485BPOS 1 file1.htm



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM N-1A

                                   ----------

                        REGISTRATION STATEMENT UNDER THE
                             SECURITIES ACT OF 1933
                           REGISTRATION NO. 333-76407
                         POST-EFFECTIVE AMENDMENT NO. 10

                                       AND

                        REGISTRATION STATEMENT UNDER THE
                         INVESTMENT COMPANY ACT OF 1940
                            REGISTRATION NO. 811-9293
                         POST EFFECTIVE AMENDMENT NO. 10

                        DAVIS VARIABLE ACCOUNT FUND, INC.
                        2949 East Elvira Road, Suite 101
                              Tucson, Arizona 85706
                                (1-505-820-3000)

Agents For Service:           Thomas D. Tays, Esq.
                          Davis Selected Advisers, L.P.
                        2949 East Elvira Road, Suite 101
                              Tucson, Arizona 85706
                                 1-520-434-3771

                                      -or-

                                Arthur Don, Esq.
                                Seyfarth Shaw LLP
                          55 E. Monroe St., Suite 4200
                             Chicago, IL 60603-5803
                                 1-312-602-2048

It is proposed that this filing will become effective:

     [_]  Immediately upon filing pursuant to paragraph (b)

     [X]  On May 1, 2006, pursuant to paragraph (b)

     [_]  60 days after filing pursuant to paragraph (a)(1)

     [_]  On _____, pursuant to paragraph (a)(1) of Rule 485

     [_]  75 days after filing pursuant to paragraph (a)(2)

     [_]  On _______, pursuant to paragraph (a)(2) of Rule 485

Title of Securities being Registered: Common Stock of:

     DAVIS VALUE PORTFOLIO;
     DAVIS FINANCIAL PORTFOLIO; AND
     DAVIS REAL ESTATE PORTFOLIO



                                EXPLANATORY NOTE

This Post-Effective Amendment No. 10 to the Registration Statement contains:

     1.   A prospectus offering shares of Davis Value Portfolio, Davis Financial
          Portfolio, and Davis Real Estate Portfolio

     2.   A prospectus offering shares of Davis Value Portfolio

     3.   A prospectus offering shares of Davis Financial Portfolio

     4.   A prospectus offering shares of Davis Real Estate Portfolio

     5.   Davis Variable Account Fund SAI

     6.   Part C and Signature Pages

     7.   Exhibits:

DAVIS VALUE PORTFOLIO
DAVIS FINANCIAL PORTFOLIO
DAVIS REAL ESTATE PORTFOLIO

(PORTFOLIOS OF DAVIS VARIABLE ACCOUNT FUND, INC.)

May 1, 2006

The Securities and Exchange Commission has neither approved nor disapproved of
these securities, nor has it determined whether this prospectus is accurate or
complete. Anyone who tells you otherwise is committing a crime.

[Davis FUNDS LOGO]
OVER 35 YEARS OF RELIABLE INVESTING(R)

This prospectus contains important information. Please read it carefully before
investing and keep it for future reference.

These Funds are sold exclusively to insurance company separate accounts for
variable annuity and variable life insurance contracts.

Shares of these 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.

TABLE OF CONTENTS

4 DAVIS VALUE PORTFOLIO
Investment Objective and Principal Investment Strategies
Principal Risks of Investing in Davis Value Portfolio
Performance Information
Fees and Expenses of Davis Value Portfolio

8 DAVIS FINANCIAL PORTFOLIO
Investment Objective and Principal Investment Strategies
Principal Risks of Investing in Davis Financial Portfolio
Performance Information
Fees and Expenses of Davis Financial Portfolio

12 DAVIS REAL ESTATE PORTFOLIO
Investment Objective and Principal Investment Strategies
Principal Risks of Investing in Davis Real Estate Portfolio
Performance Information
Fees and Expenses of Davis Real Estate Portfolio

18 DAVIS MANAGEMENT
Davis Advisors
The Davis Investment Discipline
Additional Information about Investments
Performance History
Compensation
Investment Professionals

25 OTHER INFORMATION
Purchase and Redemption of Shares
Right to Reject or Restrict any Purchase or Exchange Order
Excessive Trading Practices
Pricing of Shares
Valuation of Portfolio Securities
Portfolio Holdings
Mixed and Shared Funding
Federal Income Taxes
Dividends and Distributions
Distribution Plans
Other Compensation Paid to Financial Intermediaries
Financial Highlights

B/C OBTAINING ADDITIONAL INFORMATION

DAVIS VALUE PORTFOLIO

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES

Davis Value Portfolio's investment objective is long-term growth of capital.
Davis Advisors uses the Davis Investment Discipline to invest the majority of
the Fund's assets in equity securities issued by large companies with market
capitalizations of at least $10 billion. See "The Davis Investment Discipline."

The Fund has the flexibility to invest a limited portion of its assets in
companies of any size, to invest in companies whose shares may be subject to
controversy, to invest in foreign securities, and to invest in non-equity
securities. See "Additional Information About Investments."

PRINCIPAL RISKS OF INVESTING IN DAVIS VALUE PORTFOLIO

If you buy shares of Davis Value Portfolio, you may lose some or all of the
money that you invest. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. This section
describes what we think are the most significant factors (but not the only
factors) that could cause the value of your investment in the Fund to decline,
and which could prevent the Fund from achieving its stated objective.

o MARKET RISK. The market value of shares of common stock can change
rapidly and unpredictably as a result of political or economic events
having little or nothing to do with the performance of the companies
in which we invest.

o COMPANY RISK. The market values of common stock vary with the success
or failure of the company issuing the stock. Many factors can
negatively affect a particular company's stock price, such as poor
earnings reports, loss of major customers, major litigation against
the company or changes in government regulations affecting the company
or its industry. The success of the companies in which the Fund
invests largely determines the Fund's long-term performance.

o FINANCIAL SERVICES RISK. The Fund historically has invested a
significant portion of its assets in the financial services sector.
Risks of investing in the financial services sector include: (i)
Regulatory actions: financial services companies may suffer a setback
if regulators change the rules under which they operate; (ii) Changes
in interest rates: unstable interest rates, and/or rising interest
rates, may have a disproportionate effect on the financial services
sector; (iii) Non-diversified loan portfolios: financial services
companies whose securities the Fund purchases may themselves have
concentrated portfolios, such as a high level of loans to real estate
developers, which makes them vulnerable to economic

conditions that affect that industry; and (iv) Competition: the
financial services sector has become increasingly competitive.

o FOREIGN COUNTRY RISK. The Fund may invest a portion of its assets in
companies operating, incorporated, or principally traded in foreign
countries. Investing in foreign countries involves risks that may
cause the Fund's performance to be more volatile than it would be if
we invested solely in the United States. Foreign economies may not be
as strong or as diversified, foreign political systems may not be as
stable, and foreign financial reporting standards may not be as
rigorous as they are in the United States. In addition, foreign
capital markets may not be as well developed, so securities may be
less liquid, transaction costs may be higher, and investments may be
subject to government regulation. Securities issued by foreign
companies are frequently denominated in foreign currencies. The change
in value of a foreign currency against the U.S. dollar will result in
a change in the U.S. dollar value of securities denominated in that
foreign currency. The Fund generally does not hedge its currency risk.
When the value of a foreign currency declines against the U.S. dollar,
the value of the Fund's shares will tend to decline.

o HEADLINE RISK. We seek to acquire companies with durable business
models that can be purchased at attractive valuations relative to
their intrinsic value. We may make such investments when a company
becomes the center of controversy after receiving adverse media
attention. The company may be involved in litigation, the company's
financial reports or corporate governance may be challenged, the
company's annual report may disclose a weakness in internal controls,
investors may question the company's published financial reports,
greater government regulation may be contemplated, or other adverse
events may threaten the company's future. While we research companies
subject to such contingencies, we cannot be correct every time, and
the company's stock may never recover.

o SELECTION RISK. The securities we select for the Fund may underperform
the S&P 500(R) Index or other funds with similar investment objectives
and strategies.

The Fund's shares 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.

PERFORMANCE INFORMATION

The bar chart and table that follow provide an indication of the risks of
investing in Davis Value Portfolio by showing changes in the Fund's year-to-year
performance and by showing how the Fund's average annual returns compare to
those of the S&P 500(R) Index, a widely recognized unmanaged index of stock
performance. The Fund is not managed to track any particular index and,
consequently, the performance of the Fund may deviate significantly from the
performance of the Index. The Fund's past performance is not necessarily an
indication of how the Fund will perform in the future. The bar chart and
performance table shown do not reflect charges at the separate account

level. If they did, the performance shown would be lower. All performance shown
assumes the reinvestment of dividends and capital gains.

DAVIS VALUE PORTFOLIO
CALENDAR YEAR TOTAL RETURN

YEAR RETURN
---- ------
2000 9.30%
2001 (10.39)%
2002 (16.26)%
2003 29.76%
2004 12.33%
2005 9.44%

During the period shown above, the highest quarterly return was 17.16% for the
2nd quarter of 2003, and the lowest quarterly return was (13.44)% for the 3rd
quarter of 2001. Total return for the three months ended March 31, 2006, (not
annualized) was 2.82%.

DAVIS VALUE PORTFOLIO AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 2005

LIFE OF FUND
PAST 1 YEAR PAST 5 YEARS (JULY 1, 1999)
----------- ------------ --------------
DAVIS VALUE PORTFOLIO 9.44% 3.66% 4.63%
S&P 500(R) INDEX(1) 4.91% 0.54% 0.00%

(1.) The Standard & Poor's 500(R) Index is a broad-based index of common stocks
frequently used as a general measure of U.S. stock market performance. It
reflects no deduction for fees or expenses.

FEES AND EXPENSES OF DAVIS VALUE PORTFOLIO

The following table and expense example describes the fees and expenses that are
incurred directly or indirectly when a variable contract owner buys, holds or
redeems interests in a separate account that invests in the Fund. The following
table and expense example do not reflect the effect of fees or other expenses of
any variable annuity or variable life insurance product, if they did, expenses
would be higher.

SHAREHOLDER FEES
Paid directly from your investment

Maximum sales charge (load) imposed on purchases
as a percentage of offering price None

Maximum deferred sales charge (load) imposed on redemptions
as a percentage of the lesser of the net asset value of the shares
redeemed or the total cost of such shares None

ANNUAL OPERATING EXPENSES
Deducted from the Fund's assets

Management Fees 0.75%
Distribution (12b-1) Fees 0.00%
Other Expenses 0.06%
Total Annual Operating Expenses 0.81%

These expenses reflect operations for the year ended December 31, 2005. Expenses
may vary in future years. These fees and expenses are paid by the fund and borne
indirectly by contract holders. There are additional expenses charged by
insurance companies. These are described in the variable annuity and/or variable
life insurance prospectus.

EXPENSE EXAMPLE

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated. The example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. This example does
not reflect fees associated with the ownership of a variable annuity or variable
life insurance contract and your actual costs may be higher. Your costs based on
these assumptions would be:

IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------- ------ ------- ------- --------
Davis Value Portfolio $83 $259 $450 $1,002

DAVIS FINANCIAL PORTFOLIO

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES

Davis Financial Portfolio's investment objective is long-term growth of capital.
Davis Advisors uses the Davis Investment Discipline to invest at least 80% of
the Fund's net assets, plus any borrowing for investment purposes, in securities
issued by companies principally engaged in the financial services sector. See
"The Davis Investment Discipline."

A company is principally engaged in financial services if it owns financial
services-related assets that constitute at least 50% of the value of all of its
assets, or if it derives at least 50% of its revenues from providing financial
services. Companies in the financial services sector include commercial banks,
industrial banks, savings institutions, finance companies, diversified financial
services companies, investment banking firms, securities brokerage houses,
investment advisory companies, leasing companies, insurance companies and
companies providing similar services.

The Fund has the flexibility to invest a limited portion of its assets in
non-financial companies, to invest in companies of any size, to invest in
companies whose shares may be subject to controversy, to invest in foreign
securities, and to invest in non-equity securities. See "Additional Information
About Investments."

PRINCIPAL RISKS OF INVESTING IN DAVIS FINANCIAL PORTFOLIO

If you buy shares of Davis Financial Portfolio, you may lose some or all of the
money that you invest. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. This section
describes what we think are the most significant factors (but not the only
factors) that could cause the value of your investment in the Fund to decline,
and which could prevent the Fund from achieving its stated objective.

o CONCENTRATED FINANCIAL SERVICES PORTFOLIO RISK. Davis Financial
Portfolio invests principally in a single market sector, and any fund
that has a concentrated portfolio is particularly vulnerable to the
risks of its target sector. Risks of investing in the financial
services sector include (i) Regulatory actions: financial services
companies may suffer a setback if regulators change the rules under
which they operate; (ii) Changes in interest rates: unstable interest
rates, and/or rising interest rates, may have a disproportionate
effect on the financial services sector; (iii) Non-diversified loan
portfolios: financial services companies whose securities the Fund
purchases may themselves have concentrated portfolios, such as a high
level of loans to real estate developers, which makes them vulnerable
to economic conditions that affect that industry; and (iv)
Competition: the financial services sector has become increasingly
competitive.

o SELECTION RISK. The securities we select for the Fund may underperform
the S&P 500(R) Index or other funds with similar investment objectives
and strategies.

The Fund's shares 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.

PERFORMANCE INFORMATION

The bar chart and table that follow provide an indication of the risks of
investing in Davis Financial Portfolio by showing changes in the Fund's
year-to-year performance and by showing how the Fund's average annual returns
compare to those of the S&P 500(R) Index, a widely recognized unmanaged index of
stock performance. The Fund is not managed to track any particular index and,
consequently, the performance of the Fund may deviate significantly from the
performance of the Index. The Fund's past performance is not necessarily an
indication of how the Fund will perform in the future. The bar chart and
performance table shown do not reflect charges at the separate account level. If
they did, the performance shown would be lower. All performance shown assumes
the reinvestment of dividends and capital gains.

DAVIS FINANCIAL PORTFOLIO
CALENDAR YEAR TOTAL RETURN

YEAR RETURN
---- ------
2000 30.97%
2001 (10.37)%
2002 (16.84)%
2003 32.15%
2004 10.32%
2005 8.38%

During the period shown above, the highest quarterly return was 19.74% for the
2nd quarter of 2003, and the lowest quarterly return was (15.81)% for the 3rd
quarter of 2001. Total return for the three months ended March 31, 2006, (not
annualized) was 2.24%.

DAVIS FINANCIAL PORTFOLIO AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 2005

LIFE OF FUND
PAST 1 YEAR PAST 5 YEARS (JULY 1, 1999)
----------- ------------ --------------
DAVIS FINANCIAL PORTFOLIO 8.38% 3.32% 5.67%
S&P 500(R) INDEX(1) 4.91% 0.54% 0.00%

(1.) The Standard & Poor's 500(R) Index is a broad-based index of common stocks
frequently used as a general measure of U.S. stock market performance. It
reflects no deduction for fees or expenses.

FEES AND EXPENSES OF DAVIS FINANCIAL PORTFOLIO

SHAREHOLDER FEES
Paid directly from your investment

Maximum sales charge (load) imposed on purchases
as a percentage of offering price None

Maximum deferred sales charge (load) imposed on redemptions
as a percentage of the lesser of the net asset value of the shares None
redeemed or the total cost of such shares

ANNUAL OPERATING EXPENSES
Deducted from the Fund's assets

Management Fees 0.75%
Distribution (12b-1) Fees 0.00%
Other Expenses 0.10%
Total Annual Operating Expenses 0.85%

EXPENSE EXAMPLE

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------- ------ ------- ------- --------
Davis Financial Portfolio $87 $271 $471 $1,049

DAVIS REAL ESTATE PORTFOLIO

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES

Davis Real Estate Portfolio's investment objective is total return through a
combination of growth and income. Davis Advisors uses the Davis Investment
Discipline to invest at least 80% of the Fund's net assets, plus any borrowing
for investment purposes, in securities issued by companies principally engaged
in the real estate industry. See "The Davis Investment Discipline."

A company is principally engaged in the real estate industry if it owns real
estate or real estate-related assets that constitute at least 50% of the value
of all of its assets or if it derives at least 50% of its revenues or net
profits from owning, financing, developing, managing or selling real estate, or
from offering products or services that are related to real estate. Issuers of
real estate securities include real estate investment trusts (REITs), brokers,
developers, lenders, and companies with substantial real estate holdings such as
paper, lumber, hotel, and entertainment companies. Most of Davis Real Estate
Portfolio's real estate securities are, and will likely continue to be,
interests in REITs. REITs pool investors' funds to make real estate-related
investments, such as buying interests in income-producing property or making
loans to real estate developers.

The Fund has the flexibility to invest a limited portion of its assets in
non-real estate companies, to invest in companies of any size, to invest in
companies whose shares may be subject to controversy, to invest in foreign
securities, and to invest in non-equity securities. See "Additional Information
About Investments."

