,672
---------------- ----------------
2,186,637 17,192,680
Shares redeemed........................................... (4,491,441) (4,984,466)
---------------- ----------------
Net increase (decrease)............................. (2,304,804) 12,208,214
================ ================
Proceeds from shares sold................................. $ 25,671,002 $ 182,733,878
Proceeds from shares issued in
reinvestment of distributions......................... - 5,388,727
---------------- ----------------
25,671,002 188,122,605
Cost of shares redeemed................................... (52,789,201) (54,331,997)
---------------- ----------------
Net increase (decrease)............................. $ (27,118,199) $ 133,790,608
================ ================
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 $50 for the six months ended June 30, 2005.
NOTE 6 - ILLIQUID SECURITIES
Securities may be considered illiquid if they lack a readily available
market or if valuation has not changed for a certain period of time. The
aggregate value of illiquid securities in Davis Value Portfolio amounted to
$1,425,760 or 0.22% of the Fund's net assets, as of June 30, 2005.
Valuation per Unit
Acquisition Cost per as of June 30,
Security Date Principal Unit 2005
- -------- ------------ --------- ---------- ----------------
Level 3 Communications, Inc.,
Conv. Sr. Notes, 10.00%,
05/01/11 4/4/05 1,600,000 $100.00 $ 89.11
15
DAVIS VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
================================================================================
The following financial information represents data for each share of capital
stock outstanding throughout each period:
SIX MONTHS
ENDED
JUNE 30, 2005 YEAR ENDED DECEMBER 31,
---------------------------------------- -----------------
(UNAUDITED) 2004 2003 2002 2001 2000
----------- ---- ---- ---- ---- ----
Net Asset Value, Beginning of Period. $ 11.78 $ 10.57 $ 8.20 $ 9.87 $ 11.06 $ 10.25
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) From Investment Operations
Net Investment Income.................. 0.06 0.09 0.07 0.06 0.04 0.03
Net Realized and Unrealized
Gains (Losses)...................... 0.09 1.21 2.37 (1.66) (1.19) 0.92
---------- ---------- ---------- ---------- ---------- ----------
Total From Investment Operations.... 0.15 1.30 2.44 (1.60) (1.15) 0.95
Dividends and Distributions
Dividends from Net Investment Income... - (0.09) (0.07) (0.06) (0.04) (0.03)
Return of Capital...................... - -(3) - (0.01) -(3) -(3)
Distributions from Realized Gains...... - - - - - (0.11)
---------- ---------- ---------- ---------- ---------- ----------
Total Dividends and Distributions... - (0.09) (0.07) (0.07) (0.04) (0.14)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period.......... $ 11.93 $ 11.78 $ 10.57 $ 8.20 $ 9.87 $ 11.06
========== ========== ========== ========== ========== ==========
Total Return(1)......................... 1.27% 12.33% 29.76% (16.26)% (10.39)% 9.30%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted). $665,681 $684,723 $485,002 $283,039 $278,958 $120,209
Ratio of Expenses to Average Net Assets. 0.81%* 0.81% 0.82% 0.83% 0.87% 1.00%(4)
Ratio of Net Investment Income to
Average Net Assets.................. 0.98%* 0.87% 0.90% 0.70% 0.55% 0.73%
Portfolio Turnover Rate(2)............. 6% 4% 7% 24% 18% 10%
(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
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% for 2000.
* Annualized
SEE NOTES TO FINANCIAL STATEMENTS
16
DAVIS VALUE PORTFOLIO
FUND INFORMATION
================================================================================
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under
which the Fund votes proxies relating to securities held by the Fund. A
description of the Fund's Portfolio Proxy Voting Policies and Procedures is
available (i) without charge, upon request, by calling the Fund toll-free at
1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on
the SEC's website at www.sec.gov.
In addition, the Fund is required to file Form N-PX, with its complete
proxy voting record for the 12 months ended June 30th, no later than August 31st
of each year. The Fund's Form N-PX filing is available (i) without charge, upon
request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's
website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.
FORM N-Q
The Fund files its complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The Fund's Form
N-Q is available without charge upon request by calling 1-800-279-0279 or on the
Fund's website at www.davisfunds.com or on the SEC's website at www.sec.gov. The
Fund's Form N-Q may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC, and that information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
17
DAVIS VALUE PORTFOLIO
DIRECTOR APPROVAL OF ADVISORY AGREEMENTS
================================================================================
PROCESS OF ANNUAL REVIEW
The Board of Directors of the Davis Funds oversees the management of each Davis
Fund and, as required by law, determines annually whether to approve the
continuance of each Davis Fund's advisory agreement with Davis Selected
Advisers, L.P. and sub-advisory agreement with Davis Selected Advisers-NY, Inc.
(jointly "Davis Advisors" and "Advisory Agreements").
As a part of this process the Independent Directors, with the assistance of
counsel for the Independent Directors, prepares questions which it submits to
Davis Advisors in anticipation of the annual contract review. In a separate
meeting held prior to the March 2005 board meeting, the Independent Directors
reviewed and evaluated all information which they deemed reasonably necessary in
the circumstances. Upon completion of this review, the Independent Directors
recommended that the full Board of Directors approve the continuance of the
Advisory Agreements, which occurred at the March 2005 board meeting.
REASONS THE INDEPENDENT DIRECTORS APPROVED CONTINUATION OF THE ADVISORY
AGREEMENTS
The Independent Directors' determinations were based upon a comprehensive
consideration of all information provided to the Independent Directors and were
not the result of any single factor. The following facts and conclusions were
important, but not exclusive, in the Independent Directors' recommendation to
renew the Advisory Agreements for each of the Davis Funds described below.
The Independent Directors noted the importance of reviewing quantitative
measures, but also recognize that qualitative factors, some of which are
mentioned below, could be equally or more important in assessing whether Davis
Fund shareholders have been, or are likely to be, well served by the renewal of
the management contract. They noted both the value and shortcomings of purely
quantitative measures, including the data provided by independent service
providers, and concluded that while such measures and data can inform, they
should not supersede the judgment of the Independent Directors who take many
factors, including those listed below, into consideration in representing the
shareholders of Davis Funds. In connection with reviewing comparative
performance information, the Independent Directors generally give weight to
longer-term measurements.
The Independent Directors believe that shareholders of Davis Funds should, and
will, expect Davis Advisors to employ a disciplined, company specific, research
driven, businesslike, long-term investment philosophy. The Independent Directors
concluded that the willingness of Davis Advisors and related persons to invest a
substantial amount of their own money alongside and on the same terms as other
shareholders in the Davis Funds demonstrates a good alignment of interest
between Davis Advisors and Davis Fund shareholders.
The Independent Directors recognized Davis Advisors' (a) efforts to minimize
transaction costs by generally having a long-term time horizon and low portfolio
turnover; (b) record of generally producing satisfactory results over the
long-term (c) efforts towards fostering healthy investor behavior by, among
other things, providing informative and substantial educational material; and
(d) efforts to promote shareholder interests by actively speaking out on
corporate governance issues.
18
DAVIS VALUE PORTFOLIO
DIRECTOR APPROVAL OF ADVISORY AGREEMENTS - (Continued)
================================================================================
The Independent Directors also noted that Davis Advisers provides a number of
services to the Davis Funds in addition to investment management. Non-investment
management services provided by Davis Advisors to the Davis Funds include (a)
responsibility for complying with legal duties, and regulatory obligations; and
(b) responsibility for general administrative and business services. Davis
Advisors is reimbursed a portion of its costs in providing some, but not all, of
these services.
The Independent Directors reviewed (a) comparative fee and expense information
for competitive funds, as selected and analyzed by a nationally recognized
independent service provider; (b) information regarding fees charged by Davis
Advisors to other advisory clients, including funds which it sub-advises and
private accounts, as well as the differences in the services provided to such
other clients; and (c) the fee schedules of the various Davis Variable Account
Funds, including an assessment of competitive fee schedules.
The Independent Directors reviewed the profitability of each Davis Fund to Davis
Advisors. The Independent Directors considered various potential benefits that
Davis Advisors may receive in connection with the services it provides under the
Advisory Agreements with each Davis Fund, including a review of portfolio
brokerage practices. The Independent Directors noted that Davis Advisors does
not use client commissions to pay for publications that are available to the
general public or third-party research services.
DAVIS VALUE PORTFOLIO
- ---------------------
The Independent Directors noted that Davis Value Portfolio out-performed its
benchmark, the Standard & Poor's 500(R) Index, and exceeded the average
performance of its peer group, as determined by an independent service provider,
over the longer-term investment horizon.
The Independent Directors considered the expense ratio for Davis Value Portfolio
and concluded that it is reasonable and competitive with the range of average
expense ratios of its peer group as determined by an independent service
provider.
APPROVAL OF ADVISORY ARRANGEMENTS
- ---------------------------------
After their review of all factors, the Independent Directors determined that the
advisory fee for Davis Value Portfolio is reasonable in light of the nature,
quality and extent of the services being provided to the Fund, the costs
incurred by Davis Advisors in providing such service, and in comparison to the
range of the average advisory fees of its peer group as determined by an
independent service provider.
The Independent Directors considered the advisory fee schedule for Davis Value
Portfolio (a fixed fee which was typical for many competitive funds) and
concluded that it represents an appropriate sharing between Fund shareholders
and Davis Advisors of such economies of scale as may exist in the management of
the Fund at current asset levels.
The Independent Directors therefore recommended continuation of the advisory
agreements.
19
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. Subject to exceptions and exemptions which may be granted by the
Independent Directors, 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, Bass & 12 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 12 Director, Legg Mason Trust
(born 9/9/42) since 1986 Officer, World Total (asset management company)
Return Fund, LLLP; Of and Rodney Trust Company
Counsel to Gordon, (Delaware).
Feinblatt, Rothman,
Hoffberger and Hollander, LLC
(law firm).
THOMAS S. GAYNER Director director Executive Vice 12 none
(born 12/16/61) since 2004 President and Chief
Investment Officer,
Markel Corporation
(insurance company).
JERRY D. GEIST Director director Chairman, Santa Fe 12 Director, CH2M-Hill, Inc.
(born 5/23/34) since 1986 Center Enterprises (engineering); Chairman,
(energy project Santa Fe Center Enterprises;
development); Retired Investment Committee for
Chairman and Microgeneration Technology
President, Public Fund, UTECH Funds.
Service Company of New
Mexico.
20
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 12 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), LogicVision,
Inc. (semi-conductor software
company), and Tessera
Technologies, Inc.
(semi-conductor packaging
company).
G. BERNARD Director director Managing General 12 none
HAMILTON since 1978 Partner, Avanti
(born 3/18/37) Partners, L.P.
(investment
partnership).
ROBERT P. Director director Chairman, Northroad 12 none
MORGENTHAU since 2002 Capital Management,
(born 3/22/57) LLC (an investment
management firm) since June
2002; President of Private
Advisory Services, 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, Cantrock 12 none
SMITH, JR. since 1994 Realty and Mayor,
(born 12/23/32) Incorporated Village
of Mill Neck, NY.
21
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, 12 none
SONNE since 1990 Tuxedo Park Associates
(born 5/6/36) (land holding and
development firm);
President and Chief
Executive Officer,
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 three
Financial Officer, 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 Iron Company, N.V.
Officer, Crate & (industrial construction and
Barrel (home engineering).
furnishings retailer);
former Vice President
and Treasurer, Amoco
Corporation (oil & gas
company).
INSIDE DIRECTORS*
JEREMY H. BIGGS Director/ director Vice Chairman, Member 12 none
(born 8/16/35) Chairman since 1994 of the 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.
22
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 three
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 three
(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.
23
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
Thomas S. Gayner Vice President
Jerry D. Geist Kenneth C. Eich
D. James Guzy Executive Vice President
G. Bernard Hamilton & Principal Executive Officer
Robert P. Morgenthau Sharra L. Reed
Theodore B. Smith, Jr. Vice President & Chief Compliance Officer
Christian R. Sonne Douglas A. Haines
Marsha Williams Vice President
& 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
Seyfarth Shaw LLP
55 East Monroe Street, Suite 4200
Chicago, Illinois 60603-5803
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 OR ON THE FUND'S WEBSITE AT
WWW.DAVISFUNDS.COM. QUARTERLY FACT SHEETS ARE AVAILABLE ON THE FUND'S WEBSITE AT
WWW.DAVISFUNDS.COM.
================================================================================
24
[GRAPHIC OMITTED]
DAVIS ADVISORS
2949 EAST ELVIRA ROAD
SUITE 101
TUCSON, AZ 85706
1-800-279-0279
www.davisfunds.com
[LOGO OMITTED]
DAVIS FUNDS
OVER 35 YEARS OF RELIABLE INVESTING(TM)
SEMI-ANNUAL REPORT JUNE 30, 2005
DAVIS FINANCIAL PORTFOLIO
(PORTFOLIO OF DAVIS VARIABLE ACCOUNT FUND, INC.)
[DAVIS FUNDS LOGO]
OVER 35 YEARS OF RELIABLE INVESTING(TM)
TABLE OF CONTENTS
Management's Discussion and Analysis...........................................2
Fund Overview..................................................................4
Expense Example................................................................5
Schedule of Investments........................................................6
Statement of Assets and Liabilities............................................8
Statement of Operations........................................................9
Statements of Changes in Net Assets...........................................10
Notes to Financial Statements.................................................11
Financial Highlights..........................................................14
Fund Information..............................................................15
Director Approval of Advisory Agreements......................................16
Directors and Officers........................................................18
DAVIS FINANCIAL PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
MARKET ENVIRONMENT
During the six-month period ended June 30, 2005, the stock market, as measured
by the Standard & Poor's 500(R) Index(1), declined by 0.81%. Inflation-adjusted
gross domestic product, the most comprehensive measure of economic activity,
increased 3.4% in the second quarter after increasing 3.8% in the first quarter.
Interest rates, as measured by the 10-year Treasury bond, were stable for the
first two months of the year, rose sharply in March, and then slowly declined
over the second quarter of 2005.
DAVIS FINANCIAL PORTFOLIO
PERFORMANCE OVERVIEW
Davis Financial Portfolio declined by 2.65% for the six-month period ended June
30, 2005(2), compared to its benchmark, the Standard & Poor's 500(R) Index(1),
which declined by 0.81%. Financial sector companies as a group under-performed
the S&P 500(R) Index over the six-month period. The Portfolio's insurance,
diversified financial, and banking companies all reflected this difficult market
for financial companies.
The Portfolio's largest holdings were in insurance companies. Over the six-month
period insurance companies as a whole were the largest detractors(3) from the
Portfolio's performance. While Progressive(4), Loews, and Everest Re Group were
among the top contributors to the Portfolio's performance, this was offset by
Transatlantic Holdings, American International Group, Markel, Cincinnati
Financial, Berkshire Hathaway, and FPIC Insurance Group, which were all among
the top detractors from the Portfolio's performance.
The Portfolio's diversified financial holdings also under-performed the S&P
500(R) Index. Julius Baer, Moody's, and Providian were among the top
contributors to performance. American Express and JPMorgan Chase were among the
top detractors from performance. The Portfolio no longer owns Julius Baer or
Providian.
The Portfolio's bank holdings slightly out-performed the S&P 500(R) Index.
Golden West Financial was among the top contributors to performance. Fifth Third
Bancorp was among the top detractors from the Portfolio's performance over the
six-month period. The Portfolio no longer owns Fifth Third Bancorp.
Among the Portfolio's non-financial holdings, H&R Block and Altria Group were
among the top contributors to performance, while Tyco International was among
the top detractors from performance over the six-month period.
This Semi-Annual Report is authorized for use by existing shareholders.
Prospective shareholders must receive a current Davis Variable Account Funds
(including Davis Financial Portfolio) prospectus, which contains more
information about investment strategies, risks, charges, and expenses. Please
read the prospectus carefully before investing or sending money.
Davis Financial 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 Financial Portfolio are: (1) market
risk, (2) company risk, (3) concentrated financial services portfolio risk, (4)
foreign country risk, (5) headline risk, and (6) selection risk. See the
prospectus for a full description of each risk.
2
DAVIS FINANCIAL PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
Davis Financial Portfolio concentrates its investments in the financial sector,
and it may be subject to greater risks than a portfolio that does not
concentrate its investments in a particular sector. The Portfolio's investment
performance, both good and bad, is expected to reflect the economic performance
of the financial sector more than a portfolio that does not concentrate its
portfolio.
(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 in 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, 2005.
- --------------------------------------------------------------------------------
INCEPTION
PORTFOLIO NAME 1-YEAR 5-YEAR (July 1, 1999)
- --------------------------------------------------------------------------------
Davis Financial Portfolio 4.18% 5.13% 4.28%
- --------------------------------------------------------------------------------
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) A company's or sector's contribution to the Portfolio's performance is a
product both of its appreciation or depreciation and it's weighting within the
portfolio. For example, a 5% holding that rises 20% has twice as much impact as
a 1% holding that rises 50%.
(4) 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 Financial Portfolio 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 FINANCIAL PORTFOLIO
FUND OVERVIEW
At June 30, 2005 (Unaudited)
================================================================================
[PIE CHARTS OMITTED]
PORTFOLIO MAKEUP (% OF FUND NET ASSETS)
- ---------------------------------------
Common Stocks .............................................................92.5%
Short Term Investments, Other Assets & Liabilities ........................ 7.5%
SECTOR WEIGHTINGS (% OF STOCK HOLDINGS)
- ---------------------------------------
Capital Goods ............................................................. 5.0%
Materials ................................................................. 2.1%
Banks .....................................................................15.5%
Commerical Services & Supplies ............................................ 2.7%
Consumer Services ......................................................... 3.0%
Diversified Financials ....................................................26.5%
Food, Beverage, and Tobacco ............................................... 2.6%
Insurance .................................................................42.6%
TOP 10 HOLDINGS
STOCK SECTOR % OF FUND NET ASSETS
- ---------------------------------------------------------------------------------------------
American Express Co. Consumer Finance 10.81%
Transatlantic Holdings, Inc. Reinsurance 8.83%
Moody's Corp. Diversified Financial Services 5.41%
American International Group, Inc. Multi-Line Insurance 5.32%
Golden West Financial Corp. Thrifts & Mortgage Finance 5.31%
Wells Fargo & Co. Commercial Banks 4.90%
Citigroup Inc. Diversified Financial Services 4.87%
Tyco International Ltd. Capital Goods 4.63%
Cincinnati Financial Corp. Property & Casualty Insurance 4.57%
Loews Corp. Multi-Line Insurance 4.37%
4
DAVIS FINANCIAL PORTFOLIO
EXPENSE EXAMPLE (Unaudited)
================================================================================
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs only, including advisory
and administrative fees and other Fund expenses. The Expense Example is intended
to help you understand your ongoing costs (in dollars) of investing in the Fund
and to compare these costs with the ongoing costs of investing in other mutual
funds. The Expense Example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire period indicated, which for the
Fund is from 01/01/05 to 6/30/05. Please note that the Expense Example is
general and does not reflect charges imposed by your insurance company's
separate account or account specific costs, which may increase your total costs
of investing in the fund. If these charges or account specific costs were
included in the Expense Example, the expenses would have been higher.