PRINCIPAL RISKS OF INVESTING IN DAVIS REAL ESTATE PORTFOLIO

If you buy shares of Davis Real Estate Portfolio, you may lose some or all of
the money that you invest. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. This section
describes what we think are the most significant factors (but not the only
factors) that could cause the value of your investment in the Fund to decline,
and which could prevent the Fund from achieving its stated objective.

regulations affecting the company or its industry. The success of the
companies in which the Fund invests largely determines the Fund's
long-term performance.

o CONCENTRATED REAL ESTATE PORTFOLIO RISK. Davis Real Estate Portfolio
invests principally in a single market sector, and any fund that has a
concentrated portfolio is particularly vulnerable to the risks of its
selected industry. Real estate securities are susceptible to the many
risks associated with the direct ownership of real estate, including
(i) declines in property values, because of changes in the economy or
the surrounding area or because a particular region has become less
appealing to tenants; (ii) increases in property taxes, operating
expenses, interest rates or competition; (iii) overbuilding; (iv)
changes in zoning laws; or (v) losses from casualty or condemnation.

o FOCUSED PORTFOLIO RISK. Davis Real Estate Portfolio is classified as a
nondiversified fund and is allowed to focus its investments in fewer
companies than a diversified fund. Should the portfolio managers
determine that it is prudent to focus the Fund's portfolio in a few
companies, the portfolio may be subject to greater volatility and risk
and the Fund's investment performance, both good and bad, is expected
to reflect the economic performance of the few companies on which the
Fund focuses.

o SMALL- AND MEDIUM-CAPITALIZATION RISK. Many real estate companies are
small- and medium-capitalization companies. Investing in these
companies may be more risky than investing in large-capitalization
companies. Smaller companies typically have more limited product
lines, markets and financial resources than larger companies, and
their securities may trade less frequently and in more limited volume
than those of larger, more mature companies.

receiving adverse media attention. The company may be involved in
litigation, the company's financial reports or corporate governance
may be challenged, the company's annual report may disclose a weakness
in internal controls, investors may question the company's published
financial reports, greater government regulation may be contemplated,
or other adverse events may threaten the company's future. While we
research companies subject to such contingencies, we cannot be correct
every time, and the company's stock may never recover.

o SELECTION RISK. The securities we select for the Fund may underperform
the Dow Jones Wilshire Real Estate Securities Index or other funds
with similar investment objectives and strategies.

PERFORMANCE INFORMATION

The bar chart and table that follow provide an indication of the risks of
investing in Davis Real Estate Portfolio by showing changes in the Fund's
year-to-year performance and by showing how the Fund's average annual returns
compare to those of the S&P 500(R) Index and the Dow Jones Wilshire Real Estate
Securities Index. The S&P 500(R) Index is a widely recognized, unmanaged index
of stock performance. The Dow Jones Wilshire Real Estate Securities Index is a
measure of the performance of publicly traded real estate securities, such as
Real Estate Investment Trusts and Real Estate Operating Companies. The Fund is
not managed to track any particular index and, consequently, the performance of
the Fund may deviate significantly from the performance of the Indices. The
Fund's past performance is not necessarily an indication of how the Fund will
perform in the future. The bar chart and performance table shown do not reflect
charges at the separate account level. If they did, the performance shown would
be lower. All performance shown assumes the reinvestment of dividends and
capital gains.

DAVIS REAL ESTATE PORTFOLIO
CALENDAR YEAR TOTAL RETURN

YEAR RETURN
---- ------
2000 23.33%
2001 5.50%
2002 5.89%
2003 36.79%
2004 33.35%
2005 13.14%

During the period shown above, the highest quarterly return was 14.91% for the
4th quarter of 2004, and the lowest quarterly return was (7.84)% for the 3rd
quarter of 2002. Total return for the three months ended March 31, 2006, (not
annualized) was 15.41%.

DAVIS REAL ESTATE PORTFOLIO AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 2005

LIFE OF FUND
PAST 1 YEAR PAST 5 YEARS (JULY 1, 1999)
----------- ------------ --------------
DAVIS REAL ESTATE PORTFOLIO 13.14% 18.18% 15.37%
DOW JONES WILSHIRE REAL 14.06% 19.04% 17.37%
ESTATE SECURITIES INDEX(1)
S&P 500(R) INDEX(2) 4.91% 0.54% 0.00%

(1.) 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 and Real Estate Operating Companies. It reflects
no deduction for fees or expenses.

(2.) The Standard & Poor's 500(R) Index is a broad-based index of common stocks
frequently used as a general measure of U.S. stock market performance. It
reflects no deduction for fees or expenses.

DAVIS REAL ESTATE PORTFOLIO YIELD
For the period ended December 31, 2005

30-DAY SEC YIELD 3.00%

You can obtain Davis Real Estate Portfolio's most recent 30-day SEC Yield by
calling us toll-free at 1-800-279-0279, Monday through Friday, 9 a.m. to 6 p.m.
Eastern Time.

FEES AND EXPENSES OF DAVIS REAL ESTATE PORTFOLIO

SHAREHOLDER FEES
Paid directly from your investment

Maximum sales charge (load) imposed on purchases
as a percentage of offering price None

Maximum deferred sales charge (load) imposed on redemptions
as a percentage of the lesser of the net asset value of the shares
redeemed or the total cost of such shares None

ANNUAL OPERATING EXPENSES
Deducted from the Fund's assets

Management Fees 0.75%
Distribution (12b-1) Fees 0.00%
Other Expenses 0.12%
Total Annual Operating Expenses 0.87%

EXPENSE EXAMPLE

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------- ------ ------- ------- --------
Davis Real Estate Portfolio $89 $278 $482 $1,073

DAVIS MANAGEMENT

DAVIS ADVISORS

Davis Selected Advisers, L.P., ("Davis Advisors") serves as the investment
adviser for each of the Davis Funds, including Davis Value Portfolio, Davis
Financial Portfolio and Davis Real Estate Portfolio. Davis Advisors' offices are
located at 2949 East Elvira Road, Suite 101, Tucson, Arizona 85706. Davis
Advisors provides investment advice for the Davis Funds, manages their business
affairs and provides day-to-day administrative services. Davis Advisors also
serves as investment adviser for other mutual funds and institutional and
individual clients.

Davis Selected Advisers-NY, Inc., ("Sub-Adviser") serves as the sub-adviser for
each of the Davis Funds, including Davis Value Portfolio, Davis Financial
Portfolio and Davis Real Estate Portfolio. The Sub-Adviser's offices are located
at 609 Fifth Avenue, New York, New York 10017. The Sub-Adviser provides
investment management and research services for the Davis Funds and other
institutional clients, and is a wholly owned subsidiary of Davis Advisors. The
Sub-Adviser's fee is paid by Davis Advisors, not the Davis Funds.

A discussion regarding the basis for the Board of Directors approving the
investment advisory and sub-advisory agreements will be included in the Fund's
June 2006 semi-annual report.

THE DAVIS INVESTMENT DISCIPLINE

Davis Advisors manages equity funds using the Davis Investment Discipline. We
conduct extensive research to try to identify businesses that possess
characteristics we believe foster the creation of long-term value, such as
proven management, a durable franchise and business model, and sustainable
competitive advantages. We aim to invest in such businesses when they are
trading at a discount to their intrinsic worth. We emphasize individual stock
selection and believe that the ability to evaluate management is critical. We
routinely visit managers at their places of business in order to gain insight
into the relative value of different businesses. Such research, however
rigorous, involves predictions and forecasts that are inherently uncertain.

Over the years, Davis Advisors has developed a list of characteristics that we
believe help companies to create shareholder value over the long term and manage
risk. While few companies possess all of these characteristics at any given
time, Davis Advisors searches for companies that demonstrate a majority or an
appropriate mix of these characteristics.

FIRST CLASS MANAGEMENT

o Proven track record

o Significant personal ownership in business

o Intelligent allocation of capital

o Smart application of technology to improve business and lower costs

STRONG FINANCIAL CONDITION AND SATISFACTORY PROFITABILITY

o Strong balance sheet

o Low cost structure

o High after-tax returns on capital

o High quality of earnings

STRONG COMPETITIVE POSITIONING

o Non-obsolescent products / services

o Dominant or growing market share

o Participation in a growing market

o Global presence and brand names

After determining which companies we wish to own, we then turn our analysis to
determining the intrinsic value of those companies' common stock. We seek common
stock which can be purchased at attractive valuations relative to their
intrinsic value. Our goal is to invest in companies for the long term. We
consider selling a company if we believe the stock's market price exceeds Davis
Advisors' estimates of intrinsic value, or if the ratio of the risks and rewards
of continuing to own the company is no longer attractive.

ADDITIONAL INFORMATION ABOUT INVESTMENTS

Each Fund's principal investment strategies and main risks are described in the
section entitled "Investment Objective and Principal Investment Strategies." The
Funds' investment objectives are not fundamental policies and may be changed by
the Board of Directors without a vote of shareholders. The Funds' prospectuses
would be amended before any change in investment objective, and shareholders
would be promptly notified of the change.

The Funds are not limited to investing in the securities and using the principal
investment strategies described therein. Each Fund may also purchase other kinds
of securities; engage in active trading (which would increase portfolio turnover
and commission expenses and may increase taxable distributions); or employ other
investment strategies that are not principal investment strategies if, in Davis
Advisors' professional judgment, the securities or investment strategies are
appropriate. Factors that Davis Advisors considers in pursuing these other
strategies include whether (i) purchasing such securities would be consistent
with shareholders' reasonable expectations; (ii) they may assist a Fund in
pursuing its investment objective; (iii) they are consistent with the Fund's

investment strategy; (iv) they will cause the Fund to violate any of its
investment restrictions; or (v) they will materially change the Fund's risk
profile as described in the Fund's prospectuses and Statement of Additional
Information, as amended from time to time. The Statement of Additional
Information discusses these securities and investment strategies.

SHORT-TERM INVESTMENTS. Each Fund uses short-term investments, such as treasury
bills and repurchase agreements, to maintain flexibility while evaluating
long-term opportunities. Each Fund may also use short-term investments for
temporary defensive purposes. At such times the Fund will not be pursuing its
normal investment policies. In the event that our portfolio managers anticipate
a decline in the market values of the companies in which the Fund invests (due
to economic, political or other factors), we may reduce the Fund's risk by
investing in short-term securities until market conditions improve. Unlike
equity securities, these investments will not appreciate in value when the
market advances and will not contribute to the Fund's investment objective.

For more details concerning current investments and market outlook, please see
the most recent shareholder report.

EXECUTION OF PORTFOLIO TRANSACTIONS. Davis Advisors places orders with
broker-dealers for Davis Funds' (including Davis Variable Account Funds)
portfolio transactions. Davis Advisors seeks to place portfolio transactions
with brokers or dealers who will execute transactions as efficiently as possible
and at the most favorable net price. In placing executions and paying brokerage
commissions or dealer markups, Davis Advisors considers price, commission,
timing, competent block trading coverage, capital strength and stability,
research resources, and other factors. Subject to best price and execution,
Davis Advisors may place orders for Davis Funds' portfolio transactions with
broker-dealers who have sold shares of Davis Funds. In placing orders for Davis
Funds' portfolio transactions, Davis Advisors does not commit to any specific
amount of business with any particular broker-dealer. Further, when Davis
Advisors places orders for Davis Funds' portfolio transactions, it does not give
any consideration to whether a broker-dealer has sold shares of Davis Funds.

Over the last three years the Funds paid the following brokerage commissions:

FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
2005 2004 2003
-------- -------- --------
Davis Value Portfolio
Brokerage commissions paid: $194,476 $200,539 $143,953
Brokerage as a percentage of average net
assets: 0.03% 0.03% 0.04%

Davis Financial Portfolio
Brokerage commissions paid: $ 37,729 $ 32,913 $ 28,023
Brokerage as a percentage of average net
assets: 0.03% 0.04% 0.06%

Davis Real Estate Portfolio
Brokerage commissions paid: $ 33,009 $ 30,882 $ 22,317
Brokerage as a percentage of average net
assets: 0.05% 0.07% 0.09%

PERFORMANCE HISTORY

Davis Value Portfolio, Davis Financial Portfolio and Davis Real Estate Portfolio
were first offered to the public on July 1, 1999. However, Davis Advisors has
been managing accounts in similar styles for a number of years. The performance
results presented in the tables that follow should not be considered predictive
of the future performance of the Funds. THE FUNDS' PERFORMANCE MAY BE EITHER
HIGHER OR LOWER THAN THE FOLLOWING COMPOSITES.

The performance histories presented as follows for Davis Large Cap Value
Composite, Davis Financial Composite and Davis Real Estate Composite include all
accounts with investment objectives, policies and strategies substantially
similar (although not necessarily identical) to those used by Davis Advisors in
managing the Davis Value Portfolio, Davis Financial Portfolio or Davis Real
Estate Portfolio, respectively. Mutual funds and private accounts may also be
included in the performance histories. Private accounts are not subject to
certain investment limitations, diversification requirements and other
restrictions imposed by the Investment Company Act of 1940 and the Internal
Revenue Code, which, if applied, might adversely affect the performance results.

The performance histories compare the Davis Large Cap Value Composite, Davis
Financial Composite and Davis Real Estate Composite on an annualized,
asset-weighted basis against the S&P 500(R) Index (or the Dow Jones Wilshire
Real Estate Securities Index, for Davis Real Estate Portfolio). Composite
performance is presented net of the

Funds' maximum annual operating expenses of 1%. Davis Advisors is contractually
committed to waive fees and/or reimburse the Funds' expenses to the extent
necessary to cap total annual fund operating expenses at 1% until May 1, 2007;
after that date, there is no assurance that expenses will be capped. What the
Funds' expense ratios would have been without the expense caps is discussed in
the Financial Highlights tables. Each Composite performance is computed using an
internal time-weighted rate of return for each account (including every private
account and mutual fund in the composite), weighted for the relative size of
each account using beginning-of-period values.

The insurance company's charges would have lowered the following Composite
Returns. The calculation used to measure the performance of a composite is
different from the standardized SEC method used to measure the performance of a
single mutual fund. 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 and Real Estate Operating Companies.

THE FOLLOWING PERFORMANCE INFORMATION FOR DAVIS ADVISORS DOES NOT REPRESENT THE
PERFORMANCE OF DAVIS VALUE PORTFOLIO, DAVIS FINANCIAL PORTFOLIO OR DAVIS REAL
ESTATE PORTFOLIO.

DAVIS LARGE CAP VALUE COMPOSITE RETURNS
For the periods ended December 31, 2005

SINCE JAN 1,
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS 1970
----------- ------------ ------------- ------------

DAVIS LARGE CAP VALUE COMPOSITE 10.25% 3.63% 11.77% 13.16%
S&P 500(R) INDEX 4.91% 0.54% 9.07% 11.10%

As of December 31, 2005, the composite included 183 accounts with aggregate
assets of approximately $57.9 billion.

DAVIS FINANCIAL COMPOSITE RETURNS
For the periods ended December 31, 2005

PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS SINCE JAN 1, 1992
----------- ------------ ------------- -----------------

DAVIS FINANCIAL COMPOSITE 8.26% 4.05% 13.36% 15.81%
S&P 500(R) INDEX 4.91% 0.54% 9.07% 10.27%

As of December 31, 2005, the composite included 4 accounts with aggregate assets
of approximately $1.2 billion.

DAVIS REAL ESTATE COMPOSITE RETURNS
For the periods ended December 31, 2005

SINCE JAN 1,
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS 1995
----------- ------------ ------------- ------------

DAVIS REAL ESTATE COMPOSITE 12.89% 18.60% 14.87% 15.19%
DOW JONES WILSHIRE REAL ESTATE
SECURITIES INDEX 14.06% 19.04% 15.14% 14.99%

As of December 31, 2005, the Davis Real Estate Composite included 6 accounts
with aggregate assets of approximately $1.5 billion.

COMPENSATION

Davis Advisors' compensation for its services (based on average net assets) for
the year ended December 31, 2005, was as follows:

Davis Value Portfolio.......... 0.75%
Davis Financial Portfolio...... 0.75%
Davis Real Estate Portfolio.... 0.75%

A discussion regarding the basis for the Board of Directors approving the
investment advisory and sub-advisory agreements will be included in the Fund's
June 2006 semi-annual report.

INVESTMENT PROFESSIONALS

Davis Value Portfolio & Davis Financial Portfolio

CHRISTOPHER C. DAVIS has served as Portfolio Manager of Davis Value Portfolio
and Davis Financial Portfolio with Kenneth Charles Feinberg since the inception
of the Funds on July 1, 1999, and also manages other equity funds advised by
Davis Advisors. He has served as Portfolio Manager of various equity funds
managed by Davis Advisors since October 1995. Mr. Davis served as Assistant
Portfolio Manager and Research Analyst working with Shelby M.C. Davis from
September 1989 through September 1995.

KENNETH CHARLES FEINBERG has served as Portfolio Manager of Davis Value
Portfolio and Davis Financial Portfolio with Christopher C. Davis since the
inception of the Funds on July 1, 1999, and also manages other equity funds
advised by Davis Advisors. He has served as Portfolio Manager of various equity
funds managed by Davis Advisors since May 1997. Mr. Feinberg started with Davis
Advisors as a Research Analyst in December 1994.

Davis Real Estate Portfolio

ANDREW A. DAVIS has served as Portfolio Manager of Davis Real Estate Portfolio
since its inception on July 1, 1999, and also manages other Davis equity funds.
He has served as Portfolio Manager of various equity funds managed by Davis
Advisors since January 1994.

CHANDLER SPEARS has served as Portfolio Manager of Davis Real Estate Portfolio
since May 1, 2003, and also manages other Davis equity funds. Mr. Spears joined
Davis Selected Advisers, L.P., in November 2000 as a real estate securities
analyst.

The Statement of Additional Information provides additional information about
the Portfolio Managers' compensation, other accounts managed by the Portfolio
Managers, and the Portfolio Managers' ownership of securities in the Funds.

OTHER INFORMATION

PURCHASE AND REDEMPTION OF SHARES

Insurance companies offer variable annuity and variable life insurance products
through separate accounts. Separate accounts, not variable product owners, are
the shareholders of the Funds. Variable product owners hold interests in
separate accounts. The terms of the offering of interests in separate accounts
are included in the variable annuity or variable life insurance product
prospectus. Only separate accounts of insurance companies that have signed the
appropriate agreements with the Funds can buy or sell shares of the Funds.

RIGHT TO REJECT OR RESTRICT PURCHASES AND EXCHANGE ORDERS

Purchases and exchanges should be made primarily for investment purposes. The
Funds may reject, restrict, or cancel, without any prior notice, any purchase
orders for any reason. For example, the Funds do not allow market timing because
short-term trading or other excessive trading into and out of the Funds may harm
performance by disrupting portfolio management strategies and by increasing
expenses. As described in the next paragraph, almost all of the Funds'
shareholders invest in the Funds through omnibus accounts maintained by
insurance companies. The only way to effectively prevent market timing is with
the cooperation of these insurance companies. Accordingly we request that the
insurance companies offering variable annuity and variable life insurance
products discourage frequent trading by contract owners. Although we do not
allow market timing there can be no guarantee that the Fund, the Transfer Agent
or the Fund's participating insurance companies will be completely successful in
curbing abusive short term transactions.

EXCESSIVE TRADING PRACTICES

Shareholders seeking to engage in excessive trading practices may employ a
variety of strategies to avoid detection. The ability of the Funds to detect and
curtail excessive trading practices may also be limited by operational systems
and technological limitations. In addition, the Funds receive purchase exchange
and redemption orders from insurance companies who maintain omnibus accounts
with the Funds. Omnibus account arrangements permit insurance companies to
aggregate their clients' transaction and ownership positions. In these
circumstances, the identity of the particular shareholder(s) is not known to the
Funds. Therefore, the ability of the Funds to detect excessive trading practices
is limited. The insurance company through which you purchase your variable
annuity or variable life contract may impose transfer limitations and other
limitations designed to curtail excessive trading. Please refer to you variable
annuity or variable life contract for details.

PRICING OF SHARES

The Funds price their shares based upon the total value of the Fund's
investments. Your account balance may change daily because the share price may
change daily. The value of one share of a Fund, also known as the net asset
value, or NAV, is calculated at 4 p.m. on each day the New York Stock Exchange
is open or as of the time the Exchange closes, if earlier.

VALUATION OF PORTFOLIO SECURITIES

Fund shares are purchased at the net asset value, or sold at the net asset value
next determined after the Funds' transfer agent receives your request in good
order.

Securities are valued primarily on the basis of market quotations. However, the
Funds have adopted procedures for making "fair value" determinations if market
quotations are not readily available. The Fund uses fair value prices any time
Davis Advisors concludes that reliable market quotations for its portfolio
securities are not readily available from an approved third party pricing
service or from independent brokers. Examples of when fair value pricing may be
used include illiquid or thinly traded securities, and securities whose values
have been affected by a significant event occurring after the close of their
primary markets. Davis Funds use an independent vendor to assist in fair value
pricing foreign securities when deemed appropriate. The use of fair value
pricing by the Fund may cause the net asset value of its shares to differ
significantly from the net asset value that would be calculated using last
reported prices.

Some of the Funds' securities may be traded in markets that close at a different
time than when the Fund's shares are priced. Events affecting portfolio values
that occur after the time that such markets close and the time Fund's shares are
priced may result in the use of fair value pricing, as described above.
Likewise, because foreign securities trade in markets and exchanges that operate
on U.S. holidays and weekends, the value of some of the Fund's foreign
investments might change significantly on those days when investors cannot buy
or redeem shares. Davis Funds have adopted procedures designed to identify and
react to significant events in foreign markets that would have a material effect
on a Fund's net asset value. Notwithstanding, the net asset value of a Fund's
shares may change on days when shareholders will not be able to purchase or
redeem Fund shares.

Securities denominated in foreign currencies and traded in foreign markets will
have their value converted into U.S. dollar equivalents at the prevailing
exchange rate as computed by State Street Bank and Trust. Fluctuation in the
value of foreign currencies in relation to the U.S. dollar may affect the net
asset value of a Fund's shares even if there has not been any change in the
foreign currency price of that Fund's investments.

PORTFOLIO HOLDINGS

A description of the Funds' policies and procedures with respect to the
disclosure of the Funds' portfolio holdings is available in the Funds' Statement
of Additional Information. The Funds' portfolio holdings are published and
mailed to shareholders twice a year in the annual and semi-annual reports which
are mailed approximately 60 days after the end of each Fund's second and fourth
fiscal quarters. In addition, the Fund files its portfolio holdings with the SEC
four times a year, 60 days after the end of each of the Funds' fiscal quarters.

MIXED AND SHARED FUNDING

Shares of the Funds are offered in connection with mixed and shared funding,
i.e., to separate accounts of insurance companies funding variable annuity and
variable life insurance policies. Due to differences in tax treatment and other
considerations the interests of various contract holders investing in separate
accounts investing in the Funds may conflict. Mixed and shared funding may
present certain conflicts of interest. For example, violation of the federal tax
laws by one separate account investing in a Fund could cause owners of contracts
and policies funded through another separate account to lose their tax-deferred
status, unless remedial action were taken. The Board of Directors of the Funds
will monitor for the existence of any material conflicts and determine what
action, if any should be taken. A Fund's net asset value could decrease if it
had to sell investment securities to pay redemption proceeds to a separate
account withdrawing because of a conflict.

FEDERAL INCOME TAXES

Variable product owners seeking to understand the tax consequences of their
investment should consult with their tax advisers or the insurance company that
issued their variable product, or refer to their variable annuity or variable
life insurance product prospectus.

Insurance company separate accounts generally do not pay tax on dividends or
capital gain distributions from the Funds.

DIVIDENDS AND DISTRIBUTIONS

Davis Value Portfolio and Davis Financial Portfolio generally declare and pay
dividends and short- and long-term capital gains, if any, on an annual basis.
Davis Real Estate Portfolio generally declares and pays dividends quarterly, and
short- and long-term capital gains, if any, annually. All dividends and capital
gains are paid to separate accounts of participating insurance companies. At the
election of these companies, dividends and distributions are automatically
reinvested at net asset value in shares of the Funds.

DISTRIBUTION PLANS

The Funds have adopted a plan under Rule 12b-1 allowing the payment of up to
0.25% for distribution expenses. Currently the Funds do not make and do not
intend to make any payments under this plan. If, in the future, the Funds begin
making payments under the plan, then these fees would be paid out of the Funds'
assets on an ongoing basis. Over time, these fees would increase the cost of
your investment and may cost you more than paying other types of sales charges.

OTHER COMPENSATION PAID TO FINANCIAL INTERMEDIARIES

The Adviser or its affiliates may pay a fee to the insurance companies offering
the Funds as an investment vehicle for variable annuity or variable life
insurance contracts issued by the life insurance companies. The amount of the
fee is negotiated with each insurance company. Such payments are for
administrative services and investor support services, and do not constitute
payment for investment advisory, distribution or other services. Payment of such
fees by the Adviser or its affiliates does not increase the fees paid by the
Funds or their respective shareholders. In 2005 the Adviser and Distributor made
payments to the firms listed below.

Allianz Life Insurance Company of North America; Allianz Life Insurance Company
of New York; American Skandia Life Assurance Corporation; The Guardian Insurance
& Annuity Company, Inc.; Horace Mann Life Insurance Company; Merrill Lynch Life
Insurance Company; New York Life Insurance and Annuity Corporation; Transamerica
Life Insurance Company (name change from PFL Life Insurance Company); Pruco Life
Insurance Company; and Pruco Life Insurance Company of New Jersey.

Investors should consult their financial intermediary regarding the details of
the payments they receive in connection with the sale of Fund shares.

FINANCIAL HIGHLIGHTS

The following tables are designed to show you the financial performance of Davis
Value Portfolio, Davis Financial Portfolio and Davis Real Estate Portfolio for
the five years ended December 31, 2005, assuming that all dividends and capital
gains have been reinvested. Some of the information reflects financial results
for a single Fund share.

The information has been audited by KPMG LLP. KPMG LLP's report, along with the
Funds' financial statements, is included in the annual report, which is
available upon request.

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.

YEAR ENDED DECEMBER 31,
------------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------

NET ASSET VALUE, BEGINNING OF PERIOD $ 11.78 $ 10.57 $ 8.20 $ 9.87 $ 11.06

INCOME (LOSS) FROM INVESTMENT
OPERATIONS
Net Investment Income 0.12 0.09 0.07 0.06 0.04
Net Realized and Unrealized Gains
(Losses) 0.99 1.21 2.37 (1.66) (1.19)
Total From Investment Operations 1.11 1.30 2.44 (1.60) (1.15)

DIVIDENDS AND DISTRIBUTIONS
Dividends from Net Investment Income (0.11) (0.09) (0.07) (0.06) (0.04)
Return of Capital -- --(3) -- (0.01) --(3)
Distributions in Excess of Net
Investment Income (0.01) -- -- -- --
Total Dividends and Distributions (0.12) (0.09) (0.07) (0.07) (0.04)

NET ASSET VALUE, END OF PERIOD $ 12.77 $ 11.78 $ 10.57 $ 8.20 $ 9.87

TOTAL RETURN(1) 9.44% 12.33% 29.76% (16.26)% (10.39)%

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $620,369 $684,723 $485,002 $283,039 $278,958
Ratio of Expenses to Average Net Assets 0.81% 0.81% 0.82% 0.83% 0.87%
Ratio of Net Investment Income to
Average Net Assets 0.87% 0.87% 0.90% 0.70% 0.55%
Portfolio Turnover Rate(2) 14% 4% 7% 24% 18%

(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 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.

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.

YEAR ENDED DECEMBER 31,
-------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- ------- ------- -------

NET ASSET VALUE, BEGINNING OF PERIOD $ 12.82 $ 11.66 $ 8.85 $ 10.67 $ 11.91

INCOME (LOSS) FROM INVESTMENT
OPERATIONS
Net Investment Income 0.07 0.04 0.04 0.02 --
Net Realized and Unrealized Gains
(Losses) 1.00 1.16 2.81 (1.82) (1.24)
Total From Investment Operations 1.07 1.20 2.85 (1.80) (1.24)

DIVIDENDS AND DISTRIBUTIONS
Dividends from Net Investment Income (0.06) (0.04) (0.04) (0.02) --(3)
Return of Capital -- -- -- -- --(3)
Total Dividends and Distributions (0.06) (0.04) (0.04) (0.02) --

NET ASSET VALUE, END OF PERIOD 13.83 $ 12.82 $ 11.66 $ 8.85 $ 10.67

TOTAL RETURN(1) 8.38% 10.32% 32.15% (16.84)% (10.37)%

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $124,060 $109,274 $71,179 $31,709 $24,587
Ratio of Expenses to Average Net
Assets 0.85% 0.85% 0.90% 0.99% 1.00%(4)
Ratio of Net Investment Income to
Average Net Assets 0.52% 0.40% 0.48% 0.32% 0.04%
Portfolio Turnover Rate(2) 21% 6% 10% 23% 24%

(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% for 2001.

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.

YEAR ENDED DECEMBER 31,
--------------------------------------------------
2005 2004 2003 2002 2001
------- ------- ------- ------- -------

NET ASSET VALUE, BEGINNING OF PERIOD $ 16.80 $ 13.47 $ 10.49 $ 10.35 $ 10.38

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.30 0.34 0.44 0.36 0.36
Net Realized and Unrealized Gains 1.86 4.07 3.34 0.25 0.19
Total From Investment Operations 2.16 4.41 3.78 0.61 0.55

DIVIDENDS AND DISTRIBUTIONS
Dividends from Net Investment Income (0.54) (0.48) (0.55) (0.36) (0.36)
Return of Capital -- -- -- (0.11) (0.07)
Distributions from Realized Gains (1.09) (0.60) (0.25) -- (0.11)
Distributions in Excess of Net Investment
Income -- -- -- -- (0.04)
Total Dividends and Distributions (1.63) (1.08) (0.80) (0.47) (0.58)

NET ASSET VALUE, END OF PERIOD $ 17.33 $ 16.80 $ 13.47 $ 10.49 $ 10.35

TOTAL RETURN(1) 13.14% 33.35% 36.79% 5.89% 5.50%

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) $64,556 $58,279 $35,663 $18,806 $10,029
Ratio of Expenses to Average Net Assets 0.87% 0.89% 0.98% 1.00%(3) 1.00%(3)
Ratio of Net Investment Income to Average
Net Assets 1.71% 2.30% 3.74% 3.54% 3.70%
Portfolio Turnover Rate(2) 28% 32% 22% 52% 45%

(3.) Had the Adviser not absorbed certain expenses the ratio of expenses to
average net assets would have been 1.10% and 1.39% for 2002 and 2001,
respectively.

OBTAINING ADDITIONAL INFORMATION

Additional information about the Funds' investments is available in the Funds'
ANNUAL AND SEMI-ANNUAL REPORTS to shareholders. In the Funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Funds' performance during its last fiscal year. The
STATEMENT OF ADDITIONAL INFORMATION provides more detailed information about the
Funds and their management and operations. The Statement of Additional
Information and the Funds' Annual and Semi-Annual Reports are available, without
charge, upon request.

The Funds' Statement of Additional Information and Annual Report have been filed
with the Securities and Exchange Commission, are incorporated by reference, and
are legally a part of this prospectus.

WHERE YOU CAN GET THESE DOCUMENTS:

o FROM YOUR INSURANCE COMPANY OR YOUR ACCOUNT REPRESENTATIVE. Your
insurance company or account representative can provide you with
copies of these documents.

o VIA THE INTERNET. Visit the SEC website (www.sec.gov).

o FROM THE SEC. Additional copies of the registration statement can be
obtained, for a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, DC 20549-0102, or by sending an
electronic request to *publicinfo@sec.gov**. Reports and other
information about the Funds are also available by visiting the SEC
website (www.sec.gov). For more information on the operations of the
Public Reference Room, call 1-202-942-8090.

LOGO

OVER 35 YEARS OF RELIABLE INVESTING(R)
Investment Company Act File No. 811-9293

DAVIS VALUE PORTFOLIO

(A PORTFOLIO OF DAVIS VARIABLE ACCOUNT FUND, INC.)

May 1, 2006

[Davis FUNDS LOGO]
OVER 35 YEARS OF RELIABLE INVESTING(R)

This prospectus contains important information. Please read it carefully before
investing and keep it for future reference.

Davis Value Portfolio is sold exclusively to insurance company separate accounts
for variable annuity and variable life insurance contracts.

Shares of 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.

TABLE OF CONTENTS

8 DAVIS MANAGEMENT
Davis Advisors
The Davis Investment Discipline
Additional Information about Investments
Performance History
Compensation
Investment Professionals

13 OTHER INFORMATION
Purchase and Redemption of Shares
Right to Reject or Restrict any Purchase or Exchange Order
Excessive Trading Practices
Pricing of Shares
Valuation of Portfolio Securities
Portfolio Holdings
Mixed and Shared Funding
Federal Income Taxes
Dividends and Distributions
Distribution Plans
Other Compensation Paid to Financial Intermediaries
Financial Highlights

B/C OBTAINING ADDITIONAL INFORMATION

DAVIS VALUE PORTFOLIO

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES

PRINCIPAL RISKS OF INVESTING IN DAVIS VALUE PORTFOLIO

o SELECTION RISK. The securities we select for the Fund may underperform
the S&P 500(R) Index or other funds with similar investment objectives
and strategies.

PERFORMANCE INFORMATION

DAVIS VALUE PORTFOLIO
CALENDAR YEAR TOTAL RETURN

YEAR RETURN
---- ------
2000 9.30%
2001 (10.39)%
2002 (16.26)%
2003 29.76%
2004 12.33%
2005 9.44%

DAVIS VALUE PORTFOLIO AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 2005

LIFE OF FUND
PAST 1 YEAR PAST 5 YEARS (JULY 1, 1999)
----------- ------------ --------------
DAVIS VALUE PORTFOLIO 9.44% 3.66% 4.63%
S&P 500(R) INDEX(1) 4.91% 0.54% 0.00%

(1.) The Standard & Poor's 500(R) Index is a broad-based index of common stocks
frequently used as a general measure of U.S. stock market performance. It
reflects no deduction for fees or expenses.

FEES AND EXPENSES OF DAVIS VALUE PORTFOLIO

SHAREHOLDER FEES
Paid directly from your investment

Maximum sales charge (load) imposed on purchases
as a percentage of offering price None

Maximum deferred sales charge (load) imposed on redemptions
as a percentage of the lesser of the net asset value of the shares None
redeemed or the total cost of such shares

ANNUAL OPERATING EXPENSES
Deducted from the Fund's assets

Management Fees 0.75%
Distribution (12b-1) Fees 0.00%
Other Expenses 0.06%
Total Annual Operating Expenses 0.81%

These expenses reflect operations for the year ended December 31, 2005. Expenses
may vary in future years. Theses fees and expenses are paid by the fund and
borne indirectly by contract holders. There are additional expenses charged by
insurance companies. These are described in the variable annuity and/or variable
life insurance prospectus.