ACTUAL EXPENSES
The information represented in the row entitled "Actual" provides information
about actual account values and actual expenses. You may use the information in
this row, together with the amount you invested, to estimate the expenses that
you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number under the heading "Expenses Paid During Period" to estimate
the expenses you paid for on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The information represented in the row entitled "Hypothetical" provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. Therefore, the information in the row entitled
"Hypothetical" is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds.
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
(01/01/05) (06/30/05) (01/01/05-06/30/05)
---------- ---------- -------------------
Actual.................................................. $1,000.00 $ 973.48 $4.16
Hypothetical (5% annual return before expenses)......... $1,000.00 $1,020.58 $4.26
* Expenses are equal to the Fund's annualized expense ratio (0.85%), multiplied
by the average account value over the period, multiplied by 181/365 (to reflect
the one-half year period).
5
DAVIS FINANCIAL PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 2005 (Unaudited)
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (92.52%)
CAPITAL GOODS - (4.63%)
174,000 Tyco International Ltd. ..................................................... $ 5,080,800
-------------
COMMERCIAL BANKS - (9.06%)
150,400 Commerce Bancorp, Inc. ...................................................... 4,558,624
87,300 Wells Fargo & Co. ........................................................... 5,375,934
-------------
9,934,558
-------------
COMMERCIAL SERVICES & SUPPLIES - (2.47%)
44,000 D&B Corp.*................................................................... 2,712,600
-------------
CONSUMER FINANCE - (10.81%)
222,800 American Express Co. ........................................................ 11,859,644
-------------
CONSUMER SERVICES - (2.77%)
52,100 H&R Block, Inc. ............................................................. 3,040,035
-------------
DIVERSIFIED FINANCIAL SERVICES - (13.65%)
115,600 Citigroup Inc. .............................................................. 5,344,188
104,448 JPMorgan Chase & Co. ........................................................ 3,689,103
132,000 Moody's Corp. ............................................................... 5,934,720
-------------
14,968,011
-------------
FOOD, BEVERAGE, & TOBACCO - (2.41%)
40,800 Altria Group, Inc. .......................................................... 2,638,128
-------------
LIFE & HEALTH INSURANCE - (0.64%)
25,600 China Life Insurance Co., Ltd., ADR*......................................... 698,880
-------------
MATERIALS - (1.96%)
43,200 Sealed Air Corp.*............................................................ 2,150,928
-------------
MULTI-LINE INSURANCE - (9.69%)
100,387 American International Group, Inc. .......................................... 5,832,485
61,800 Loews Corp. ................................................................. 4,789,500
-------------
10,621,985
-------------
PROPERTY & CASUALTY INSURANCE - (17.83%)
7 Berkshire Hathaway Inc., Class A*............................................ 584,500
1,635 Berkshire Hathaway Inc., Class B*............................................ 4,551,023
126,619 Cincinnati Financial Corp. .................................................. 5,010,947
44,100 FPIC Insurance Group, Inc.*.................................................. 1,289,043
11,400 Markel Corp.*................................................................ 3,864,600
43,100 Progressive Corp. (Ohio)..................................................... 4,258,711
-------------
19,558,824
-------------
REINSURANCE - (11.29%)
29,000 Everest Re Group, Ltd. ...................................................... 2,697,000
173,437 Transatlantic Holdings, Inc. ................................................ 9,681,253
-------------
12,378,253
-------------
6
DAVIS FINANCIAL PORTFOLIO
SCHEDULE OF INVESTMENTS - (Continued)
June 30, 2005 (Unaudited)
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (CONTINUED)
THRIFTS & MORTGAGE FINANCE - (5.31%)
90,400 Golden West Financial Corp. ................................................. $ 5,819,952
--------------
Total Common Stock - (identified cost $83,940,956)....................... 101,462,598
--------------
SHORT TERM INVESTMENTS - (7.36%)
$ 2,659,000 Goldman, Sachs & Co., Joint Repurchase Agreement, 3.43%,
07/01/05, dated 06/30/05, repurchase value of $2,659,253
(collateralized by: U.S. Government agency obligations in a pooled
cash account, total market value $2,712,180).............................. 2,659,000
2,847,000 Nomura Securities International, Inc. Joint Repurchase Agreement, 3.44%,
07/01/05, dated 06/30/05, repurchase value of $2,847,272
(collateralized by: U.S. Government agency obligations in a pooled
cash account, total market value $2,903,940).............................. 2,847,000
2,563,000 UBS Financial Services Inc. Joint Repurchase Agreement, 3.43%,
07/01/05, dated 06/30/05, repurchase value of $2,563,244
(collateralized by: U.S. Government agency obligations in a pooled
cash account, total market value $2,614,260).............................. 2,563,000
--------------
Total Short Term Investments - (identified cost $8,069,000)......... 8,069,000
--------------
Total Investments - (99.88%) - (identified cost $92,009,956) - (a)........... 109,531,598
Other Assets Less Liabilities - (0.12%)...................................... 131,933
--------------
Net Assets - (100.00%)................................................... $ 109,663,531
==============
* Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $92,335,227. At June 30,
2005 unrealized appreciation (depreciation) of securities for Federal Income Tax
purposes is as follows:
Unrealized appreciation...................................................... $ 18,518,837
Unrealized depreciation...................................................... (1,322,466)
--------------
Net unrealized appreciation.............................................. $ 17,196,371
==============
SEE NOTES TO FINANCIAL STATEMENTS
7
DAVIS FINANCIAL PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
At June 30, 2005 (Unaudited)
================================================================================
ASSETS:
Investments in securities, at value
(see accompanying Schedule of Investments)(cost of $92,009,956)..... $ 109,531,598
Cash.................................................................. 40,611
Receivables:
Dividends and interest.............................................. 141,314
Capital stock sold.................................................. 73,755
Prepaid expenses...................................................... 2,000
-------------
Total assets................................................... 109,789,278
-------------
LIABILITIES:
Payables:
Capital stock reacquired............................................ 38,336
Accrued expenses...................................................... 17,569
Accrued management fee................................................ 69,842
-------------
Total liabilities.............................................. 125,747
-------------
NET ASSETS............................................................... $ 109,663,531
=============
SHARES OUTSTANDING (NOTE 4).............................................. 8,789,260
=============
NET ASSET VALUE, offering and
redemption price per share (Net Assets (divided by) Shares
Outstanding).................................................... $ 12.48
=============
NET ASSETS CONSIST OF:
Par value of shares of capital stock.................................. $ 8,789
Additional paid-in capital............................................ 95,024,049
Undistributed net investment income................................... 305,194
Accumulated net realized loss from investments and foreign
currency transactions............................................ (3,196,143)
Net unrealized appreciation on investments and foreign currency
transactions..................................................... 17,521,642
-------------
$ 109,663,531
=============
SEE NOTES TO FINANCIAL STATEMENTS
8
DAVIS FINANCIAL PORTFOLIO
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (Unaudited)
================================================================================
INVESTMENT INCOME:
Income:
Dividends................................................................. $ 661,072
Interest.................................................................. 107,041
------------
Total income.......................................................... 768,113
------------
Expenses:
Management fees (Note 2).................................................. 407,508
Custodian fees............................................................ 18,741
Transfer agent fees....................................................... 3,545
Audit fees................................................................ 6,000
Accounting fees (Note 2).................................................. 3,000
Legal fees................................................................ 714
Reports to shareholders................................................... 8,506
Directors' fees and expenses.............................................. 7,432
Registration and filing fees.............................................. 2,006
Miscellaneous............................................................. 3,337
------------
Total expenses........................................................ 460,789
Expenses paid indirectly (Note 5)..................................... (16)
------------
Net expenses.......................................................... 460,773
------------
Net investment income.............................................. 307,340
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss from:
Investment transactions............................................... (811,991)
Foreign currency transactions......................................... (906)
Net decrease in unrealized appreciation of investments and
foreign currency transactions......................................... (2,545,949)
------------
Net realized and unrealized loss on investments and foreign currency.. (3,358,846)
------------
Net decrease in net assets resulting from operations............... $ (3,051,506)
============
SEE NOTES TO FINANCIAL STATEMENTS
9
DAVIS FINANCIAL PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31,
(UNAUDITED) 2004
----------- ----
OPERATIONS:
Net investment income.............................................. $ 307,340 $ 358,935
Net realized loss from investment and foreign currency
transactions..................................................... (812,897) (1,009,400)
Net change in unrealized appreciation of
investments and foreign currency transactions.................... (2,545,949) 9,637,834
---------------- ----------------
Net increase (decrease) in net assets resulting from operations.... (3,051,506) 8,987,369
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................. - (364,973)
CAPITAL SHARE TRANSACTIONS (NOTE 4).................................... 3,441,288 29,472,122
---------------- ----------------
Total increase in net assets........................................... 389,782 38,094,518
NET ASSETS:
Beginning of period................................................ 109,273,749 71,179,231
---------------- ----------------
End of period *.................................................... $ 109,663,531 $ 109,273,749
================ ================
* Including undistributed net investment income (loss) of...... $ 305,194 $ (2,146)
SEE NOTES TO FINANCIAL STATEMENTS
10
DAVIS FINANCIAL PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2005 (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.
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,
or whose values have been affected by a significant event occurring after the
close of their primary markets, 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.
11
DAVIS FINANCIAL PORTFOLIO
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2005 (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, 2005, the Fund had approximately $148,000 of post October
2004 losses available to offset future capital gains if any, which expire in
2013. Additionally, the Fund had $2,000 of post October 2004 foreign currency
losses which were deferred. At June 30, 2005, the Fund had available for federal
income tax purposes unused capital loss carryforwards of $650,000, $328,000 and
$926,000, which expire in 2009, 2011 and 2012, 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.
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, 2005 was
$13. 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, 2005 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.
12
DAVIS FINANCIAL PORTFOLIO
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2005 (Unaudited)
================================================================================
NOTE 3 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the six months ended June 30, 2005 were $14,583,038 and
$10,675,526, respectively.
NOTE 4 - CAPITAL STOCK
At June 30, 2005, 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 YEAR ENDED
JUNE 30, 2005 DECEMBER 31,
(UNAUDITED) 2004
----------- ----
Shares sold........................................... 854,427 3,238,473
Shares issued in reinvestment of distributions........ - 28,469
-------------- ---------------
854,427 3,266,942
Shares redeemed....................................... (587,740) (848,124)
-------------- ---------------
Net increase.................................... 266,687 2,418,818
============== ===============
Proceeds from shares sold............................. $ 10,740,438 $ 39,191,938
Proceeds from shares issued in
Reinvestment of distributions..................... - 364,973
-------------- ---------------
10,740,438 39,556,911
Cost of shares redeemed............................... (7,299,150) (10,084,789)
-------------- ---------------
Net increase.................................... $ 3,441,288 $ 29,472,122
============== ===============
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 $16 for the six months ended June 30, 2005.
13
DAVIS FINANCIAL PORTFOLIO
FINANCIAL HIGHLIGHTS
================================================================================
The following financial information represents data for each share of capital
stock outstanding throughout each period:
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2005 ------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
----------- ---- ---- ---- ---- ----
Net Asset Value, Beginning of Period. $ 12.82 $ 11.66 $ 8.85 $ 10.67 $ 11.91 $ 9.26
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) From Investment Operations
- ----------------------------------------
Net Investment Income.................. 0.03 0.04 0.04 0.02 - 0.01
Net Realized and Unrealized
Gains (Losses)...................... (0.37) 1.16 2.81 (1.82) (1.24) 2.84
---------- ---------- ---------- ---------- ---------- ----------
Total From Investment Operations.... (0.34) 1.20 2.85 (1.80) (1.24) 2.85
Dividends and Distributions
- ---------------------------
Dividends from Net Investment Income... - (0.04) (0.04) (0.02) -(3) (0.01)
Return of Capital...................... - - - - -(3) -(3)
Distributions from Realized Gains...... - - - - - (0.19)
---------- ---------- ---------- ---------- ---------- ----------
Total Dividends and Distributions... - (0.04) (0.04) (0.02) - (0.20)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period.......... $ 12.48 $ 12.82 $ 11.66 $ 8.85 $ 10.67 $ 11.91
========== ========== ========== ========== ========== ==========
Total Return(1)......................... (2.65)% 10.32% 32.15% (16.84)% (10.37)% 30.97%
- ---------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000 omitted). $ 109,664 $109,274 $71,179 $31,709 $24,587 $14,770
Ratio of Expenses to Average Net Assets. 0.85%* 0.85% 0.90% 0.99% 1.00%(4) 1.00%(4)
Ratio of Net Investment Income to
Average Net Assets.................. 0.57%* 0.40% 0.48% 0.32% 0.04% 0.18%
Portfolio Turnover Rate(2).............. 11% 6% 10% 23% 24% 26%
(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 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 1.04% and 1.55% for 2001 and 2000,
respectively.
* Annualized
SEE NOTES TO FINANCIAL STATEMENTS
14
SEE NOTES TO FINANCIAL STATEMENTS
DAVIS FINANCIAL PORTFOLIO
FUND INFORMATION
================================================================================
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under
which the Fund votes proxies relating to securities held by the Fund. A
description of the Fund's Portfolio Proxy Voting Policies and Procedures is
available (i) without charge, upon request, by calling the Fund toll-free at
1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on
the SEC's website at www.sec.gov.
In addition, the Fund is required to file Form N-PX, with its complete
proxy voting record for the 12 months ended June 30th, no later than August 31st
of each year. The Fund's Form N-PX filing is available (i) without charge, upon
request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's
website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.
FORM N-Q
The Fund files its complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The Fund's Form
N-Q is available without charge upon request by calling 1-800-279-0279 or on the
Fund's website at www.davisfunds.com or on the SEC's website at www.sec.gov. The
Fund's Form N-Q may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC, and that information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
15
DAVIS FINANCIAL PORTFOLIO
DIRECTOR APPROVAL OF ADVISORY AGREEMENTS
================================================================================
PROCESS OF ANNUAL REVIEW
The Board of Directors of the Davis Funds oversees the management of each Davis
Fund and, as required by law, determines annually whether to approve the
continuance of each Davis Fund's advisory agreement with Davis Selected
Advisers, L.P. and sub-advisory agreement with Davis Selected Advisers-NY, Inc.
(jointly "Davis Advisors" and "Advisory Agreements").
As a part of this process the Independent Directors, with the assistance of
counsel for the Independent Directors, prepares questions which it submits to
Davis Advisors in anticipation of the annual contract review. In a separate
meeting held prior to the March 2005 board meeting, the Independent Directors
reviewed and evaluated all information which they deemed reasonably necessary in
the circumstances. Upon completion of this review, the Independent Directors
recommended that the full Board of Directors approve the continuance of the
Advisory Agreements, which occurred at the March 2005 board meeting.
REASONS THE INDEPENDENT DIRECTORS APPROVED CONTINUATION OF THE ADVISORY
AGREEMENTS
The Independent Directors' determinations were based upon a comprehensive
consideration of all information provided to the Independent Directors and were
not the result of any single factor. The following facts and conclusions were
important, but not exclusive, in the Independent Directors' recommendation to
renew the Advisory Agreements for each of the Davis Funds described below.
The Independent Directors noted the importance of reviewing quantitative
measures, but also recognize that qualitative factors, some of which are
mentioned below, could be equally or more important in assessing whether Davis
Fund shareholders have been, or are likely to be, well served by the renewal of
the management contract. They noted both the value and shortcomings of purely
quantitative measures, including the data provided by independent service
providers, and concluded that while such measures and data can inform, they
should not supersede the judgment of the Independent Directors who take many
factors, including those listed below, into consideration in representing the
shareholders of Davis Funds. In connection with reviewing comparative
performance information, the Independent Directors generally give weight to
longer-term measurements.
The Independent Directors believe that shareholders of Davis Funds should, and
will, expect Davis Advisors to employ a disciplined, company specific, research
driven, businesslike, long-term investment philosophy. The Independent Directors
concluded that the willingness of Davis Advisors and related persons to invest a
substantial amount of their own money alongside and on the same terms as other
shareholders in the Davis Funds demonstrates a good alignment of interest
between Davis Advisors and Davis Fund shareholders.
The Independent Directors recognized Davis Advisors' (a) efforts to minimize
transaction costs by generally having a long-term time horizon and low portfolio
turnover; (b) record of generally producing satisfactory results over the
long-term (c) efforts towards fostering healthy investor behavior by, among
other things, providing informative and substantial educational material; and
(d) efforts to promote shareholder interests by actively speaking out on
corporate governance issues.
16
DAVIS FINANCIAL PORTFOLIO
DIRECTOR APPROVAL OF ADVISORY AGREEMENTS - (Continued)
================================================================================
The Independent Directors also noted that Davis Advisers provides a number of
services to the Davis Funds in addition to investment management. Non-investment
management services provided by Davis Advisors to the Davis Funds include (a)
responsibility for complying with legal duties, and regulatory obligations; and
(b) responsibility for general administrative and business services. Davis
Advisors is reimbursed a portion of its costs in providing some, but not all, of
these services.
The Independent Directors reviewed (a) comparative fee and expense information
for competitive funds, as selected and analyzed by a nationally recognized
independent service provider; (b) information regarding fees charged by Davis
Advisors to other advisory clients, including funds which it sub-advises and
private accounts, as well as the differences in the services provided to such
other clients; and (c) the fee schedules of the various Davis Variable Account
Funds, including an assessment of competitive fee schedules.
The Independent Directors reviewed the profitability of each Davis Fund to Davis
Advisors. The Independent Directors considered various potential benefits that
Davis Advisors may receive in connection with the services it provides under the
Advisory Agreements with each Davis Fund, including a review of portfolio
brokerage practices. The Independent Directors noted that Davis Advisors does
not use client commissions to pay for publications that are available to the
general public or third-party research services.
DAVIS FINANCIAL PORTFOLIO
- -------------------------
The Independent Directors noted that Davis Financial Portfolio out-performed its
benchmark, the Standard & Poor's 500(R) Index, over the longer-term investment
horizon, but under-performed the Index over the one-year investment period.
Davis Financial Portfolio exceeded the average performance of its peer group, as
determined by an independent service provider, over the longer-term investment
horizon, but under-performed the average performance of its peer group, over the
shorter investment horizon.
The Independent Directors considered the expense ratio for Davis Financial
Portfolio and concluded that it is reasonable and competitive with the range of
average expense ratios of its peer group as determined by an independent service
provider.
APPROVAL OF ADVISORY ARRANGEMENTS
- ---------------------------------
After their review of all factors, the Independent Directors determined that the
advisory fee for Davis Financial Portfolio is reasonable in light of the nature,
quality and extent of the services being provided to the Fund, the costs
incurred by Davis Advisors in providing such service, and in comparison to the
range of the average advisory fees of its peer group as determined by an
independent service provider.
The Independent Directors considered the advisory fee schedule for Davis
Financial Portfolio (a fixed fee which was typical for many competitive funds)
and concluded that it represents an appropriate sharing between Fund
shareholders and Davis Advisors of such economies of scale as may exist in the
management of the Fund at current asset levels.