EXPENSE EXAMPLE

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------- ------ ------- ------- --------
Davis Value Portfolio $83 $259 $450 $1,002

DAVIS MANAGEMENT

DAVIS ADVISORS

Davis Selected Advisers, L.P., ("Davis Advisors") serves as the investment
adviser for each of the Davis Funds, including Davis Value Portfolio. Davis
Advisors' offices are located at 2949 East Elvira Road, Suite 101, Tucson,
Arizona 85706. Davis Advisors provides investment advice for the Davis Funds,
manages their business affairs and provides day-to-day administrative services.
Davis Advisors also serves as investment adviser for other mutual funds and
institutional and individual clients.

Davis Selected Advisers-NY, Inc., ("Sub-Adviser") serves as the sub-adviser for
each of the Davis Funds, including Davis Value Portfolio. The Sub-Adviser's
offices are located at 609 Fifth Avenue, New York, New York 10017. The
Sub-Adviser provides investment management and research services for the Davis
Funds and other institutional clients, and is a wholly owned subsidiary of Davis
Advisors. The Sub-Adviser's fee is paid by Davis Advisors, not the Davis Funds.

A discussion regarding the basis for the Board of Directors approving the
investment advisory and sub-advisory agreements will be included in the Fund's
June 2006 semi-annual report.

THE DAVIS INVESTMENT DISCIPLINE

FIRST CLASS MANAGEMENT

o Proven track record

o Significant personal ownership in business

o Intelligent allocation of capital

o Smart application of technology to improve business and lower costs

STRONG FINANCIAL CONDITION AND SATISFACTORY PROFITABILITY

o Strong balance sheet

o Low cost structure

o High after-tax returns on capital

o High quality of earnings

STRONG COMPETITIVE POSITIONING

o Non-obsolescent products / services

o Dominant or growing market share

o Participation in a growing market

o Global presence and brand names

ADDITIONAL INFORMATION ABOUT INVESTMENTS

The Fund's principal investment strategies and main risks are described in the
section entitled "Investment Objective and Principal Investment Strategies." The
Fund's investment objective is not a fundamental policy and may be changed by
the Board of Directors without a vote of shareholders. The Fund's prospectuses
would be amended before any change in investment objective, and shareholders
would be promptly notified of the change.

The Fund is not limited to investing in the securities and using the principal
investment strategies described therein. The Fund may also purchase other kinds
of securities; engage in active trading (which would increase portfolio turnover
and commission expenses and may increase taxable distributions); or employ other
investment strategies that are not principal investment strategies if, in Davis
Advisors' professional judgment, the securities or investment strategies are
appropriate. Factors that Davis Advisors considers in pursuing these other
strategies include whether (i) purchasing such securities would be consistent
with shareholders' reasonable expectations; (ii) they may assist the Fund in
pursuing its investment objective; (iii) they are consistent with the Fund's

investment strategy; (iv) they will cause the Fund to violate any of its
investment restrictions; or (v) they will materially change the Fund's risk
profile as described in the Fund's prospectus and Statement of Additional
Information, as amended from time to time. The Statement of Additional
Information discusses these securities and investment strategies.

SHORT-TERM INVESTMENTS. The Fund uses short-term investments, such as treasury
bills and repurchase agreements, to maintain flexibility while evaluating
long-term opportunities. The Fund may also use short-term investments for
temporary defensive purposes. At such times the Fund will not be pursuing its
normal investment policies. In the event that our portfolio managers anticipate
a decline in the market values of the companies in which the Fund invests (due
to economic, political or other factors), we may reduce the Fund's risk by
investing in short-term securities until market conditions improve. Unlike
equity securities, these investments will not appreciate in value when the
market advances and will not contribute to the Fund's investment objective.

For more details concerning current investments and market outlook, please see
the most recent shareholder report.

Over the last three years the Fund paid the following brokerage commissions:

FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
2005 2004 2003
-------- -------- ---------
Davis Value Portfolio
Brokerage commissions paid: $194,476 $200,539 $143,953
Brokerage as a percentage of
average net assets: 0.03% 0.03% 0.04%

PERFORMANCE HISTORY

Davis Value Portfolio was first offered to the public on July 1, 1999. However,
Davis Advisors has been managing accounts in similar style for a number of
years. The performance results presented in the table that follows should not be
considered predictive of the future performance of the Fund. THE FUND'S
PERFORMANCE MAY BE EITHER HIGHER OR LOWER THAN THE FOLLOWING COMPOSITE.

The performance history for Davis Large Cap Value Composite includes all
accounts with investment objectives, policies and strategies substantially
similar (although not necessarily identical) to those used by Davis Advisors in
managing the Davis Value Portfolio. Mutual funds and private accounts may also
be included in the performance history. Private accounts are not subject to
certain investment limitations, diversification requirements and other
restrictions imposed by the Investment Company Act of 1940 and the Internal
Revenue Code, which, if applied, might adversely affect the performance results.

The performance history compares the Davis Large Cap Value Composite on an
annualized, asset-weighted basis against the S&P 500(R) Index. Composite
performance is presented net of the Fund's maximum annual operating expenses of
1%. Davis Advisors is contractually committed to waive fees and/or reimburse the
Fund's expenses to the extent necessary to cap total annual fund operating
expenses at 1% until May 1, 2007; after that date, there is no assurance that
expenses will be capped. What the Fund's expense ratios would have been without
the expense cap is discussed in the Financial Highlights table. Composite
performance is computed using an internal time-weighted rate of return for each
account (including every private account and mutual fund in the composite),
weighted for the relative size of each account using beginning-of-period values.

The insurance company's charges would have lowered the following Composite
Returns. The calculation used to measure the performance of a composite is
different from the standardized SEC method used to measure the performance of a
single mutual fund. The S&P 500(R) Index is a widely recognized broad-based
index of large-capitalization stock performance.

THE FOLLOWING PERFORMANCE INFORMATION FOR DAVIS ADVISORS DOES NOT REPRESENT THE
PERFORMANCE OF DAVIS VALUE PORTFOLIO.

DAVIS LARGE CAP VALUE COMPOSITE RETURNS
For the periods ended December 31, 2005

SINCE JAN 1,
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS 1970
----------- ------------ ------------- ------------

DAVIS LARGE CAP VALUE COMPOSITE 10.25% 3.63% 11.77% 13.16%
S&P 500(R) INDEX 4.91% 0.54% 9.07% 11.10%

As of December 31, 2005, the composite included 183 accounts with aggregate
assets of approximately $57.9 billion.

COMPENSATION

Davis Advisors' compensation for its services (based on average net assets) for
the year ended December 31, 2005, was as follows:

Davis Value Portfolio..............................0.75%

A discussion regarding the basis for the Board of Directors approving the
investment advisory and sub-advisory agreements will be included in the Fund's
June 2006 semi-annual report.

INVESTMENT PROFESSIONALS

CHRISTOPHER C. DAVIS has served as Portfolio Manager of Davis Value Portfolio
with Kenneth Charles Feinberg since the inception of the Fund on July 1, 1999,
and also manages other equity funds advised by Davis Advisors. He has served as
Portfolio Manager of various equity funds managed by Davis Advisors since
October 1995. Mr. Davis served as Assistant Portfolio Manager and Research
Analyst working with Shelby M.C. Davis from September 1989 through September
1995.

KENNETH CHARLES FEINBERG has served as Portfolio Manager of Davis Value
Portfolio with Christopher C. Davis since the inception of the Fund on July 1,
1999, and also manages other equity funds advised by Davis Advisors. He has
served as Portfolio Manager of various equity funds managed by Davis Advisors
since May 1997. Mr. Feinberg started with Davis Advisors as a Research Analyst
in December 1994.

OTHER INFORMATION

PURCHASE AND REDEMPTION OF SHARES

Insurance companies offer variable annuity and variable life insurance products
through separate accounts. Separate accounts, not variable product owners, are
the shareholders of the Fund. Variable product owners hold interests in separate
accounts. The terms of the offering of interests in separate accounts are
included in the variable annuity or variable life insurance product prospectus.
Only separate accounts of insurance companies that have signed the appropriate
agreements with the Fund can buy or sell shares of the Fund.

RIGHT TO REJECT OR RESTRICT PURCHASES AND EXCHANGE ORDERS

Purchases and exchanges should be made primarily for investment purposes. The
Fund may reject, restrict, or cancel, without any prior notice, any purchase
orders for any reason. For example, the Fund does not allow market timing
because short-term trading or other excessive trading into and out of the Fund
may harm performance by disrupting portfolio management strategies and by
increasing expenses. As described in the next paragraph, almost all of the
Fund's shareholders invest in the Fund through omnibus accounts maintained by
insurance companies. The only way to effectively prevent market timing is with
the cooperation of these insurance companies. Accordingly we request that the
insurance companies offering variable annuity and variable life insurance
products discourage frequent trading by contract owners. Although we do not
allow market timing there can be no guarantee that the Fund, the Transfer Agent
or the Fund's participating insurance companies will be completely successful in
curbing abusive short term transactions.

EXCESSIVE TRADING PRACTICES

Shareholders seeking to engage in excessive trading practices may employ a
variety of strategies to avoid detection. The ability of the Fund to detect and
curtail excessive trading practices may also be limited by operational systems
and technological limitations. In addition, the Fund receives purchase exchange
and redemption orders from insurance companies who maintain omnibus accounts
with the Fund. Omnibus account arrangements permit insurance companies to
aggregate their clients' transaction and ownership positions. In these
circumstances, the identity of the particular shareholder(s) is not known to the
Fund. Therefore, the ability of the Fund to detect excessive trading practices
is limited. The insurance company through which you purchase your variable
annuity or variable life contract may impose transfer limitations and other
limitations designed to curtail excessive trading. Please refer to you variable
annuity or variable life contract for details.

PRICING OF SHARES

The Fund prices its shares based upon the total value of the Fund's investments.
Your account balance may change daily because the share price may change daily.
The value of one share of the Fund, also known as the net asset value, or NAV,
is calculated at 4 p.m. on each day the New York Stock Exchange is open or as of
the time the Exchange closes, if earlier.

VALUATION OF PORTFOLIO SECURITIES

Fund shares are purchased at the net asset value, or sold at the net asset value
next determined after the Fund's transfer agent receives your request in good
order.

Securities are valued primarily on the basis of market quotations. However, the
Fund has adopted procedures for making "fair value" determinations if market
quotations are not readily available. The Fund uses fair value prices any time
Davis Advisors concludes that reliable market quotations for its portfolio
securities are not readily available from an approved third party pricing
service or from independent brokers. Examples of when fair value pricing may be
used include illiquid or thinly traded securities, and securities whose values
have been affected by a significant event occurring after the close of their
primary markets. Davis Funds use an independent vendor to assist in fair value
pricing foreign securities when deemed appropriate. The use of fair value
pricing by the Fund may cause the net asset value of its shares to differ
significantly from the net asset value that would be calculated using last
reported prices.

Some of the Fund's securities may be traded in markets that close at a different
time than when the Fund's shares are priced. Events affecting portfolio values
that occur after the time that such markets close and the time Fund's shares are
priced may result in the use of fair value pricing, as described above.
Likewise, because foreign securities trade in markets and exchanges that operate
on U.S. holidays and weekends, the value of some of the Fund's foreign
investments might change significantly on those days when investors cannot buy
or redeem shares. Davis Funds have adopted procedures designed to identify and
react to significant events in foreign markets that would have a material effect
on a Fund's net asset value. Notwithstanding, the net asset value of a Fund's
shares may change on days when shareholders will not be able to purchase or
redeem Fund shares.

Securities denominated in foreign currencies and traded in foreign markets will
have their value converted into U.S. dollar equivalents at the prevailing
exchange rate as computed by State Street Bank and Trust. Fluctuation in the
value of foreign currencies in relation to the U.S. dollar may affect the net
asset value of the Fund's shares even if there has not been any change in the
foreign currency price of the Fund's investments.

PORTFOLIO HOLDINGS

A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio holdings is available in the Fund's Statement
of Additional Information. The Fund's portfolio holdings are published and
mailed to shareholders twice a year in the annual and semi-annual reports which
are mailed approximately 60 days after the end of the Fund's second and fourth
fiscal quarters. In addition, the Fund files its portfolio holdings with the SEC
four times a year, 60 days after the end of each of the Fund's fiscal quarters.

MIXED AND SHARED FUNDING

Shares of the Fund are offered in connection with mixed and shared funding,
i.e., to separate accounts of insurance companies funding variable annuity and
variable life insurance policies. Due to differences in tax treatment and other
considerations the interests of various contract holders investing in separate
accounts investing in the Fund may conflict. Mixed and shared funding may
present certain conflicts of interest. For example, violation of the federal tax
laws by one separate account investing in a Fund could cause owners of contracts
and policies funded through another separate account to lose their tax-deferred
status, unless remedial action were taken. The Board of Directors of the Fund
will monitor for the existence of any material conflicts and determine what
action, if any should be taken. A Fund's net asset value could decrease if it
had to sell investment securities to pay redemption proceeds to a separate
account withdrawing because of a conflict.

FEDERAL INCOME TAXES

Insurance company separate accounts generally do not pay tax on dividends or
capital gain distributions from the Fund.

DIVIDENDS AND DISTRIBUTIONS

Davis Value Portfolio generally declares and pays dividends and short- and
long-term capital gains, if any, on an annual basis. All dividends and capital
gains are paid to separate accounts of participating insurance companies. At the
election of these companies, dividends and distributions are automatically
reinvested at net asset value in shares of the Fund.

DISTRIBUTION PLANS

The Fund has adopted a plan under Rule 12b-1 allowing the payment of up to 0.25%
for distribution expenses. Currently the Fund does not make and does not intend
to make any payments under this plan. If, in the future, the Fund begins making
payments under the plan, then these fees would be paid out of the Fund's assets
on an ongoing basis. Over time, these fees would increase the cost of your
investment and may cost you more than paying other types of sales charges.

OTHER COMPENSATION PAID TO FINANCIAL INTERMEDIARIES

The Adviser or its affiliates may pay a fee to the insurance companies offering
the Funds as an investment vehicle for variable annuity or variable life
insurance contracts issued by the life insurance companies. The amount of the
fee is negotiated with each insurance company. Such payments are for
administrative services and investor support services, and do not constitute
payment for investment advisory, distribution or other services. Payment of such
fees by the Adviser or its affiliates does not increase the fees paid by the
Funds or their respective shareholders. In 2005, the Adviser and Distributor
made payments to the firms listed below.

Investors should consult their financial intermediary regarding the details of
the payments they receive in connection with the sale of Fund shares.

FINANCIAL HIGHLIGHTS

The following table is designed to show you the financial performance of Davis
Value Portfolio for the five years ended December 31, 2005, assuming that all
dividends and capital gains have been reinvested. Some of the information
reflects financial results for a single Fund share.

The information has been audited by KPMG LLP. KPMG LLP's report, along with the
Fund's financial statements, is included in the annual report, which is
available upon request.

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.

YEAR ENDED DECEMBER 31,
----------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------

NET ASSET VALUE, BEGINNING OF PERIOD $ 11.78 $ 10.57 $ 8.20 $ 9.87 $ 11.06

INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net Investment Income 0.12 0.09 0.07 0.06 0.04
Net Realized and Unrealized Gains
(Losses) 0.99 1.21 2.37 (1.66) (1.19)
Total From Investment Operations 1.11 1.30 2.44 (1.60) (1.15)

NET ASSET VALUE, END OF PERIOD $ 12.77 $ 11.78 $ 10.57 $ 8.20 $ 9.87

TOTAL RETURN(1) 9.44% 12.33% 29.76% (16.26)% (10.39)%

(3.) Less than $0.005 per share.

OBTAINING ADDITIONAL INFORMATION

Additional information about the Fund's investments is available in the Fund's
ANNUAL AND SEMI-ANNUAL REPORTS to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. The
STATEMENT OF ADDITIONAL INFORMATION provides more detailed information about the
Fund and its management and operations. The Statement of Additional Information
and the Fund's Annual and Semi-Annual Reports are available, without charge,
upon request.

The Fund's Statement of Additional Information and Annual Report have been filed
with the Securities and Exchange Commission, are incorporated by reference, and
are legally a part of this prospectus.

WHERE YOU CAN GET THESE DOCUMENTS:

o FROM YOUR INSURANCE COMPANY OR YOUR ACCOUNT REPRESENTATIVE. Your
insurance company or account representative can provide you with
copies of these documents.

o VIA THE INTERNET. Visit the SEC website (www.sec.gov).

o FROM THE SEC. Additional copies of the registration statement can be
obtained, for a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, DC 20549-0102, or by sending an
electronic request to *publicinfo@sec.gov**. Reports and other
information about the Fund are also available by visiting the SEC
website (www.sec.gov). For more information on the operations of the
Public Reference Room, call 1-202-942-8090.

LOGO

OVER 35 YEARS OF RELIABLE INVESTING(R)

Investment Company Act File No. 811-9293

DAVIS FINANCIAL PORTFOLIO

(A PORTFOLIO OF DAVIS VARIABLE ACCOUNT FUND, INC.)

May 1, 2006

[Davis FUNDS LOGO]
OVER 35 YEARS OF RELIABLE INVESTING(R)

This prospectus contains important information. Please read it carefully before
investing and keep it for future reference.