The Independent Directors therefore recommended continuation of the advisory
agreements.
17
DAVIS FINANCIAL 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. Subject to exceptions and exemptions which may be granted by the
Independent Directors, 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, Bass & 12 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 12 Director, Legg Mason Trust
(born 9/9/42) since 1986 Officer, World Total (asset management company)
Return Fund, LLLP; Of and Rodney Trust Company
Counsel to Gordon, (Delaware).
Feinblatt, Rothman,
Hoffberger and Hollander, LLC
(law firm).
THOMAS S. GAYNER Director director Executive Vice 12 none
(born 12/16/61) since 2004 President and Chief
Investment Officer,
Markel Corporation
(insurance company).
JERRY D. GEIST Director director Chairman, Santa Fe 12 Director, CH2M-Hill, Inc.
(born 5/23/34) since 1986 Center Enterprises (engineering); Chairman,
(energy project Santa Fe Center Enterprises;
development); Retired Investment Committee for
Chairman and Microgeneration Technology
President, Public Fund, UTECH Funds.
Service Company of New
Mexico.
18
DAVIS FINANCIAL 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 12 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), LogicVision,
Inc. (semi-conductor software
company), and Tessera
Technologies, Inc.
(semi-conductor packaging
company).
G. BERNARD Director director Managing General 12 none
HAMILTON since 1978 Partner, Avanti
(born 3/18/37) Partners, L.P.
(investment
partnership).
ROBERT P. Director director Chairman, Northroad 12 none
MORGENTHAU since 2002 Capital Management,
(born 3/22/57) LLC (an investment
management firm) since June
2002; President of Private
Advisory Services, 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, Cantrock 12 none
SMITH, JR. since 1994 Realty and Mayor,
(born 12/23/32) Incorporated Village
of Mill Neck, NY.
19
DAVIS FINANCIAL 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, 12 none
SONNE since 1990 Tuxedo Park Associates
(born 5/6/36) (land holding and
development firm);
President and Chief
Executive Officer,
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 three
Financial Officer, 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 Iron Company, N.V.
Officer, Crate & (industrial construction and
Barrel (home engineering).
furnishings retailer);
former Vice President
and Treasurer, Amoco
Corporation (oil & gas
company).
INSIDE DIRECTORS*
JEREMY H. BIGGS Director/ director Vice Chairman, Member 12 none
(born 8/16/35) Chairman since 1994 of the 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.
20
DAVIS FINANCIAL 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 three
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 three
(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.
21
DAVIS FINANCIAL 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
Thomas S. Gayner Vice President
Jerry D. Geist Kenneth C. Eich
D. James Guzy Executive Vice President &
G. Bernard Hamilton Principal Executive Officer
Robert P. Morgenthau Sharra L. Reed
Theodore B. Smith, Jr. Vice President & Chief Compliance Officer
Christian R. Sonne Douglas A. Haines
Marsha Williams Vice President
& 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
Seyfarth Shaw LLP
55 East Monroe Street, Suite 4200
Chicago, Illinois 60603-5803
AUDITORS
KPMG LLP
707 Seventeenth Street
Suite 2700
Denver, Colorado 80202
================================================================================
FOR MORE INFORMATION ABOUT THE DAVIS FINANCIAL 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 OR ON THE FUND'S WEBSITE AT
WWW.DAVISFUNDS.COM. QUARTERLY FACT SHEETS ARE AVAILABLE ON THE FUND'S WEBSITE AT
WWW.DAVISFUNDS.COM.
================================================================================
22
DAVIS ADVISORS
2949 EAST ELVIRA ROAD
SUITE 101
TUCSON, AZ 85706
1-800-279-0279
WWW.DAVISFUNDS.COM
[DAVIS FUNDS LOGO]
OVER 35 YEARS OF RELIABLE INVESTING(TM)
- ------------------
SEMI-ANNUAL REPORT JUNE 30, 2005
- ------------------
DAVIS REAL ESTATE PORTFOLIO
(PORTFOLIO OF DAVIS VARIABLE ACCOUNT FUND, INC.)
[DAVIS FUNDS LOGO]
OVER 35 YEARS OF RELIABLE INVESTING(TM)
TABLE OF CONTENTS
Management's Discussion and Analysis....................................2
Fund Overview...........................................................5
Expense Example.........................................................6
Schedule of Investments.................................................7
Statement of Assets and Liabilities....................................10
Statement of Operations................................................11
Statements of Changes in Net Assets....................................12
Notes to Financial Statements..........................................13
Financial Highlights...................................................16
Fund Information.......................................................17
Director Approval of Advisory Agreements...............................18
Directors and Officers.................................................20
DAVIS REAL ESTATE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
MARKET ENVIRONMENT
During the six-month period ended June 30, 2005, the stock market, as measured
by the Standard & Poor's 500(R) Index(1), declined by 0.81%. Inflation-adjusted
gross domestic product, the most comprehensive measure of economic activity,
increased 3.4% in the second quarter after increasing 3.8% in the first quarter.
Interest rates, as measured by the 10-year Treasury bond, were stable for the
first two months of the year, rose sharply in March, and then slowly declined
over the second quarter of 2005.
DAVIS REAL ESTATE PORTFOLIO
PERFORMANCE OVERVIEW
Davis Real Estate Portfolio returned 3.96% for the six-month period ended June
30, 2005(2), compared with a return of 6.79% for the Dow Jones Wilshire Real
Estate Securities Index(1).
The sector contributing(3) the most to the Portfolio's six-month performance was
office property REITs. The Portfolio had more invested in office property REITs
than in any other sector. The specific office property REITs that the Portfolio
owned did not perform as well as the office property REITs included in the Dow
Jones Wilshire Real Estate Securities Index, which reduced performance relative
to the Index. Kilroy Realty(4), SL Green Realty, and CarrAmerica Realty, were
each among the top contributors to the Portfolio's performance. Parkway
Properties and Arden Realty were both among the top detractors from performance.
The Portfolio no longer owns Parkway Properties.
The sector detracting the most from the Portfolio's six-month performance was
warehouse and industrial REITs. Catellus Development was among the top
contributors to performance. Centerpoint Properties and Prologis were both among
the top detractors from performance.
Regional mall REITs turned in a strong six-month performance. While this sector
represents a large portion of the Index, the Portfolio invested a smaller
portion of its assets in this sector. Among the Portfolio's regional mall REITs,
General Growth Properties was among the top contributors to the Portfolio's
performance and Mills Corp. was among the top detractors from the Portfolio's
performance.
Diversified REITs represented a significant proportion of Portfolio assets.
These companies turned in mixed performance. Capital Automotive and Vornado
Realty Trust were both among the top contributors to performance, while Duke
Realty and iStar Financial were both among the top detractors from performance.
Individual companies making important contributions to the Portfolio's six-month
performance included Forest City, a real estate operations and development
company; and Gramercy Capital, a mortgage REIT. Individual companies detracting
from the Portfolio's six-month performance included Plum Creek Timber, a
forestry REIT; and Starwood Hotels & Resorts, a hotels & lodging company. The
Portfolio no longer owns Plum Creek Timber or Starwood Hotels & Resorts.
2
DAVIS REAL ESTATE 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 Variable Account Funds
(including Davis Real Estate Portfolio) prospectus, which contains more
information about investment strategies, risks, charges, and expenses. Please
read the prospectus carefully before investing or sending money.
Davis Real Estate Portfolio's investment objective is total return through a
combination of growth and income. There can be no assurance that the Portfolio
will achieve its objective. The primary risks of an investment in Davis Real
Estate Portfolio are: (1) market risk, (2) company risk, (3) concentrated real
estate portfolio risk, (4) focused portfolio risk, (5) small and medium
capitalization risk, (6) foreign country risk, (7) headline risk, and (8)
selection risk. See the prospectus for a full description of each risk.
Davis Real Estate Portfolio concentrates its investments in the real estate
sector, and it may be subject to greater risks than a portfolio that does not
concentrate its investments in a particular sector. The Portfolio's investment
performance, both good and bad, is expected to reflect the economic performance
of the real estate sector much more than a portfolio that does not concentrate
its portfolio.
Davis Real Estate Portfolio is allowed under its charter to focus its
investments in fewer companies, and it may be subject to greater risks than a
more diversified portfolio that is not allowed to focus its investments in a few
companies. Should the portfolio manager determine that it is prudent to focus
the Portfolio's portfolio in a few companies, the Portfolio's investment
performance, both good and bad, is expected to reflect the economic performance
of its more focused portfolio.
(1) The definitions of indices quoted in this report appear below. Investments
cannot be made directly in the indices.
I. 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.
II. The Dow Jones Wilshire Real Estate Securities Index is a broad measure of
the performance of publicly traded real estate securities, such as Real Estate
Investment Trusts (REITs) and Real Estate Operating Companies (REOCs). The Index
is capitalization-weighted. The beginning date was January 1, 1978, and the
Index is rebalanced monthly and returns are calculated on a buy and hold basis.
3
DAVIS REAL ESTATE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
(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, 2005.
- -------------------------------- ----------------- ---------------- -------------------
INCEPTION
PORTFOLIO NAME 1-YEAR 5-YEAR (July 1, 1999)
- -------------------------------- ----------------- ---------------- -------------------
Davis Real Estate Portfolio 30.12% 18.34% 15.15%
- -------------------------------- ----------------- ---------------- -------------------
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) A company's or sector's contribution to the Portfolio's performance is a
product both of its appreciation or depreciation and it's weighting within the
portfolio. For example, a 5% holding that rises 20% has twice as much impact as
a 1% holding that rises 50%.
(4) 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 Real Estate Portfolio 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.