Davis Financial Portfolio is sold exclusively to insurance company separate
accounts for variable annuity and variable life insurance contracts.

Shares of 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.

TABLE OF CONTENTS

4 DAVIS FINANCIAL PORTFOLIO
Investment Objective and Principal Investment Strategies
Principal Risks of Investing in Davis Financial Portfolio
Performance Information
Fees and Expenses of Davis Financial Portfolio

8 DAVIS MANAGEMENT
Davis Advisors
The Davis Investment Discipline
Additional Information about Investments
Performance History
Compensation
Investment Professionals

B/C OBTAINING ADDITIONAL INFORMATION

DAVIS FINANCIAL PORTFOLIO

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES

PRINCIPAL RISKS OF INVESTING IN DAVIS FINANCIAL PORTFOLIO

o CONCENTRATED FINANCIAL SERVICES PORTFOLIO RISK. Davis Financial
Portfolio invests principally in a single market sector, and any fund
that has a concentrated

portfolio is particularly vulnerable to the risks of its target
sector. Risks of investing in the financial services sector include
(i) Regulatory actions: financial services companies may suffer a
setback if regulators change the rules under which they operate; (ii)
Changes in interest rates: unstable interest rates, and/or rising
interest rates, may have a disproportionate effect on the financial
services sector; (iii) Non-diversified loan portfolios: financial
services companies whose securities the Fund purchases may themselves
have concentrated portfolios, such as a high level of loans to real
estate developers, which makes them vulnerable to economic conditions
that affect that industry; and (iv) Competition: the financial
services sector has become increasingly competitive.

o SELECTION RISK. The securities we select for the Fund may underperform
the S&P 500(R) Index or other funds with similar investment objectives
and strategies.

PERFORMANCE INFORMATION

DAVIS FINANCIAL PORTFOLIO
CALENDAR YEAR TOTAL RETURN

YEAR RETURN
---- ------
2000 30.97%
2001 (10.37)%
2002 (16.84)%
2003 32.15%
2004 10.32%
2005 8.38%

DAVIS FINANCIAL PORTFOLIO AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 2005

LIFE OF FUND
PAST 1 YEAR PAST 5 YEARS (JULY 1, 1999)
----------- ------------ --------------
DAVIS FINANCIAL PORTFOLIO 8.38% 3.32% 5.67%
S&P 500(R) INDEX(1) 4.91% 0.54% 0.00%

(1.) The Standard & Poor's 500(R) Index is a broad-based index of common stocks
frequently used as a general measure of U.S. stock market performance. It
reflects no deduction for fees or expenses.

FEES AND EXPENSES OF DAVIS FINANCIAL PORTFOLIO

SHAREHOLDER FEES
Paid directly from your investment

Maximum sales charge (load) imposed on purchases
as a percentage of offering price None

Maximum deferred sales charge (load) imposed on redemptions
as a percentage of the lesser of the net asset value of the shares None
redeemed or the total cost of such shares

ANNUAL OPERATING EXPENSES
Deducted from the Fund's assets

Management Fees 0.75%
Distribution (12b-1) Fees 0.00%
Other Expenses 0.10%
Total Annual Operating Expenses 0.85%

EXPENSE EXAMPLE

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------- ------ ------- ------- --------
Davis Financial Portfolio $87 $271 $471 $1,049

DAVIS MANAGEMENT

DAVIS ADVISORS

Davis Selected Advisers, L.P., ("Davis Advisors") serves as the investment
adviser for each of the Davis Funds, including Davis Financial Portfolio. Davis
Advisors' offices are located at 2949 East Elvira Road, Suite 101, Tucson,
Arizona 85706. Davis Advisors provides investment advice for the Davis Funds,
manages their business affairs and provides day-to-day administrative services.
Davis Advisors also serves as investment adviser for other mutual funds and
institutional and individual clients.

Davis Selected Advisers-NY, Inc., ("Sub-Adviser") serves as the sub-adviser for
each of the Davis Funds, including Davis Financial Portfolio. The Sub-Adviser's
offices are located at 609 Fifth Avenue, New York, New York 10017. The
Sub-Adviser provides investment management and research services for the Davis
Funds and other institutional clients, and is a wholly owned subsidiary of Davis
Advisors. The Sub-Adviser's fee is paid by Davis Advisors, not the Davis Funds.

A discussion regarding the basis for the Board of Directors approving the
investment advisory and sub-advisory agreements will be included in the Fund's
June 2006 semi-annual report.

THE DAVIS INVESTMENT DISCIPLINE

FIRST CLASS MANAGEMENT

o Proven track record

o Significant personal ownership in business

o Intelligent allocation of capital

o Smart application of technology to improve business and lower costs

STRONG FINANCIAL CONDITION AND SATISFACTORY PROFITABILITY

o Strong balance sheet

o Low cost structure

o High after-tax returns on capital

o High quality of earnings

STRONG COMPETITIVE POSITIONING

o Non-obsolescent products / services

o Dominant or growing market share

o Participation in a growing market

o Global presence and brand names

ADDITIONAL INFORMATION ABOUT INVESTMENTS

restrictions; or (v) they will materially change the Fund's risk
profile as described in the Fund's prospectus and Statement of Additional
Information, as amended from time to time. The Statement of Additional
Information discusses these securities and investment strategies.

For more details concerning current investments and market outlook, please see
the most recent shareholder report.

Over the last three years the Fund paid the following brokerage commissions:

FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
2005 2004 2003
------- ------- -------
Davis Financial Portfolio
Brokerage commissions paid: $37,729 $32,913 $28,023
Brokerage as a percentage of
average net assets: 0.03% 0.04% 0.06%

PERFORMANCE HISTORY

Davis Financial Portfolio was first offered to the public on July 1, 1999.
However, Davis Advisors has been managing accounts in similar style for a number
of years. The performance results presented in the table that follows should not
be considered predictive of the future performance of the Fund. THE FUND'S
PERFORMANCE MAY BE EITHER HIGHER OR LOWER THAN THE FOLLOWING COMPOSITE.

The performance history for Davis Financial Composite includes all accounts with
investment objectives, policies and strategies substantially similar (although
not necessarily identical) to those used by Davis Advisors in managing the Davis
Financial Portfolio. Mutual funds and private accounts may also be included in
the performance history. Private accounts are not subject to certain investment
limitations, diversification requirements and other restrictions imposed by the
Investment Company Act of 1940 and the Internal Revenue Code, which, if applied,
might adversely affect the performance results.

The performance history compares the Davis Financial Composite on an annualized,
asset-weighted basis against the S&P 500(R) Index. Composite performance is
presented net of the Fund's maximum annual operating expenses of 1%. Davis
Advisors is contractually committed to waive fees and/or reimburse the Fund's
expenses to the extent necessary to cap total annual fund operating expenses at
1% until May 1, 2007; after that date, there is no assurance that expenses will
be capped. What the Fund's expense ratios would have been without the expense
cap is discussed in the Financial Highlights table. Composite performance is
computed using an internal time-weighted rate of return for each account
(including every private account and mutual fund in the composite), weighted for
the relative size of each account using beginning-of-period values.

The insurance company's charges would have lowered the following Composite
Returns. The calculation used to measure the performance of a composite is
different from the standardized SEC method used to measure the performance of a
single mutual fund. The S&P 500(R) Index is a widely recognized broad-based
index of large-capitalization stock performance.

THE FOLLOWING PERFORMANCE INFORMATION FOR DAVIS ADVISORS DOES NOT REPRESENT THE
PERFORMANCE OF DAVIS FINANCIAL PORTFOLIO.

DAVIS FINANCIAL COMPOSITE RETURNS
For the periods ended December 31, 2005

PAST 5 PAST 10 SINCE JAN
PAST 1 YEAR YEARS YEARS 1, 1970
----------- ------ ------- ---------
DAVIS FINANCIAL COMPOSITE 8.26% 4.05% 13.36% 15.81%
S&P 500(R) INDEX 4.91% 0.54% 9.07% 10.27%

As of December 31, 2005, the composite included 4 accounts with aggregate assets
of approximately $1.2 billion.

COMPENSATION

Davis Advisors' compensation for its services (based on average net assets) for
the year ended December 31, 2005, was as follows:

Davis Financial Portfolio..................................................0.75%

A discussion regarding the basis for the Board of Directors approving the
investment advisory and sub-advisory agreements will be included in the Fund's
June 2006 semi-annual report.

INVESTMENT PROFESSIONALS

CHRISTOPHER C. DAVIS has served as Portfolio Manager of Davis Financial
Portfolio with Kenneth Charles Feinberg since the inception of the Fund on July
1, 1999, and also manages other equity funds advised by Davis Advisors. He has
served as Portfolio Manager of various equity funds managed by Davis Advisors
since October 1995. Mr. Davis served as Assistant Portfolio Manager and Research
Analyst working with Shelby M.C. Davis from September 1989 through September
1995.

KENNETH CHARLES FEINBERG has served as Portfolio Manager of Davis Financial
Portfolio with Christopher C. Davis since the inception of the Fund on July 1,
1999, and also manages other equity funds advised by Davis Advisors. He has
served as Portfolio Manager of various equity funds managed by Davis Advisors
since May 1997. Mr. Feinberg started with Davis Advisors as a Research Analyst
in December 1994.

OTHER INFORMATION

PURCHASE AND REDEMPTION OF SHARES

Insurance companies offer variable annuity and variable life insurance products
through separate accounts. Separate accounts, not variable product owners, are
the shareholders of the Fund. Variable product owners hold interests in separate
accounts. The terms of the offering of interests in separate accounts are
included in the variable annuity or variable life insurance product prospectus.
Only separate accounts of insurance companies that have signed the appropriate
agreements with the Fund can buy or sell shares of the Fund.

RIGHT TO REJECT OR RESTRICT PURCHASES AND EXCHANGE ORDERS

EXCESSIVE TRADING PRACTICES

PRICING OF SHARES

VALUATION OF PORTFOLIO SECURITIES

Fund shares are purchased at the net asset value, or sold at the net asset value
next determined after the Fund's transfer agent receives your request in good
order.

Securities denominated in foreign currencies and traded in foreign markets will
have their value converted into U.S. dollar equivalents at the prevailing
exchange rate as computed by State Street Bank and Trust. Fluctuation in the
value of foreign currencies in relation to the U.S. dollar may affect the net
asset value of the Fund's shares even if there has not been any change in the
foreign currency price of the Fund's investments.

PORTFOLIO HOLDINGS

MIXED AND SHARED FUNDING

FEDERAL INCOME TAXES

Insurance company separate accounts generally do not pay tax on dividends or
capital gain distributions from the Fund.

DIVIDENDS AND DISTRIBUTIONS

Davis Financial Portfolio generally declares and pays dividends and short- and
long-term capital gains, if any, on an annual basis. All dividends and capital
gains are paid to separate accounts of participating insurance companies. At the
election of these companies, dividends and distributions are automatically
reinvested at net asset value in shares of the Fund.

DISTRIBUTION PLANS

OTHER COMPENSATION PAID TO FINANCIAL INTERMEDIARIES

The Adviser or its affiliates may pay a fee to the insurance companies offering
the Funds as an investment vehicle for variable annuity or variable life
insurance contracts issued by the life insurance companies. The amount of the
fee is negotiated with each insurance company. Such payments are for
administrative services and investor support services, and do not constitute
payment for investment advisory, distribution or other services. Payment of such
fees by the Adviser or its affiliates does not increase the fees paid by the
Funds or their respective shareholders. In 2005, the Adviser and Distributor
made payments to the firms listed below.

Investors should consult their financial intermediary regarding the details of
the payments they receive in connection with the sale of Fund shares.

FINANCIAL HIGHLIGHTS

The following table is designed to show you the financial performance of Davis
Financial Portfolio for the five years ended December 31, 2005, assuming that
all dividends and capital gains have been reinvested. Some of the information
reflects financial results for a single Fund share.

The information has been audited by KPMG LLP. KPMG LLP's report, along with the
Fund's financial statements, is included in the annual report, which is
available upon request.

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.

YEAR ENDED DECEMBER 31,
-------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- ------- ------- -------

NET ASSET VALUE, BEGINNING OF PERIOD $ 12.82 $ 11.66 $ 8.85 $ 10.67 $ 11.91

DIVIDENDS AND DISTRIBUTIONS
Dividends from Net Investment Income (0.06) (0.04) (0.04) (0.02) --(3)
Return of Capital -- -- -- -- --(3)
Total Dividends and Distributions (0.06) (0.04) (0.04) (0.02) --

NET ASSET VALUE, END OF PERIOD 13.83 $ 12.82 $ 11.66 $ 8.85 $ 10.67

TOTAL RETURN(1) 8.38% 10.32% 32.15% (16.84)% (10.37)%

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period $124,060 $109,274 $71,179 $31,709 $24,587
(000 omitted)
Ratio of Expenses to Average Net
Assets 0.85% 0.85% 0.90% 0.99% 1.00%(4)
Ratio of Net Investment Income to
Average Net Assets 0.52% 0.40% 0.48% 0.32% 0.04%
Portfolio Turnover Rate(2)
21% 6% 10% 23% 24%

(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% for 2001.

OBTAINING ADDITIONAL INFORMATION

The Fund's Statement of Additional Information and Annual Report have been filed
with the Securities and Exchange Commission, are incorporated by reference, and
are legally a part of this prospectus.

WHERE YOU CAN GET THESE DOCUMENTS:

o FROM YOUR INSURANCE COMPANY OR YOUR ACCOUNT REPRESENTATIVE. Your
insurance company or account representative can provide you with
copies of these documents.

o VIA THE INTERNET. Visit the SEC website (www.sec.gov).

o FROM THE SEC. Additional copies of the registration statement can be
obtained, for a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, DC 20549-0102, or by sending an
electronic request to *publicinfo@sec.gov**. Reports and other
information about the Fund are also available by visiting the SEC
website (www.sec.gov). For more information on the operations of the
Public Reference Room, call 1-202-942-8090.

LOGO

OVER 35 YEARS OF RELIABLE INVESTING(R)

Investment Company Act File No. 811-9293

DAVIS REAL ESTATE PORTFOLIO

(A PORTFOLIO OF DAVIS VARIABLE ACCOUNT FUND, INC.)

May 1, 2006

[Davis FUNDS LOGO]
OVER 35 YEARS OF RELIABLE INVESTING(R)

This prospectus contains important information. Please read it carefully before
investing and keep it for future reference.

Davis Real Estate Portfolio is sold exclusively to insurance company separate
accounts for variable annuity and variable life insurance contracts.

Shares of 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.

TABLE OF CONTENTS

4 DAVIS REAL ESTATE PORTFOLIO
Investment Objective and Principal Investment Strategies
Principal Risks of Investing in Davis Real Estate Portfolio
Performance Information
Fees and Expenses of Davis Real Estate Portfolio

9 DAVIS MANAGEMENT
Davis Advisors
The Davis Investment Discipline
Additional Information about Investments
Performance History
Compensation
Investment Professionals

14 OTHER INFORMATION
Purchase and Redemption of Shares
Right to Reject or Restrict any Purchase or Exchange Order
Excessive Trading Practices
Pricing of Shares
Valuation of Portfolio Securities
Portfolio Holdings
Mixed and Shared Funding
Federal Income Taxes
Dividends and Distributions
Distribution Plans
Other Compensation Paid to Financial Intermediaries
Financial Highlights

B/C OBTAINING ADDITIONAL INFORMATION

DAVIS REAL ESTATE PORTFOLIO

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES

PRINCIPAL RISKS OF INVESTING IN DAVIS REAL ESTATE PORTFOLIO

customers, major litigation against the company or changes in
government regulations affecting the company or its industry. The
success of the companies in which the Fund invests largely determines
the Fund's long-term performance.

company's financial reports or corporate governance may be challenged,
the company's annual report may disclose a weakness in internal
controls, investors may question the company's published financial
reports, greater government regulation may be contemplated, or other
adverse events may threaten the company's future. While we research
companies subject to such contingencies, we cannot be correct every
time, and the company's stock may never recover.

o SELECTION RISK. The securities we select for the Fund may underperform
the Dow Jones Wilshire Real Estate Securities Index or other funds
with similar investment objectives and strategies.

PERFORMANCE INFORMATION

DAVIS REAL ESTATE PORTFOLIO
CALENDAR YEAR TOTAL RETURN

YEAR RETURN
---- ------
2000 23.33%
2001 5.50%
2002 5.89%
2003 36.79%
2004 33.35%
2005 13.14%

DAVIS REAL ESTATE PORTFOLIO AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 2005

LIFE OF FUND
PAST 1 YEAR PAST 5 YEARS (JULY 1, 1999)
----------- ------------ --------------
DAVIS REAL ESTATE PORTFOLIO 13.14% 18.18% 15.37%
DOW JONES WILSHIRE REAL ESTATE
SECURITIES INDEX(1) 14.06% 19.04% 17.37%
S&P 500(R) INDEX(2) 4.91% 0.54% 0.00%

(2.) The Standard & Poor's 500(R) Index is a broad-based index of common stocks
frequently used as a general measure of U.S. stock market performance. It
reflects no deduction for fees or expenses.

DAVIS REAL ESTATE PORTFOLIO YIELD
For the period ended December 31, 2005

30-DAY SEC YIELD 3.00%

You can obtain Davis Real Estate Portfolio's most recent 30-day SEC Yield by
calling us toll-free at 1-800-279-0279, Monday through Friday, 9 a.m. to 6 p.m.
Eastern Time.