4
DAVIS REAL ESTATE PORTFOLIO
FUND OVERVIEW
At June 30, 2005 (Unaudited)
- --------------------------------------------------------------------------------
PORTFOLIO MAKEUP (% OF FUND NET ASSETS)
[PIE CHART OMITTED]
Short Term Investments,
Preferred Stocks, Other
Assets & Liabilities 5.5%
Common Stocks 94.5%
SECTOR WEIGHTINGS (% OF STOCK HOLDINGS)
[PIE CHART OMITTED]
Regional Mall REITS 8.7%
Real Estate Operations/Development 8.1%
Health Care REITS 2.0%
Apartment REITS 10.8%
Diversified REITS 15.1%
Residential/Commercial Building 1.1%
Office Property REITS 25.8%
Shopping Center REITS 13.2%
Mortgage REITS 1.7%
Warehouse & Industrial REITS 13.5%
TOP 10 HOLDINGS
STOCK SECTOR % OF FUND NET ASSETS
- -----------------------------------------------------------------------------------------------------------
Centerpoint Properties Trust Warehouse & Industrial REITS 6.38%
SL Green Realty Corp. Office Property REITS 4.20%
Forest City Enterprises, Inc., Class A Real Estate Operations/Development 3.86%
Vornado Realty Trust Diversified REITS 3.81%
ProLogis Warehouse & Industrial REITS 3.73%
General Growth Properties, Inc. Regional Mall REITS 3.68%
Capital Automotive REIT Diversified REITS 3.67%
Developers Diversified Realty Corp. Shopping Center REITS 3.61%
Alexandria Real Estate Equities, Inc. Office Property REITS 3.40%
Cousins Properties, Inc. Diversified REITS 3.18%
5
DAVIS REAL ESTATE PORTFOLIO
EXPENSE EXAMPLE (Unaudited)
================================================================================
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs only, including advisory
and administrative fees and other Fund expenses. The Expense Example is intended
to help you understand your ongoing costs (in dollars) of investing in the Fund
and to compare these costs with the ongoing costs of investing in other mutual
funds. The Expense Example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire period indicated, which for the
Fund is from 01/01/05 to 06/30/05. Please note that the Expense Example is
general and does not reflect charges imposed by your insurance company's
separate account or account specific costs, which may increase your total costs
of investing in the fund. If these charges or account specific costs were
included in the Expense Example, the expenses would have been higher.
ACTUAL EXPENSES
The information represented in the row entitled "Actual" provides information
about actual account values and actual expenses. You may use the information in
this row, together with the amount you invested, to estimate the expenses that
you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number under the heading "Expenses Paid During Period" to estimate
the expenses you paid for on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The information represented in the row entitled "Hypothetical" provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. Therefore, the information in the row entitled
"Hypothetical" is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds.
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
(01/01/05) (06/30/05) (01/01/05-06/30/05)
--------------- ------------- ----------------------
Actual............................................... $1,000.00 $1,039.59 $4.40
Hypothetical (5% annual return before expenses)...... $1,000.00 $1,020.48 $4.36
* Expenses are equal to the Fund's annualized expense ratio (0.87%), multiplied
by the average account value over the period, multiplied by 181/365 (to reflect
the one-half year period).
6
DAVIS REAL ESTATE PORTFOLIO
SCHEDULE OF INVESTMENTS
June 30, 2005 (Unaudited)
VALUE
SHARES SECURITY (NOTE 1)
===============================================================================================================
COMMON STOCK - (94.53%)
APARTMENT REITS - (10.08%)
3,500 American Campus Communities, Inc. ........................................... $ 79,380
32,700 Archstone-Smith Trust........................................................ 1,262,874
21,700 Camden Property Trust........................................................ 1,166,375
22,900 Essex Property Trust, Inc. .................................................. 1,902,074
76,400 United Dominion Realty Trust, Inc. .......................................... 1,837,420
-------------
6,248,123
-------------
DIVERSIFIED REITS - (14.27%)
59,700 Capital Automotive REIT...................................................... 2,276,660
66,600 Cousins Properties, Inc. .................................................... 1,970,028
51,800 Duke Realty Corp. ........................................................... 1,639,988
14,300 iStar Financial Inc. ........................................................ 594,737
29,331 Vornado Realty Trust......................................................... 2,358,212
-------------
8,839,625
-------------
HEALTH CARE REITS - (1.91%)
39,200 Ventas, Inc. ................................................................ 1,183,840
-------------
MORTGAGE REITS - (1.58%)
40,100 Gramercy Capital Corp. ...................................................... 980,846
-------------
OFFICE PROPERTY REITS - (24.47%)
28,700 Alexandria Real Estate Equities, Inc. ....................................... 2,108,015
41,100 Arden Realty, Inc. .......................................................... 1,478,778
25,800 Boston Properties, Inc. ..................................................... 1,806,000
47,500 Brandywine Realty Trust...................................................... 1,455,875
47,000 CarrAmerica Realty Corp. .................................................... 1,700,460
20,700 Columbia Equity Trust, Inc.*................................................. 317,745
62,400 Corporate Office Properties Trust............................................ 1,837,680
39,000 Kilroy Realty Corp. ......................................................... 1,852,110
40,370 SL Green Realty Corp. ....................................................... 2,603,865
-------------
15,160,528
-------------
REAL ESTATE OPERATIONS/DEVELOPMENT - (7.70%)
133,500 Brixton PLC.................................................................. 852,122
6,400 Derwent Valley Holdings PLC.................................................. 136,456
33,700 Forest City Enterprises, Inc., Class A....................................... 2,392,700
18,300 Hammerson PLC................................................................ 291,650
46,000 Liberty International PLC.................................................... 798,220
32,000 Slough Estates PLC........................................................... 298,999
-------------
4,770,147
-------------
7
DAVIS REAL ESTATE PORTFOLIO
SCHEDULE OF INVESTMENTS - (Continued)
June 30, 2005 (Unaudited)
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
COMMON STOCK - (CONTINUED)
REGIONAL MALL REITS - (8.26%)
55,442 General Growth Properties, Inc. ............................................. $ 2,278,112
24,600 Mills Corp. ................................................................. 1,495,434
18,500 Simon Property Group, Inc. .................................................. 1,341,065
-------------
5,114,611
-------------
RESIDENTIAL/COMMERCIAL BUILDING - (1.00%)
19,300 WCI Communities, Inc.*....................................................... 618,179
-------------
SHOPPING CENTER REITS - (12.47%)
48,625 Developers Diversified Realty Corp. ......................................... 2,234,805
31,400 Kimco Realty Corp. .......................................................... 1,849,774
26,700 Pan Pacific Retail Properties, Inc. ......................................... 1,772,346
32,700 Regency Centers Corp. ....................................................... 1,870,440
-------------
7,727,365
-------------
WAREHOUSE & INDUSTRIAL REITS - (12.79%)
50,566 Catellus Development Corp. .................................................. 1,658,565
93,500 Centerpoint Properties Trust................................................. 3,955,050
57,400 ProLogis..................................................................... 2,309,776
-------------
7,923,391
-------------
Total Common Stock - (identified cost $42,963,832).................. 58,566,655
-------------
PREFERRED STOCK - (0.22%)
APARTMENT REITS - (0.22%)
2,000 Equity Residential, 7.00%, Series E, Cum. Conv. Pfd. ........................ 82,500
1,600 Equity Residential, 8.60%, Series D, Cum. Pfd. .............................. 42,616
400 Equity Residential, 9.125%, Series C, Cum. Pfd. ............................. 10,512
-------------
Total Preferred Stock - (identified cost $113,921).................. 135,628
-------------
8
DAVIS REAL ESTATE PORTFOLIO
SCHEDULE OF INVESTMENTS - (Continued)
June 30, 2005 (Unaudited)
VALUE
PRINCIPAL SECURITY (NOTE 1)
==============================================================================================================
SHORT TERM INVESTMENTS - (4.84%)
$ 989,000 Goldman, Sachs & Co., Joint Repurchase Agreement, 3.43%,
07/01/05, dated 06/30/05, repurchase value of $989,094
(collateralized by: U.S. Government agency obligations in a pooled
cash account, total market value $1,008,780).............................. $ 989,000
1,060,000 Nomura Securities International, Inc. Joint Repurchase Agreement, 3.44%,
07/01/05, dated 06/30/05, repurchase value of $1,060,101
(collateralized by: U.S. Government agency obligations in a pooled
cash account, total market value $1,081,200)............................... 1,060,000
954,000 UBS Financial Services Inc. Joint Repurchase Agreement, 3.43%,
07/01/05, dated 06/30/05, repurchase value of $954,091
(collateralized by: U.S. Government agency obligations in a pooled
cash account, total market value $973,080)................................. 954,000
-------------
Total Short Term Investments - (identified cost $3,003,000)......... 3,003,000
-------------
Total Investments - (99.59%) - (identified cost $46,080,753) - (a)........... 61,705,283
Other Assets Less Liabilities - (0.41%)...................................... 252,242
-------------
Net Assets - (100.00%)................................................... $ 61,957,525
=============
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $46,084,588. At June 30,
2005 unrealized appreciation (depreciation) of securities for Federal Income
Tax purposes is as follows:
Unrealized appreciation...................................................... $ 15,642,699
Unrealized depreciation...................................................... (22,004)
-------------
Net unrealized appreciation.............................................. $ 15,620,695
=============
SEE NOTES TO FINANCIAL STATEMENTS
9
DAVIS REAL ESTATE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
At June 30, 2005 (Unaudited)
================================================================================
ASSETS:
Investments in securities, at value
(see accompanying Schedule of Investments)(cost of $46,080,753)................................. $ 61,705,283
Cash.............................................................................................. 156,629
Receivables:
Dividends and interest.......................................................................... 226,053
Capital stock sold.............................................................................. 1,993
Investment securities sold...................................................................... 464,906
Prepaid expenses.................................................................................. 905
---------------
Total assets............................................................................... 62,555,769
---------------
LIABILITIES:
Payables:
Capital stock reacquired........................................................................ 154,128
Investment securities purchased................................................................. 389,395
Accrued expenses.................................................................................. 15,813
Accrued management fee............................................................................ 38,908
---------------
Total liabilities.......................................................................... 598,244
---------------
NET ASSETS .......................................................................................... $ 61,957,525
===============
SHARES OUTSTANDING (NOTE 4).......................................................................... 3,572,282
===============
NET ASSET VALUE, offering and
redemption price per share (Net Assets (divided by) Shares Outstanding)......................... $ 17.34
===========
NET ASSETS CONSIST OF:
Par value of shares of capital stock.............................................................. $ 3,572
Additional paid-in capital........................................................................ 43,413,787
Undistributed net investment income............................................................... 507,424
Accumulated net realized gains from investments and foreign currency transactions................. 2,408,411
Net unrealized appreciation on investments and foreign currency transactions...................... 15,624,331
---------------
$ 61,957,525
===============
SEE NOTES TO FINANCIAL STATEMENTS
10
DAVIS REAL ESTATE PORTFOLIO
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005 (Unaudited)
================================================================================
INVESTMENT INCOME:
Income:
Dividends (Net of foreign withholding taxes of $3,356)........................................ $ 1,087,882
Interest...................................................................................... 60,392
---------------
Total income.............................................................................. 1,148,274
---------------
Expenses:
Management fees (Note 2)...................................................................... 214,448
Custodian fees................................................................................ 13,663
Transfer agent fees........................................................................... 3,299
Audit fees.................................................................................... 6,000
Accounting fees (Note 2)...................................................................... 3,000
Legal fees.................................................................................... 352
Reports to shareholders....................................................................... 450
Directors' fees and expenses.................................................................. 3,695
Registration and filing fees.................................................................. 874
Miscellaneous................................................................................. 2,568
---------------
Total expenses............................................................................ 248,349
Expenses paid indirectly (Note 5)......................................................... (20)
---------------
Net expenses.............................................................................. 248,329
---------------
Net investment income.................................................................. 899,945
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from:
Investment transactions................................................................... 1,560,426
Foreign currency transactions............................................................. 545
Net decrease in unrealized appreciation of investments and foreign
currency transactions.................................................................... (105,304)
---------------
Net realized and unrealized gain on investments and foreign currency...................... 1,455,667
---------------
Net increase in net assets resulting from operations................................... $ 2,355,612
===============
SEE NOTES TO FINANCIAL STATEMENTS
11
DAVIS REAL ESTATE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31,
(UNAUDITED) 2004
--------- ----
OPERATIONS:
Net investment income.............................................. $ 899,945 $ 1,016,323
Net realized gain from investment and foreign currency
transactions..................................................... 1,560,971 3,277,505
Net increase (decrease) in unrealized appreciation of
investments and foreign currency transactions.................... (105,304) 9,199,069
---------------- ----------------
Net increase in net assets resulting from operations............... 2,355,612 13,492,897
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................. (392,521) (1,497,449)
Realized gains from investment transactions........................ - (1,939,529)
CAPITAL SHARE TRANSACTIONS (NOTE 4).................................... 1,715,816 12,559,434
---------------- ----------------
Total increase in net assets........................................... 3,678,907 22,615,353
NET ASSETS:
Beginning of period................................................ 58,278,618 35,663,265
---------------- ----------------
End of period*..................................................... $ 61,957,525 $ 58,278,618
================ ================
*Including undistributed net investment income of................ $ 507,424 -
SEE NOTES TO FINANCIAL STATEMENTS
12
DAVIS REAL ESTATE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2005 (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
non-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.
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,
or whose values have been affected by a significant event occurring after the
close of their primary markets, 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.
13
DAVIS REAL ESTATE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2005 (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.
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.
NOTE 2 - INVESTMENT ADVISORY FEES
Advisory fees are paid to Davis Advisors, the Fund's investment adviser (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, 2005 was
$13. 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, 2005 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.
14
DAVIS REAL ESTATE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2005 (Unaudited)
================================================================================
NOTE 3 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the six months ended June 30, 2005 were $9,812,212 and
$4,949,660, respectively.
NOTE 4 - CAPITAL STOCK
At June 30, 2005, 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 YEAR ENDED
JUNE 30, 2005 DECEMBER 31,
(UNAUDITED) 2004
----------- ----
Shares sold............................................... 580,245 1,356,048
Shares issued in reinvestment of distributions............ 25,489 215,308
---------------- ----------------
605,734 1,571,356
Shares redeemed........................................... (501,703) (751,119)
---------------- ----------------
Net increase........................................ 104,031 820,237
================ ================
Proceeds from shares sold................................. $ 9,433,106 $ 19,825,910
Proceeds from shares issued in
reinvestment of distributions......................... 392,521 3,436,978
---------------- ----------------
9,825,627 23,262,888
Cost of shares redeemed................................... (8,109,811) (10,703,454)
---------------- ----------------
Net increase........................................ $ 1,715,816 $ 12,559,434
================ ================
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 $20 for the six months ended June 30, 2005.
15
DAVIS REAL ESTATE PORTFOLIO
FINANCIAL HIGHLIGHTS
================================================================================
The following financial information represents data for each share of capital
stock outstanding throughout each period:
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2005 ---------------------------------------- -----------------
(UNAUDITED) 2004 2003 2002 2001 2000
----------- ---- ---- ---- ---- ----
Net Asset Value, Beginning of Period. $ 16.80 $ 13.47 $ 10.49 $ 10.35 $ 10.38 $ 8.71
---------- ---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income.................. 0.25 0.34 0.44 0.36 0.36 0.33
Net Realized and Unrealized
Gains............................... 0.40 4.07 3.34 0.25 0.19 1.67
---------- ---------- ---------- ---------- ---------- ---------
Total From Investment Operations.... 0.65 4.41 3.78 0.61 0.55 2.00
Dividends and Distributions
Dividends from Net Investment Income... (0.11) (0.48) (0.55) (0.36) (0.36) (0.33)
Return of Capital...................... - - - (0.11) (0.07) -
Distributions from Realized Gains...... (0.60) (0.25) - (0.11) -
Distributions in Excess of Net
Investment Income................... - - - - (0.04) -
---------- ---------- ---------- ---------- ---------- ---------
Total Dividends and Distributions... (0.11) (1.08) (0.80) (0.47) (0.58) (0.33)
---------- ---------- ---------- ---------- ---------- ---------
Net Asset Value, End of Period.......... $ 17.34 $ 16.80 $ 13.47 $ 10.49 $ 10.35 $ 10.38
========== ========== ========== ========== ========== ==========
Total Return(1)......................... 3.96% 33.35% 36.79% 5.89% 5.50% 23.33%
- ------------
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted). $61,958 $58,279 $35,663 $18,806 $10,029 $4,853
Ratio of Expenses to Average Net Assets. 0.87%* 0.89% 0.98% 1.00%(3) 1.00%(3) 1.07%(3,4)
Ratio of Net Investment Income to 3.15%* 2.30% 3.74% 3.54% 3.70% 4.31%
Average Net Assets..................
Portfolio Turnover Rate(2) ............. 9% 32% 22% 52% 45% 16%
(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 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) Had the Adviser not absorbed certain expenses the ratio of expenses to
average net assets would have been 1.10%, 1.39%, and 3.15%, for 2002, 2001,
and 2000, respectively.
(4) Ratio of expenses to average net assets after the reduction of expenses paid
indirectly was 1.00% for 2000.
* Annualized
SEE NOTES TO FINANCIAL STATEMENTS
16
DAVIS REAL ESTATE PORTFOLIO
FUND INFORMATION
================================================================================
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under
which the Fund votes proxies relating to securities held by the Fund. A
description of the Fund's Portfolio Proxy Voting Policies and Procedures is
available (i) without charge, upon request, by calling the Fund toll-free at
1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on
the SEC's website at www.sec.gov.
In addition, the Fund is required to file Form N-PX, with its complete
proxy voting record for the 12 months ended June 30th, no later than August 31st
of each year. The Fund's Form N-PX filing is available (i) without charge, upon
request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's
website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.
FORM N-Q
The Fund files the complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The Fund's Form
N-Q is available without charge upon request by calling 1-800-279-0279 or on the
Fund's website at www.davisfunds.com or on the SEC's website at www.sec.gov. The
Fund's Form N-Q may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC, and that information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
17
DAVIS REAL ESTATE PORTFOLIO
DIRECTOR APPROVAL OF ADVISORY AGREEMENTS
================================================================================
PROCESS OF ANNUAL REVIEW
The Board of Directors of the Davis Funds oversees the management of each Davis
Fund and, as required by law, determines annually whether to approve the
continuance of each Davis Fund's advisory agreement with Davis Selected
Advisers, L.P. and sub-advisory agreement with Davis Selected Advisers-NY, Inc.
(jointly "Davis Advisors" and "Advisory Agreements").
As a part of this process the Independent Directors, with the assistance of
counsel for the Independent Directors, prepares questions which it submits to
Davis Advisors in anticipation of the annual contract review. In a separate
meeting held prior to the March 2005 board meeting, the Independent Directors
reviewed and evaluated all information which they deemed reasonably necessary in
the circumstances. Upon completion of this review, the Independent Directors
recommended that the full Board of Directors approve the continuance of the
Advisory Agreements, which occurred at the March 2005 board meeting.