FEES AND EXPENSES OF DAVIS REAL ESTATE PORTFOLIO

SHAREHOLDER FEES
Paid directly from your investment

Maximum sales charge (load) imposed on purchases
as a percentage of offering price None

Maximum deferred sales charge (load) imposed on redemptions
as a percentage of the lesser of the net asset value of
the shares redeemed or the total cost of such shares None

ANNUAL OPERATING EXPENSES
Deducted from the Fund's assets

Management Fees 0.75%
Distribution (12b-1) Fees 0.00%
Other Expenses 0.12%
Total Annual Operating Expenses 0.87%

EXPENSE EXAMPLE

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------- ------ ------- ------- --------
Davis Real Estate Portfolio $89 $278 $482 $1,073

DAVIS MANAGEMENT

DAVIS ADVISORS

Davis Selected Advisers, L.P., ("Davis Advisors") serves as the investment
adviser for each of the Davis Funds, including Davis Real Estate Portfolio.
Davis Advisors' offices are located at 2949 East Elvira Road, Suite 101, Tucson,
Arizona 85706. Davis Advisors provides investment advice for the Davis Funds,
manages their business affairs and provides day-to-day administrative services.
Davis Advisors also serves as investment adviser for other mutual funds and
institutional and individual clients.

Davis Selected Advisers-NY, Inc., ("Sub-Adviser") serves as the sub-adviser for
each of the Davis Funds, including Davis Real Estate Portfolio. The
Sub-Adviser's offices are located at 609 Fifth Avenue, New York, New York 10017.
The Sub-Adviser provides investment management and research services for the
Davis Funds and other institutional clients, and is a wholly owned subsidiary of
Davis Advisors. The Sub-Adviser's fee is paid by Davis Advisors, not the Davis
Funds.

A discussion regarding the basis for the Board of Directors approving the
investment advisory and sub-advisory agreements will be included in the Fund's
June 2006 semi-annual report.

THE DAVIS INVESTMENT DISCIPLINE

FIRST CLASS MANAGEMENT

o Proven track record

o Significant personal ownership in business

o Intelligent allocation of capital

o Smart application of technology to improve business and lower costs

STRONG FINANCIAL CONDITION AND SATISFACTORY PROFITABILITY

o Strong balance sheet

o Low cost structure

o High after-tax returns on capital

o High quality of earnings

STRONG COMPETITIVE POSITIONING

o Non-obsolescent products / services

o Dominant or growing market share

o Participation in a growing market

o Global presence and brand names

ADDITIONAL INFORMATION ABOUT INVESTMENTS

restrictions; or (v) they will materially change the Fund's risk profile as
described in the Fund's prospectus and Statement of Additional Information, as
amended from time to time. The Statement of Additional Information discusses
these securities and investment strategies.

For more details concerning current investments and market outlook, please see
the most recent shareholder report.

Over the last three years the Fund paid the following brokerage commissions:

FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
2005 2004 2003
------- ------- -------
Davis Real Estate Portfolio
Brokerage commissions paid: $33,009 $30,882 $22,317
Brokerage as a percentage of average
net assets: 0.05% 0.07% 0.09%

PERFORMANCE HISTORY

Davis Real Estate Portfolio was first offered to the public on July 1, 1999.
However, Davis Advisors has been managing accounts in similar style for a number
of years. The performance results presented in the table that follows should not
be considered predictive of the future performance of the Fund. The Fund's
performance may be either higher or lower than the following Composite.

The performance history for Davis Real Estate Composite includes all accounts
with investment objectives, policies and strategies substantially similar
(although not necessarily identical) to those used by Davis Advisors in managing
the Davis Real Estate Portfolio. Mutual funds and private accounts may also be
included in the performance history. Private accounts are not subject to certain
investment limitations, diversification requirements and other restrictions
imposed by the Investment Company Act of 1940 and the Internal Revenue Code,
which, if applied, might adversely affect the performance results.

The performance history compares the Davis Real Estate Composite on an
annualized, asset-weighted basis against the Dow Jones Wilshire Real Estate
Securities Index. Composite performance is presented net of the Fund's maximum
annual operating expenses of 1%. Davis Advisors is contractually committed to
waive fees and/or reimburse the Fund's expenses to the extent necessary to cap
total annual fund operating expenses at 1% until May 1, 2007; after that date,
there is no assurance that expenses will be capped. What the Fund's expense
ratios would have been without the expense cap is discussed in the Financial
Highlights table. Composite performance is computed using an internal
time-weighted rate of return for each account (including every private account
and mutual fund in the composite), weighted for the relative size of each
account using beginning-of-period values.

THE FOLLOWING PERFORMANCE INFORMATION FOR DAVIS ADVISORS DOES NOT REPRESENT THE
PERFORMANCE OF DAVIS REAL ESTATE PORTFOLIO.

DAVIS REAL ESTATE COMPOSITE RETURNS
For the periods ended December 31, 2005

SINCE JAN 1,
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS 1995
----------- ------------ ------------- ------------

DAVIS REAL ESTATE COMPOSITE 12.89% 18.60% 14.87% 15.19%
DOW JONES WILSHIRE REAL ESTATE
SECURITIES INDEX 14.06% 19.04% 15.14% 14.99%

As of December 31, 2005, the composite included 6 accounts with aggregate assets
of approximately $1.5 billion.

COMPENSATION

Davis Advisors' compensation for its services (based on average net assets) for
the year ended December 31, 2005, was as follows:

Davis Real Estate Portfolio................................................0.75%

A discussion regarding the basis for the Board of Directors approving the
investment advisory and sub-advisory agreements will be included in the Fund's
June 2006 semi-annual report.

INVESTMENT PROFESSIONALS

OTHER INFORMATION

PURCHASE AND REDEMPTION OF SHARES

Insurance companies offer variable annuity and variable life insurance products
through separate accounts. Separate accounts, not variable product owners, are
the shareholders of the Fund. Variable product owners hold interests in separate
accounts. The terms of the offering of interests in separate accounts are
included in the variable annuity or variable life insurance product prospectus.
Only separate accounts of insurance companies that have signed the appropriate
agreements with the Fund can buy or sell shares of the Fund.

RIGHT TO REJECT OR RESTRICT PURCHASES AND EXCHANGE ORDERS

EXCESSIVE TRADING PRACTICES

PRICING OF SHARES

VALUATION OF PORTFOLIO SECURITIES

Fund shares are purchased at the net asset value, or sold at the net asset value
next determined after the Fund's transfer agent receives your request in good
order.

Securities denominated in foreign currencies and traded in foreign markets will
have their value converted into U.S. dollar equivalents at the prevailing
exchange rate as computed by State Street Bank and Trust. Fluctuation in the
value of foreign currencies in relation to the U.S. dollar may affect the net
asset value of the Fund's shares even if there has not been any change in the
foreign currency price of the Fund's investments.

PORTFOLIO HOLDINGS

MIXED AND SHARED FUNDING

FEDERAL INCOME TAXES

Insurance company separate accounts generally do not pay tax on dividends or
capital gain distributions from the Fund.

DIVIDENDS AND DISTRIBUTIONS

Davis Real Estate Portfolio generally declares and pays dividends quarterly, and
short- and long-term capital gains, if any, annually. All dividends and capital
gains are paid to separate accounts of participating insurance companies. At the
election of these companies, dividends and distributions are automatically
reinvested at net asset value in shares of the Fund.

DISTRIBUTION PLANS

The Fund has adopted a plan under Rule 12b-1 allowing the payment of up to 0.25%
for distribution expenses. Currently the Fund does not make and does not intend
to make any

payments under this plan. If, in the future, the Fund begins making payments
under the plan, then these fees would be paid out of the Fund's assets on an
ongoing basis. Over time, these fees would increase the cost of your investment
and may cost you more than paying other types of sales charges.

OTHER COMPENSATION PAID TO FINANCIAL INTERMEDIARIES

The Adviser or its affiliates may pay a fee to the insurance companies offering
the Funds as an investment vehicle for variable annuity or variable life
insurance contracts issued by the life insurance companies. The amount of the
fee is negotiated with each insurance company. Such payments are for
administrative services and investor support services, and do not constitute
payment for investment advisory, distribution or other services. Payment of such
fees by the Adviser or its affiliates does not increase the fees paid by the
Funds or their respective shareholders. In 2005, the Adviser and Distributor
made payments to the firms listed below.

Investors should consult their financial intermediary regarding the details of
the payments they receive in connection with the sale of Fund shares.

FINANCIAL HIGHLIGHTS

The following table is designed to show you the financial performance of Davis
Real Estate Portfolio for the five years ended December 31, 2005, assuming that
all dividends and capital gains have been reinvested. Some of the information
reflects financial results for a single Fund share.

The information has been audited by KPMG LLP. KPMG LLP's report, along with the
Fund's financial statements, is included in the annual report, which is
available upon request.

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.

YEAR ENDED DECEMBER 31,
--------------------------------------------------
2005 2004 2003 2002 2001
------- ------- ------- ------- -------

NET ASSET VALUE, BEGINNING OF PERIOD $ 16.80 $ 13.47 $ 10.49 $ 10.35 $ 10.38

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.30 0.34 0.44 0.36 0.36
Net Realized and Unrealized Gains 1.86 4.07 3.34 0.25 0.19

Total From Investment Operations 2.16 4.41 3.78 0.61 0.55

NET ASSET VALUE, END OF PERIOD $ 17.33 $ 16.80 $ 13.47 $ 10.49 $ 10.35

TOTAL RETURN(1) 13.14% 33.35% 36.79% 5.89% 5.50%

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period $64,556 $58,279 $35,663 $18,806 $10,029
(000 omitted)
Ratio of Expenses to Average Net Assets 0.87% 0.89% 0.98% 1.00%(3) 1.00%(3)
Ratio of Net Investment Income to Average
Net Assets 1.71% 2.30% 3.74% 3.54% 3.70%
Portfolio Turnover Rate(2) 28% 32% 22% 52% 45%

(3.) Had the Adviser not absorbed certain expenses the ratio of expenses to
average net assets would have been 1.10% and 1.39% for 2002 and 2001,
respectively.

OBTAINING ADDITIONAL INFORMATION

Additional information about the Fund's investments is available in the FUND'S
ANNUAL AND SEMI-ANNUAL REPORTS to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. The
STATEMENT OF ADDITIONAL INFORMATION provides more detailed information about the
Fund and its management and operations. The Statement of Additional Information
and the Fund's Annual and Semi-Annual Reports are available, without charge,
upon request.

The Fund's Statement of Additional Information and Annual Report have been filed
with the Securities and Exchange Commission, are incorporated by reference, and
are legally a part of this prospectus.

WHERE YOU CAN GET THESE DOCUMENTS:

o FROM YOUR INSURANCE COMPANY OR YOUR ACCOUNT REPRESENTATIVE. Your insurance
company or account representative can provide you with copies of these
documents.

o VIA THE INTERNET. Visit the SEC website (www.sec.gov).

o FROM THE SEC. Additional copies of the registration statement can be
obtained, for a duplicating fee, by writing the Public Reference Section of
the SEC, Washington, DC 20549-0102, or by sending an electronic request to
*publicinfo@sec.gov**. Reports and other information about the Fund are
also available by visiting the SEC website (www.sec.gov). For more
information on the operations of the Public Reference Room, call
1-202-942-8090.

LOGO

OVER 35 YEARS OF RELIABLE INVESTING(R)

Investment Company Act File No. 811-9293

STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2006

DAVIS VALUE PORTFOLIO
DAVIS FINANCIAL PORTFOLIO
DAVIS REAL ESTATE PORTFOLIO

EACH AN AUTHORIZED SERIES OF
DAVIS VARIABLE ACCOUNT FUND, INC.
2949 EAST ELVIRA ROAD, SUITE 101
TUCSON, ARIZONA 85706
1-800-279-0279

DAVIS VALUE PORTFOLIO, DAVIS FINANCIAL PORTFOLIO, DAVIS REAL ESTATE PORTFOLIO
("FUNDS") ARE SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUSES FOR EACH FUND DATED MAY 1, 2006. THIS
STATEMENT OF ADDITIONAL INFORMATION INCORPORATES THE PROSPECTUSES BY REFERENCE.
THE PROSPECTUSES MAY BE OBTAINED FROM INSURANCE COMPANIES INVESTING IN THE
FUNDS.

THE FUNDS' MOST RECENT ANNUAL REPORT AND SEMI-ANNUAL REPORT TO SHAREHOLDERS ARE
SEPARATE DOCUMENTS THAT ARE AVAILABLE ON REQUEST AND WITHOUT CHARGE FROM
INSURANCE COMPANIES INVESTING IN THE FUNDS. THE ANNUAL REPORT, ACCOMPANYING
NOTES AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM APPEARING IN
THE ANNUAL REPORT ARE INCORPORATED BY REFERENCE IN THIS STATEMENT OF ADDITIONAL
INFORMATION.

TABLE OF CONTENTS

PAGE
----
SECTION I: INVESTMENT STRATEGIES, RISKS AND RESTRICTIONS................. 3
Additional Information About the Funds' Investment
Strategies and Risks............................................... 3
Portfolio Transactions................................................ 23
Investment Restrictions............................................... 27

SECTION II: KEY PERSONS.................................................. 32
Organization of the Funds........................................... 32
Directors and Officers.............................................. 33
Directors........................................................... 33
Independent Directors' Compensation................................. 37
Officers............................................................ 37
Standing Committees of the Board of Directors....................... 38
Directors' Fund Holdings............................................ 39
Independent Directors' Affiliations and Transactions................ 40
Certain Shareholders of the Funds................................... 40
Investment Advisory Services........................................ 42
Portfolio Managers.................................................. 44
Disclosure of Portfolio Holdings.................................... 45
Distribution of Fund Shares......................................... 46
Other Important Service Providers................................... 47

SECTION III: GENERAL INFORMATION......................................... 48
Determining the Price of Shares..................................... 48
Federal Income Taxes................................................ 48
Performance Data.................................................... 49

APPENDIX A: QUALITY RATINGS OF DEBT SECURITIES........................... 53
APPENDIX B: SUMMARY OF PROXY VOTING PROCEDURES AND POLICIES.............. 55

SECTION I: INVESTMENT STRATEGIES, RISKS AND RESTRICTIONS

This Statement of Additional Information should be read in conjunction with the
prospectuses. This Statement of Additional Information supplements the
information available in the prospectuses.

ADDITIONAL INFORMATION ABOUT THE FUNDS'
INVESTMENT STRATEGIES AND RISKS

THE ADVISER. Davis Variable Account Fund, consisting of Davis Value Portfolio,
Davis Financial Portfolio and Davis Real Estate Portfolio ("Funds") is managed
by Davis Selected Advisers, L.P. ("Adviser"). The Funds are sold exclusively to
insurance company separate accounts for variable annuity and variable life
insurance contracts.

PRINCIPAL INVESTMENT STRATEGIES AND ADDITIONAL INVESTMENT STRATEGIES. The
investment objectives, principal investment strategies and the main risks of
each Fund are described in the Funds' prospectuses. The Funds are not limited to
just investing in the securities and using the principal investment strategies
described in the prospectuses. The Funds may invest in other securities and use
additional investment strategies if, in the Adviser's professional judgment, the
securities or investment strategies are appropriate. Factors which the Adviser
considers include whether (i) purchasing such securities would be consistent
with shareholders' reasonable expectations; (ii) they may assist the Fund in
pursuing its investment objective; (iii) they are consistent with the Fund's
investment strategy; (iv) they will cause the Fund to violate any of its
investment restrictions; or (v) they will materially change the Fund's risk
profile as described in the Fund's prospectuses and Statement of Additional
Information, as amended from time to time. This section of the Statement of
Additional Information contains supplemental information about the Funds'
principal investment strategies and also describes additional investment
strategies that the Adviser and/or Davis Selected Advisers - NY, Inc.
("Sub-Adviser") may use to try to achieve the Funds' objectives. The composition
of the Funds' portfolios and the strategies that the Adviser may use to try to
achieve the Funds' investment objectives may vary depending on market conditions
and available investment opportunities. The Funds are not required to use any of
the investment strategies described below in pursuing their investment
objectives. The Funds may use some of the investment strategies rarely or not at
all. Whether a Fund uses a given investment strategy at a given time depends on
the professional judgment of the Adviser.

There is no assurance that the Funds will achieve their investment objectives.
An investment in the Funds may not be appropriate for all investors, and
short-term investing is discouraged. The Funds' investment objectives are not
fundamental policies and may be changed by the Board of Directors without a vote
of shareholders. The Funds' prospectuses would be amended prior to any change in
investment objective, and shareholders would be promptly notified of the change.

In the discussions that follow, "Fund" applies equally to Davis Value Portfolio,
Davis Financial Portfolio and Davis Real Estate Portfolio.

DAVIS VALUE PORTFOLIO. The Fund's investment objective is long term growth of
capital. Under normal circumstances the Fund invests the majority of its assets
in equity securities issued by companies with market capitalizations of at least
$10 billion. However, the Fund also may invest a portion of its assets in other
securities.

DAVIS FINANCIAL PORTFOLIO. The Fund's investment objective is long term growth
of capital. Under normal circumstances the Fund invests at least 80% of its net
assets plus any borrowing for investment purposes in securities issued by
companies "principally engaged" in the financial services industry.

DAVIS REAL ESTATE PORTFOLIO. The Fund's investment objective is total return
through a combination of growth and income. Under normal circumstances Davis
Real Estate Portfolio invests at least 80% of its net assets plus any borrowing
for investment purposes in securities issued by companies "principally engaged"
in the real estate industry.

Davis Variable Account Fund, Inc. 3 Statement of Additional Information

EQUITY SECURITIES. Equity securities represent an ownership position in a
company. These securities may include, without limitation, common stocks,
preferred stocks and securities with equity conversion or purchase rights. The
prices of equity securities fluctuate based on changes in the financial
condition of their issuers and on market and economic conditions. Events that
have a negative impact on a business probably will be reflected in a decline in
their equity securities. Furthermore, when the stock market declines, most
equity securities, even those issued by strong companies, likely will decline in
value.

RIGHTS AND WARRANTS. Rights and warrants are forms of equity securities.
Warrants basically are options to purchase equity securities at specific prices
valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Rights are similar to
warrants, but normally have a shorter maturity and are distributed directly by
the issuer to its shareholders. Rights and warrants have no voting rights,
receive no dividends and have no rights with respect to the assets of the
issuer.

INITIAL PUBLIC OFFERINGS ("IPOS"). IPOs are a form of equity security. IPOs can
have a dramatic impact on Fund performance and assumptions about future
performance based on that impact may not be warranted. Investing in IPOs
involves risks. Many, but not all, of the companies issuing IPOs are small,
unseasoned companies. These are companies that have been in operation for a
short period of time. Small company securities, including IPOs, are subject to
greater volatility in their prices than are securities issued by more
established companies. If the Fund does not intend to make a long-term
investment in the IPO (it is sometimes possible to immediately sell an IPO at a
profit) the Adviser may not perform the same detailed research on the company
that it does for core holdings.

SMALL- AND MID-CAPITALIZATION COMPANIES. Companies with less than $10 billion in
market capitalization are considered by the Adviser to be mid- or
small-capitalization companies. Investing in mid- and small-capitalization
companies may be more risky than investing in large-capitalization companies.
Smaller companies typically have more limited product lines, markets and
financial resources than larger companies, and their securities may trade less
frequently and in more limited volume than those of larger, more mature
companies. Securities of these companies may be subject to volatility in their
prices. They may have a limited trading market, which may adversely affect the
Fund's ability to dispose of them and can reduce the price the Fund might be
able to obtain for them. Other investors that own a security issued by a mid- or
small-capitalization company for whom there is limited liquidity might trade the
security when the Fund is attempting to dispose of its holdings in that
security. In that case the Fund might receive a lower price for its holdings
than otherwise might be obtained. Small-capitalization companies also may be
unseasoned. These include companies that have been in operation for less than
three years, including the operations of any predecessors.

FINANCIAL SERVICES SECTOR. The Adviser has developed a special expertise in
financial services companies and Davis equity funds may, from time to time,
invest a significant portion of its assets in the financial services sector if
the Adviser believes that such investments are consistent with the Fund's
investment strategy, may contribute to the Fund achieving its investment
objectives and will not cause the Fund to violate any of its investment
restrictions.

A company is "principally engaged" in financial services if it owns financial
services related assets constituting at least 50% of the total value of its
assets, or if at least 50% of its revenues are derived from its provision of
financial services. The financial services sector consists of several different
industries that behave differently in different economic and market
environments; for example, banking, insurance and securities brokerage houses.
Companies in the financial services sector include commercial banks, industrial
banks, savings institutions, finance companies, diversified financial services
companies, investment banking firms, securities brokerage houses, investment
advisory companies, leasing companies, insurance companies and companies
providing similar services.

Due to the wide variety of companies in the financial services sector, they may
react in different ways to changes in economic and market conditions.

Banking. Commercial banks (including "money center" regional and community
banks), savings and loan associations and holding companies of the foregoing are
especially subject to adverse effects of volatile interest rates, concentrations
of loans in particular industries (such as real estate or energy) and
significant competition. The profitability of these businesses is to a
significant degree dependent on the availability and cost of capital funds.
Economic conditions in the real estate market may have a particularly strong
effect on certain banks and savings associations. Commercial banks and savings
associations are subject to extensive federal and, in many instances, state
regulation. Neither such extensive regulation nor the federal insurance of
deposits ensures the solvency or profitability of companies in this industry,
and there is no assurance against losses in securities issued by such companies.

Insurance. Insurance companies are particularly subject to government regulation
and rate setting, potential anti-trust and tax law changes, and industry-wide
pricing and competition cycles. Property and casualty insurance companies also
may be affected by weather, terrorism and other catastrophes. Life and health
insurance companies may be affected by mortality and morbidity rates, including
the effects of epidemics. Individual insurance companies may be exposed to
reserve inadequacies, problems in investment portfolios (for example, due to
real estate or "junk" bond holdings) and failures of reinsurance carriers.

Other Financial Services Companies. Many of the investment considerations
discussed in connection with banks and insurance companies also apply to other
financial services companies. These companies are all subject to extensive
regulation, rapid business changes and volatile performance dependent on the
availability and cost of capital and prevailing interest rates and significant
competition. General economic conditions significantly affect these companies.
Credit and other losses resulting from the financial difficulty of borrowers or
other third parties have a potentially adverse effect on companies in this
industry. Investment banking, securities brokerage and investment advisory
companies are particularly subject to government regulation and the risks
inherent in securities trading and underwriting activities.

Other Considerations. Regulations of the Securities and Exchange Commission
("SEC") impose limits on: (1) investments in the securities of companies that
derive more than 15% of their gross revenues from the securities or investment
management business. Although there are exceptions, a Fund is prohibited from
investing more than 5% of its total assets in a single company that derives more
than 15% of its gross revenues from the securities or investment management
business, and (2) investments in insurance companies. A Fund generally is
prohibited from owning more than 10% of the outstanding voting securities of an
insurance company.

REAL ESTATE SECURITIES, INCLUDING REITS. Real estate securities are a form of
equity security. Real estate securities are issued by companies that have at
least 50% of the value of their assets, gross income or net profits attributable
to ownership, financing, construction, management or sale of real estate, or to
products or services that are related to real estate or the real estate
industry. Davis Funds do not invest directly in real estate. Real estate
companies include real estate investment trusts ("REITs") or other securitized
real estate investments, brokers, developers, lenders and companies with
substantial real estate holdings such as paper, lumber, hotel and entertainment
companies. REITs pool investors' funds for investment primarily in
income-producing real estate or real estate-related loans or interests. A REIT
is not taxed on income distributed to shareholders if it complies with various
requirements relating to its organization, ownership, assets and income, and
with the requirement that it distribute to its shareholders at least 95% of its
taxable income (other than net capital gains) each taxable year. REITs generally
can be classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs
invest the majority of their assets directly in real property and derive their
income primarily from rents. Equity REITs also can realize capital gains by
selling property that has appreciated in value. Mortgage REITs invest the
majority of their assets in real estate mortgages and derive their income
primarily from interest payments. Hybrid REITs combine the characteristics of
both Equity REITs and Mortgage REITs. To the extent that the management fees
paid to a REIT are for the same or similar services as the management fees paid
to the Fund, there will be a layering of fees, which would increase expenses and
decrease returns.

Real estate securities, including REITs, are subject to risks associated with
the direct ownership of real estate. The Fund also could be subject to such
risks by reason of direct ownership as a result of a default on a debt security
it may own. These risks include declines in the value of real estate, risks
related to general and local

economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, changes in zoning laws, uninsured
casualties or condemnation losses, fluctuations in rental income, changes in
neighborhood values, the appeal of properties to tenants and increases in
interest rates.

Equity REITs may be affected by changes in the value of the underlying property
owned by the trusts, while mortgage REITs may be affected by the quality of
credit extended. Equity and mortgage REITs are dependent on management skill,
may not be diversified and are subject to project financing risks. Such trusts
also are subject to heavy cash flow dependency, defaults by borrowers,
self-liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Internal Revenue Code, and failing to maintain
exemption from registration under the Investment Company Act of 1940 ("1940
Act"). Changes in interest rates also may affect the value of the debt
securities in the Fund's portfolio. By investing in REITs indirectly through the
Fund, a shareholder will bear not only his or her proportionate share of the
expense of the Fund but also, indirectly, similar expenses of the REITs,
including compensation of management. Some real estate securities may be rated
less than investment grade by rating services. Such securities may be subject to
the risks of high-yield, high-risk securities discussed below.

CONVERTIBLE SECURITIES. Convertible Securities are a form of equity security.
Generally, convertible securities are bonds, debentures, notes, preferred
stocks, warrants or other securities that convert or are exchangeable into
shares of the underlying common stock at a stated exchange ratio. Usually, the
conversion or exchange is solely at the option of the holder. However, some
convertible securities may be convertible or exchangeable at the option of the
issuer or are automatically converted or exchanged at a certain time, or on the
occurrence of certain events, or have a combination of these characteristics.
Usually a convertible security provides a long-term call on the issuer's common
stock and therefore tends to appreciate in value as the underlying common stock
appreciates in value. A convertible security also may be subject to redemption
by the issuer after a certain date and under certain circumstances (including a
specified price) established on issue. If a convertible security held by the
Fund is called for redemption, the Fund could be required to tender it for
redemption, convert it into the underlying common stock or sell it.

Convertible bonds, debentures and notes are varieties of debt securities, and as
such are subject to many of the same risks, including interest rate sensitivity,
changes in debt rating and credit risk. In addition, convertible securities are
often viewed by the issuer as future common stock subordinated to other debt and
carry a lower rating than the issuer's non-convertible debt obligations. Thus,
convertible securities are subject to many of the same risks as high-yield,
high-risk securities. A more complete discussion of these risks is provided
below in the sections titled "Bonds and Other Debt Securities" and "High-Yield,
High-Risk Debt Securities."

Due to its conversion feature, the price of a convertible security normally will
vary in some proportion to changes in the price of the underlying common stock.
A convertible security will also normally provide a higher yield than the
underlying common stock (but generally lower than comparable non-convertible
securities). Due to their higher yield, convertible securities generally sell
above their "conversion value," which is the current market value of the stock
to be received on conversion. The difference between this conversion value and
the price of convertible securities will vary over time depending on the value
of the underlying common stocks and interest rates. When the underlying common
stocks decline in value, convertible securities will tend not to decline to the
same extent because the yield acts as a price support. When the underlying
common stocks rise in value, the value of convertible securities also may be
expected to increase, but generally will not increase to the same extent as the
underlying common stocks.

Fixed-income securities generally are considered to be interest rate-sensitive.
The market value of convertible securities will change in response to changes in
interest rates. During periods of falling interest rates, the value of
convertible bonds generally rises. Conversely, during periods of rising interest
rates, the value of such securities generally declines. Changes by recognized
rating services in their ratings of debt securities and changes in the ability
of an issuer to make payments of interest and principal also will affect the
value of these investments.

FOREIGN SECURITIES. Equity securities are issued by both domestic and foreign
companies. Sometimes a company may be classified as either "domestic" or
"foreign" depending upon which factors are considered most important for a given
company. Factors which the Adviser considers include: (1) was the company

organized under the laws of the United States or a foreign country; (2) are the
company's securities principally traded in securities markets outside of the
United States; (3) where does the company earn the majority of its revenues or
profits; and (4) where does the company have the majority of its assets.

Foreign securities include, but are not limited to, equity securities, real
estate securities, convertible securities and bonds. Investments in foreign
securities may be made through the purchase of individual securities on
recognized exchanges and developed over-the-counter markets, through American
Depository Receipts ("ADRs") or Global Depository Receipts ("GDRs") covering
such securities, and through U.S.-registered investment companies investing
primarily in foreign securities. To the extent that the management fees paid to
an investment company are for the same or similar services as the management
fees paid to the Fund, there would be a layering of fees that would increase
expenses and decrease returns. When the Fund invests in foreign securities,
their operating expenses are likely to be higher than that of an investment
company investing exclusively in U.S. securities, since the custodial and
certain other expenses are expected to be higher.

Investments in foreign securities may involve a higher degree of risk than
investments in domestic issuers. Foreign securities are often denominated in
foreign currencies, which means that their value will be affected by changes in
exchange rates, as well as other factors that affect securities prices. There
generally is less information publicly available about foreign securities and
securities markets, and there may be less government regulation and supervision
of foreign issuers and securities markets. Foreign securities and markets also
may be affected by political and economic instabilities and may be more volatile
and less liquid than domestic securities and markets. Investment risks may
include expropriation or nationalization of assets, confiscatory taxation,
exchange controls and limitations on the use or transfer of assets and
significant withholding taxes. Foreign economies may differ from the United
States favorably or unfavorably with respect to inflation rates, balance of
payments, capital reinvestment, gross national product expansion and other
relevant indicators. The Fund may attempt to reduce exposure to market and
currency fluctuations by trading in currency futures contracts or options on
futures contracts for hedging purposes only.

PASSIVE FOREIGN INVESTMENT COMPANIES. Some securities of companies domiciled
outside the U.S. which the Fund may purchase, may be considered passive foreign
investment companies ("PFICs") under U.S. tax laws. PFICs are those foreign
corporations which generate primarily passive income. They tend to be growth
companies or "start-up" companies. For federal tax purposes, a corporation is
deemed a PFIC if 75% or more of the foreign corporation's gross income for the
income year is passive income or if 50% or more of its assets are assets that
produce or are held to produce passive income. Passive income is further defined
as any income to be considered foreign personal holding company income within
the subpart F provisions defined by Internal Revenue Code Section 954.

Investing in PFICs involves the risks associated with investing in foreign
securities, as described above. There is also the risk that the Fund may not
realize that a foreign corporation it invests in is a PFIC for federal tax
purposes. Federal tax laws impose severe tax penalties for failure to properly
report investment income from PFICs. Following industry standards, the Fund
makes efforts to ensure compliance with federal tax reporting of these
investments.

SPECIAL RISKS OF EMERGING MARKETS. Emerging and developing markets abroad may
offer special opportunities for growth investing but have greater risks than
more developed foreign markets, such as those in Europe, Canada, Australia, New
Zealand and Japan. Securities in emerging market countries may be more difficult
to sell at an acceptable price and their prices may be more volatile than
securities of companies in more developed markets. There may be even less
liquidity in their securities markets, and settlements of trades may be subject
to greater delays so that the Fund may not receive the proceeds of a sale of a
security on a timely basis. They are subject to greater risks of limitations on
the repatriation of income and profits because of currency restrictions imposed
by local governments. Those countries also may be subject to the risk of greater
political and economic instability, which can greatly affect the volatility of
prices of securities in those countries. Emerging countries may have less
developed trading markets and exchanges. They may have less developed legal and
accounting systems.

BONDS AND OTHER DEBT SECURITIES. Bonds and other debt securities may be
purchased by the Fund if the Adviser believes that they are consistent with the
Fund's investment strategies, may contribute to the Fund's investment objective
and will not cause the Fund to violate any of its investment restrictions. The
U.S. government, corporations and other issuers sell bonds and other debt
securities to borrow money. Issuers pay investors interest and generally must
repay the amount borrowed at maturity. Some debt securities, such as zero-coupon
bonds, do not pay current interest, but are purchased at a discount from their
face values. The prices of debt securities fluctuate, depending on such factors
as interest rates, credit quality and maturity.

Bonds and other debt securities generally are subject to credit risk and
interest rate risk. While debt securities issued by the U.S. Treasury generally
are considered free of credit risk, debt issued by agencies and corporations all
entail some level of credit risk. Investment grade debt securities have less
credit risk than do high-yield, high-risk debt securities. Credit risk is
described more fully in the section titled "High-Yield, High-Risk Debt
Securities."

Bonds and other debt securities generally are interest rate-sensitive. During
periods of falling interest rates, the value of debt securities held by the Fund
generally rises. Conversely, during periods of rising interest rates, the value
of such securities generally declines. Changes by recognized rating services in
their ratings of debt securities and changes in the ability of an issuer to make
payments of interest and principal also will affect the value of these
investments.

GOVERNMENT SECURITIES. U.S. Government Securities are debt securities that are
obligations of or guaranteed by the U.S. government, its agencies or
instrumentalities. There are two basic types of U.S. Government Securities: (1)
direct obligations of the U.S. Treasury, and (2) obligations issued or
guaranteed by an agency or instrumentality of the U.S. government. Agencies and
instrumentalities include the Federal Farm Credit System ("FFCS"), Student Loan
Marketing Association ("SLMA"), Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Home Loan Banks ("FHLB"), Federal National Mortgage
Association ("FNMA") and Government National Mortgage Association ("GNMA"). Some
obligations issued or guaranteed by agencies or instrumentalities, such as those
issued by GNMA, are fully guaranteed by the U.S. government. Others, such as
FNMA bonds, rely on the assets and credit of the instrumentality with limited
rights to borrow from the U.S. Treasury. Still other securities, such as
obligations of the FHLB, are supported by more extensive rights to borrow from
the U.S. Treasury.

U.S. Government Securities include mortgage-related securities issued by an
agency or instrumentality of the U.S. government. GNMA Certificates are
mortgage-backed securities representing part ownership of a pool of mortgage
loans. These loans issued by lenders such as mortgage bankers, commercial banks
and savings and loan associations are either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration. A "pool" or group
of such mortgages is assembled and, after being approved by GNMA, is offered to
investors through securities dealers. Once approved by GNMA, the timely payment
of interest and principal on each mortgage is guaranteed by GNMA and backed by
the full faith and credit of the U.S. government. GNMA Certificates differ from
bonds in that principal is paid back monthly by the borrower over the term of
the loan rather than returned in a lump sum at maturity. GNMA Certificates are
called "pass-through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the Certificate.