REASONS THE INDEPENDENT DIRECTORS APPROVED CONTINUATION OF THE ADVISORY
AGREEMENTS
The Independent Directors' determinations were based upon a comprehensive
consideration of all information provided to the Independent Directors and were
not the result of any single factor. The following facts and conclusions were
important, but not exclusive, in the Independent Directors' recommendation to
renew the Advisory Agreements for each of the Davis Funds described below.
The Independent Directors noted the importance of reviewing quantitative
measures, but also recognize that qualitative factors, some of which are
mentioned below, could be equally or more important in assessing whether Davis
Fund shareholders have been, or are likely to be, well served by the renewal of
the management contract. They noted both the value and shortcomings of purely
quantitative measures, including the data provided by independent service
providers, and concluded that while such measures and data can inform, they
should not supersede the judgment of the Independent Directors who take many
factors, including those listed below, into consideration in representing the
shareholders of Davis Funds. In connection with reviewing comparative
performance information, the Independent Directors generally give weight to
longer-term measurements.
The Independent Directors believe that shareholders of Davis Funds should, and
will, expect Davis Advisors to employ a disciplined, company specific, research
driven, businesslike, long-term investment philosophy. The Independent Directors
concluded that the willingness of Davis Advisors and related persons to invest a
substantial amount of their own money alongside and on the same terms as other
shareholders in the Davis Funds demonstrates a good alignment of interest
between Davis Advisors and Davis Fund shareholders.
The Independent Directors recognized Davis Advisors' (a) efforts to minimize
transaction costs by generally having a long-term time horizon and low portfolio
turnover; (b) record of generally producing satisfactory results over the
long-term (c) efforts towards fostering healthy investor behavior by, among
other things, providing informative and substantial educational material; and
(d) efforts to promote shareholder interests by actively speaking out on
corporate governance issues.
18
DAVIS REAL ESTATE PORTFOLIO
DIRECTOR APPROVAL OF ADVISORY AGREEMENTS - (Continued)
================================================================================
The Independent Directors also noted that Davis Advisers provides a number of
services to the Davis Funds in addition to investment management. Non-investment
management services provided by Davis Advisors to the Davis Funds include (a)
responsibility for complying with legal duties, and regulatory obligations; and
(b) responsibility for general administrative and business services. Davis
Advisors is reimbursed a portion of its costs in providing some, but not all, of
these services.
The Independent Directors reviewed (a) comparative fee and expense information
for competitive funds, as selected and analyzed by a nationally recognized
independent service provider; (b) information regarding fees charged by Davis
Advisors to other advisory clients, including funds which it sub-advises and
private accounts, as well as the differences in the services provided to such
other clients; and (c) the fee schedules of the various Davis Variable Account
Funds, including an assessment of competitive fee schedules.
The Independent Directors reviewed the profitability of each Davis Fund to Davis
Advisors. The Independent Directors considered various potential benefits that
Davis Advisors may receive in connection with the services it provides under the
Advisory Agreements with each Davis Fund, including a review of portfolio
brokerage practices. The Independent Directors noted that Davis Advisors does
not use client commissions to pay for publications that are available to the
general public or third-party research services.
DAVIS REAL ESTATE PORTFOLIO
- ---------------------------
The Independent Directors noted that Davis Real Estate Portfolio out-performed
its benchmark, the Dow Jones Wilshire Real Estate Index, over the 3-year
investment horizon, but under-performed the index over the 1 and 5-year
investment horizons. Davis Real Estate Portfolio exceeded or equaled the average
performance of its peer group, as determined by an independent service provider,
over the shorter investment horizon, but trailed the peer group over the 5-year
investment horizon. The Fund also had strong absolute performance over all
reviewed periods.
The Independent Directors considered the expense ratio for Davis Real Estate
Portfolio and concluded that it is reasonable and competitive with the range of
average expense ratios of its peer group as determined by an independent service
provider.
APPROVAL OF ADVISORY ARRANGEMENTS
- ---------------------------------
After their review of all factors, the Independent Directors determined that the
advisory fee for Davis Real Estate Portfolio is reasonable in light of the
nature, quality and extent of the services being provided to the Fund, the costs
incurred by Davis Advisors in providing such service, and in comparison to the
range of the average advisory fees of its peer group as determined by an
independent service provider.
The Independent Directors considered the advisory fee schedule for Davis Real
Estate Portfolio (a fixed fee which was typical for many competitive funds) and
concluded that it represents an appropriate sharing between Fund shareholders
and Davis Advisors of such economies of scale as may exist in the management of
the Fund at current asset levels.
The Independent Directors therefore recommended continuation of the advisory
agreements.
19
DAVIS REAL ESTATE 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. Subject to exceptions and exemptions which may be granted by the
Independent Directors, 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) 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
WESLEY E. Director director President, Bass & 12 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 12 Director, Legg Mason Trust
(born 9/9/42) since 1986 Officer, World Total (asset management company)
Return Fund, LLLP; Of and Rodney Trust Company
Counsel to Gordon, (Delaware).
Feinblatt, Rothman,
Hoffberger and Hollander, LLC
(law firm).
THOMAS S. GAYNER Director director Executive Vice 12 none
(born 12/16/61) since 2004 President and Chief
Investment Officer,
Markel Corporation
(insurance company).
JERRY D. GEIST Director director Chairman, Santa Fe 12 Director, CH2M-Hill, Inc.
(born 5/23/34) since 1986 Center Enterprises (engineering); Chairman,
(energy project Santa Fe Center Enterprises;
development); Retired Investment Committee for
Chairman and Microgeneration Technology
President, Public Fund, UTECH Funds.
Service Company of New
Mexico.
20
DAVIS REAL ESTATE 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 12 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), LogicVision,
Inc. (semi-conductor software
company), and Tessera
Technologies, Inc.
(semi-conductor packaging
company).
G. BERNARD Director director Managing General 12 none
HAMILTON since 1978 Partner, Avanti
(born 3/18/37) Partners, L.P.
(investment
partnership).
ROBERT P. Director director Chairman, Northroad 12 none
MORGENTHAU since 2002 Capital Management,
(born 3/22/57) LLC (an investment
management firm) since June
2002; President of Private
Advisory Services, 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, Cantrock 12 none
SMITH, JR. since 1994 Realty and Mayor,
(born 12/23/32) Incorporated Village
of Mill Neck, NY.
21
DAVIS REAL ESTATE 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, 12 none
SONNE since 1990 Tuxedo Park Associates
(born 5/6/36) (land holding and
development firm);
President and Chief
Executive Officer,
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 three
Financial Officer, 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 Iron Company, N.V.
Officer, Crate & (industrial construction and
Barrel (home engineering).
furnishings retailer);
former Vice President
and Treasurer, Amoco
Corporation (oil & gas
company).
INSIDE DIRECTORS*
JEREMY H. BIGGS Director/ director Vice Chairman, Member 12 none
(born 8/16/35) Chairman since 1994 of the 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.
22
DAVIS REAL ESTATE 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 three
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 three
(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.
23
DAVIS REAL ESTATE 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 Andrew A. Davis
Andrew A. Davis President
Christopher C. Davis Christopher C. Davis
Thomas S. Gayner Vice President
Jerry D. Geist Kenneth C. Eich
D. James Guzy Executive Vice President
G. Bernard Hamilton & Principal Executive Officer
Robert P. Morgenthau Sharra L. Reed
Theodore B. Smith, Jr. Vice President & Chief Compliance Officer
Christian R. Sonne Douglas A. Haines
Marsha Williams Vice President
& 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
Seyfarth Shaw LLP
55 East Monroe Street, Suite 4200
Chicago, Illinois 60603-5803
AUDITORS
KPMG LLP
707 Seventeenth Street
Suite 2700
Denver, Colorado 80202
================================================================================
FOR MORE INFORMATION ABOUT THE DAVIS REAL ESTATE PORTFOLIO, INCLUDING MANAGEMENT
FEE, CHARGES AND EXPENSES, SEE THE CURRENT DAVIS VARIABLE ACCOUNT FUNDS
(INCLUDING DAVIS REAL ESTATE PORTFOLIO) PROSPECTUS WHICH MUST PRECEDE OR
ACCOMPANY THIS REPORT. THE DAVIS VARIABLE ACCOUNT 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 OR ON THE FUND'S
WEBSITE AT WWW.DAVISFUNDS.COM. QUARTERLY FACT SHEETS ARE AVAILABLE ON THE FUND'S
WEBSITE AT WWW.DAVISFUNDS.COM.
================================================================================
24
DAVIS ADVISORS
2949 EAST ELVIRA ROAD
SUITE 101
TUCSON, AZ 85706
1-800-279-0279
WWW.DAVISFUNDS.COM
[DAVIS FUNDS LOGO]
OVER 35 YEARS OF RELIABLE INVESTING(TM)
Item 2. Code of Ethics - Not Applicable
Item 3. Audit Committee Financial Expert - Not Applicable
Item 4. Principal Accountant Fees and Services - Not Applicable
Item 5. Audit Committee of Listed Registrants - Not Applicable
Item 6. Schedule of Investments - Not Applicable
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8. Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9. Purchase of Equity Securities by Closed-End Mangement Investment
Company and Affiliated Purchases - Not Applicable
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no changes to the procedures by which shareholders
may recommend nominees to the registrant's Board of Trustees.
Item 11. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial
officer 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 12. Exhibits
EX-99.CERT - Section 302 Certification
EX-99.906 CERT - Section 906 Certification
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 VARIABLE ACCOUNT FUND, INC.
By /s/ Kenneth C. Eich
Kenneth C. Eich
Principal Executive Officer
Date: August 23, 2005
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 23, 2005
By /s/ Douglas A. Haines
Douglas A. Haines
Principal Financial officer
Date: August 23, 2005