Pools of mortgages also are issued or guaranteed by other agencies of the U.S.
government. The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
or lengthened by unscheduled or early payment, or by slower than expected
prepayment of principal and interest on the underlying mortgages. The occurrence
of mortgage prepayments is affected by the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. As prepayment rates of individual pools vary widely, it
is not possible to accurately predict the average life of a particular pool.

A collateralized mortgage obligation ("CMO") is a debt security issued by a
corporation, trust or custodian, or by a U.S. government agency or
instrumentality that is collateralized by a portfolio or pool of mortgages,
mortgage-backed securities, U.S. Government Securities or corporate debt
obligations. The issuer's

obligation to make interest and principal payments is secured by the underlying
pool or portfolio of securities. CMOs are most often issued in two or more
classes (each of which is a separate security) with varying maturities and
stated rates of interest. Interest and principal payments from the underlying
collateral (generally a pool of mortgages) are not necessarily passed directly
through to the holders of the CMOs; these payments typically are used to pay
interest on all CMO classes and to retire successive class maturities in a
sequence. Thus, the issuance of CMO classes with varying maturities and interest
rates may result in greater predictability of maturity with one class and less
predictability of maturity with another class than a direct investment in a
mortgage-backed pass-through security (such as a GNMA Certificate). Classes with
shorter maturities typically have lower volatility and yield while those with
longer maturities typically have higher volatility and yield. Thus, investments
in CMOs provide greater or lesser control over the investment characteristics
than mortgage pass-through securities and offer more defensive or aggressive
investment alternatives.

Investments in mortgage-related U.S. Government Securities, such as GNMA
Certificates and CMOs, also involve other risks. The yield on a pass-through
security typically is quoted based on the maturity of the underlying instruments
and the associated average life assumption. Actual prepayment experience may
cause the yield to differ from the assumed average life yield. Accelerated
prepayments adversely impact yields for pass-throughs purchased at a premium;
the opposite is true for pass-throughs purchased at a discount. During periods
of declining interest rates, prepayment of mortgages underlying pass-through
certificates can be expected to accelerate. When the mortgage obligations are
prepaid, the Fund reinvests the prepaid amounts in securities, the yields of
which reflect interest rates prevailing at that time. Therefore, the Fund's
ability to maintain a portfolio of high-yielding, mortgage-backed securities
will be adversely affected to the extent that prepayments of mortgages must be
reinvested in securities that have lower yields than the prepaid mortgages.
Moreover, prepayments of mortgages that underlie securities purchased at a
premium could result in capital losses. Investment in such securities also could
subject the Fund to "maturity extension risk," which is the possibility that
rising interest rates may cause prepayments to occur at a slower than expected
rate. This particular risk may effectively change a security that was considered
a short or intermediate-term security at the time of purchase into a long-term
security. Long-term securities generally fluctuate more widely in response to
changes in interest rates than short or intermediate-term securities.

The guarantees of the U.S. government, its agencies and instrumentalities are
guarantees of the timely payment of principal and interest on the obligations
purchased. The value of the shares issued by the Fund is not guaranteed and will
fluctuate with the value of the Fund's portfolio. Generally when the level of
interest rates rise, the value of the Fund's investment in government securities
is likely to decline and, when the level of interest rates decline, the value of
the Fund's investment in government securities is likely to rise.

The Fund may engage in portfolio trading primarily to take advantage of yield
disparities. Such trading strategies may result in minor temporary increases or
decreases in the Fund's current income and in its holding of debt securities
that sell at substantial premiums or discounts from face value. If expectations
of changes in interest rates or the price of the securities prove to be
incorrect, the Fund's potential income and capital gain will be reduced or its
potential loss will be increased.

HIGH-YIELD, HIGH-RISK DEBT SECURITIES. The real estate securities, convertible
securities, bonds and other debt securities in which the Funds may invest may
include high-yield, high-risk debt securities rated BB or lower by Standard &
Poor's Corporation ("S&P") or Ba or lower by Moody's Investors Service
("Moody's") or unrated securities. Securities rated BB or lower by S&P and Ba or
lower by Moody's are referred to in the financial community as "junk bonds" and
may include D-rated securities of issuers in default. See Appendix A for a more
detailed description of the rating system. Ratings assigned by credit agencies
do not evaluate market risks. The Adviser considers the ratings assigned by S&P
or Moody's as one of several factors in its independent credit analysis of
issuers. A brief description of the quality ratings of these two services is
contained in the section titled "Quality Ratings of Debt Securities."

While likely to have some quality and protective characteristics, high-yield,
high-risk debt securities, whether convertible into common stock, usually
involve increased risk as to payment of principal and interest. Issuers

of such securities may be highly leveraged and may not have available to them
traditional methods of financing. Therefore, the risks associated with acquiring
the securities of such issuers generally are greater than is the case with
higher-rated securities. For example, during an economic downturn or a sustained
period of rising interest rates, issuers of high-yield securities may be more
likely to experience financial stress, especially if such issuers are highly
leveraged. During such periods, such issuers may not have sufficient revenues to
meet their principal and interest payment obligations. The issuer's ability to
service its debt obligations also may be adversely affected by specific issuer
developments, or the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. The risk of loss due to
default by the issuer is significantly greater for the holders of high-yield
securities because such securities may be unsecured and may be subordinated to
other creditors of the issuer.

High-yield, high-risk debt securities are subject to greater price volatility
than higher-rated securities, tend to decline in price more steeply than
higher-rated securities in periods of economic difficulty or accelerating
interest rates and are subject to greater risk of non-payment in adverse
economic times. There may be a thin trading market for such securities. This may
have an adverse impact on market price and the ability of the Fund to dispose of
particular issues and may cause the Fund to incur special securities'
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties. Unexpected net redemptions may force the Fund to sell
high-yield, high-risk debt securities without regard to investment merit,
thereby possibly reducing return rates. Such securities may be subject to
redemptions or call provisions, which, if exercised when investment rates are
declining, could result in the replacement of such securities with
lower-yielding securities, resulting in a decreased return. To the extent that
the Fund invests in bonds that are original issue discount, zero-coupon,
pay-in-kind or deferred interest bonds, the Fund may have taxable interest
income GREATER THAN the cash actually received on these issues. In order to
avoid taxation to the Fund, the Fund may have to sell portfolio securities to
meet taxable distribution requirements.

The market values of such securities tend to reflect individual corporate
developments to a greater extent than do higher-rated securities, which react
primarily to fluctuations in the general level of interest rates. Such
lower-rated securities also tend to be more sensitive to economic and industry
conditions than are higher-rated securities. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis regarding individual
lower-rated bonds, and the high-yield, high-risk market may depress the prices
for such securities. If the negative factors such as the aforementioned
adversely impact the market value of high-yield, high-risk securities, net asset
value will be adversely affected.

The Fund may have difficulty disposing of certain high-yield, high-risk bonds
because there may be a thin trading market for such bonds. Because not all
dealers maintain markets in all high-yield, high-risk bonds, the Fund
anticipates that such bonds could be sold only to a limited number of dealers or
institutional investors. The lack of a liquid secondary market may have an
adverse impact on market price and the ability to dispose of particular issues
and also may make it more difficult to obtain accurate market quotations or
valuations for purposes of valuing the Fund's assets. Market quotations
generally are available on many high-yield issues only from a limited number of
dealers and may not necessarily represent firm bid prices of such dealers or
prices for actual sales. In addition, adverse publicity and investor perceptions
may decrease the values and liquidity of high-yield, high-risk bonds regardless
of a fundamental analysis of the investment merits of such bonds. To the extent
that the Fund purchases illiquid or restricted bonds, it may incur special
securities' registration responsibilities, liabilities and costs, and liquidity
and valuation difficulties relating to such bonds.

Bonds may be subject to redemption or call provisions. If an issuer exercises
these provisions when investment rates are declining, the Fund will be likely to
replace such bonds with lower-yielding bonds, resulting in a decreased return.
Zero-coupon, pay-in-kind and deferred interest bonds involve additional special
considerations. Zero-coupon bonds are debt obligations that do not entitle the
holder to any periodic payments of interest prior to maturity or a specified
cash payment date when the securities begin paying current interest (the "cash
payment date") and therefore are issued and traded at a discount from their face
amount or par value. The market prices of zero-coupon securities generally are
more volatile than the market prices of securities that pay interest
periodically and are likely to respond to changes in interest rates to a greater
degree than do securities paying interest currently, having similar maturities
and credit quality.

Pay-in-kind bonds pay interest in the form of other securities rather than cash.
Deferred interest bonds defer the payment of interest to a later date.
Zero-coupon, pay-in-kind or deferred interest bonds carry additional risk in
that, unlike bonds that pay interest in cash throughout the period to maturity,
the Fund will realize no cash until the cash payment date unless a portion of
such securities are sold. There is no assurance of the value or the liquidity of
securities received from pay-in-kind bonds. If the issuer defaults, the Fund may
obtain no return at all on its investment. To the extent that the Fund invests
in bonds that are original issue discount, zero-coupon, pay-in-kind or deferred
interest bonds, the Fund may have taxable interest income greater than the cash
actually received on these issues. In order to distribute such income to avoid
taxation, the Fund may have to sell portfolio securities to meet its taxable
distribution requirements under circumstances that could be adverse.

Federal tax legislation limits the tax advantages of issuing certain high-yield,
high-risk bonds. This could have a materially adverse effect on the market for
high-yield, high-risk bonds.

A description of each bond quality category is set forth in Appendix A. The
ratings of Moody's and S&P represent their opinions as to the quality of the
securities that they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of quality.
There is no assurance that a rating assigned initially will not change. The Fund
may retain a security whose rating has changed or has become unrated.

CASH MANAGEMENT. For defensive purposes or to accommodate inflows of cash
awaiting more permanent investment, the Fund may temporarily and without
limitation hold high-grade short-term money market instruments, cash and cash
equivalents, including repurchase agreements. The Fund also may invest in other
investment companies (or companies exempted under Section 3(c)(7) of the 1940
Act) that themselves primarily invest in temporary defensive investments,
including commercial paper. To the extent that the management fees paid to the
other investment companies are for the same or similar services as the
management fees paid to the Fund, there will be a layering of fees that would
increase expenses and decrease returns. Investments in other investment
companies are limited by the 1940 Act.

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. Repurchase
agreements involve an agreement to purchase a security and to sell that security
back to the original owner at an agreed-on price. The resale price reflects the
purchase price plus an agreed-on incremental amount, which is unrelated to the
coupon rate or maturity of the purchased security. The repurchase obligation of
the seller is, in effect, secured by the underlying securities. In the event of
a bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and
losses, including: (a) possible decline in the value of the collateral during
the period while the Fund seeks to enforce its rights thereto, (b) possible loss
of all or a part of the income during this period, and (c) expenses of enforcing
its rights.

The Fund will enter into repurchase agreements only when the seller agrees that
the value of the underlying securities, including accrued interest (if any),
will at all times be equal to or exceed the value of the repurchase agreement.
The Fund may enter into tri-party repurchase agreements in which a third-party
custodian bank ensures the timely and accurate exchange of cash and collateral.
The majority of these transactions run from day to day, and delivery pursuant to
the resale typically occurs within one to seven days of the purchase. The Fund
normally will not enter into repurchase agreements maturing in more than seven
days.

BORROWING. The Fund may borrow from banks and enter into reverse repurchase
agreements in an amount up to 33 1/3% of its total assets, taken at market
value. The Fund also may borrow up to an additional 5% of its total assets from
banks or others. The Fund may purchase additional securities so long as
borrowings do not exceed 5% of its total assets. The Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities. In the event that market fluctuations cause borrowing
to exceed the limits stated above, the Adviser would act to remedy the situation
as promptly as possible (normally within three business days), although it is
not required to dispose of portfolio holdings immediately if the Fund would
suffer losses as a result. Borrowing money to meet redemptions or other

purposes would have the effect of temporarily leveraging the Fund's assets and
potentially exposing the Fund to leveraged losses.

LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities to
certain types of eligible borrowers approved by the Board of Directors. The Fund
may engage in securities lending to earn additional income or to raise cash for
liquidity purposes. The Fund must receive collateral for a loan. Under current
applicable regulatory requirements (which are subject to change), on each
business day the loan collateral must be at least equal to the value of the
loaned securities. The collateral must consist of cash, bank letters of credit,
securities of the U.S. government or its agencies or instrumentalities, or other
cash equivalents in which the Fund is permitted to invest.

Lending activities are strictly limited as described in the section titled
"Investment Restrictions." Lending money or securities involves the risk that
the Fund may suffer a loss if a borrower does not repay a loan when due. To
manage this risk the Fund deals only with counterparties it believes to be
creditworthy and requires that the counterparty deposit collateral with the
Fund.

When it loans securities, the Fund still owns the securities, receives amounts
equal to the dividends or interest on loaned securities and is subject to gains
or losses on those securities. The Fund also receives one or more of: (a)
negotiated loan fees, (b) interest on securities used as collateral, and/or (c)
interest on any short-term debt instruments purchased with such loan collateral.
Either type of interest may be shared with the borrower. The Fund also may pay
reasonable finder's, custodian and administrative fees in connection with these
loans. The terms of the Fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the Fund to reacquire loaned securities on
five days' notice or in time to vote on any important matter.

HEADLINE RISK. We seek to acquire companies with expanding earnings at value
prices. We may make such investments when a company becomes the center of
controversy after receiving adverse media attention. The company may be involved
in litigation, the company's financial reports or corporate governance may be
challenged, the company's annual report may disclose a weakness in internal
controls, investors may question the company's published financial reports,
greater government regulation may be contemplated, or other adverse events may
threaten the company's future. While we research companies subject to such
contingencies, we cannot be correct every time, and the company's stock may
never recover.

SHORT SALES. When the Fund believes that a security is overvalued, it may sell
the security short and borrow the same security from a broker or other
institution to complete the sale. If the price of the security decreases in
value, the Fund may make a profit and, conversely, if the security increases in
value, the Fund will incur a loss because it will have to replace the borrowed
security by purchasing it at a higher price. There can be no assurance that the
Fund will be able to close out the short position at any particular time or at
an acceptable price. Although the Fund's gain is limited to the amount at which
it sold a security short, its potential loss is not limited. A lender may
request that the borrowed securities be returned on short notice; if that occurs
at a time when other short sellers of the subject security are receiving similar
requests, a "short squeeze" can occur. This means that the Fund might be
compelled, at the most disadvantageous time, to replace borrowed securities
previously sold short with purchases on the open market at prices significantly
greater than those at which the securities were sold short. Short selling also
may produce higher than normal portfolio turnover and result in increased
transaction costs to the Fund. If the Fund sells a security short it will either
own an off-setting "long position" (an economically equivalent security which is
owned) or establish a "Segregated Account" as described in this Statement of
Additional Information.

The Fund also may make short sales "against-the-box," in which it sells short
securities it owns. The Fund will incur transaction costs, including interest
expenses, in connection with opening, maintaining and closing short sales
against-the-box, which result in a "constructive sale," requiring the Fund to
recognize any taxable gain from the transaction.

The Fund has adopted a non-fundamental investment limitation that prevents it
from selling any security short if it would cause more than 5% of its total
assets, taken at market value, to be sold short. This limitation does not apply
to selling short against the box.

RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities
that are subject to contractual restrictions on resale. The Fund's policy is to
not purchase or hold illiquid securities (which may include restricted
securities) if more than 15% of the Fund's net assets would then be illiquid.

The restricted securities that the Fund may purchase include securities that
have not been registered under the 1933 Act but are eligible for purchase and
sale pursuant to Rule 144A ("Rule 144A Securities"). This Rule permits certain
qualified institutional buyers, such as the Fund to trade in privately placed
securities even though such securities are not registered under the 1933 Act.
The Adviser, under criteria established by the Fund's Board of Directors, will
consider whether Rule 144A Securities being purchased or held by the Fund are
illiquid and thus subject to the Fund's policy limiting investments in illiquid
securities. In making this determination, the Adviser will consider the
frequency of trades and quotes, the number of dealers and potential purchasers,
dealer undertakings to make a market and the nature of the security and the
marketplace trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A Securities also will be monitored by the Adviser and, if as a result
of changed conditions it is determined that a Rule 144A Security is no longer
liquid, the Fund's holding of illiquid securities will be reviewed to determine
what, if any, action is required in light of the policy limiting investments in
such securities. Investing in Rule 144A Securities could have the effect of
increasing the amount of investments in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities.

WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Fund can invest in securities
on a "when-issued" basis and can purchase or sell securities on a
"delayed-delivery" basis. When-issued and delayed-delivery are terms that refer
to securities whose terms and indenture are available and for which a market
exists but that are not available for immediate delivery.

When such transactions are negotiated, the price (which generally is expressed
in yield terms) is fixed at the time the commitment is made. Delivery and
payment for the securities take place at a later date (generally within 45 days
of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Adviser before settlement
will affect the value of such securities and may cause a loss to the Fund.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund from the investment.

The Fund may engage in when-issued transactions to secure what the Adviser
considers to be an advantageous price and yield at the time of entering into the
obligation. When the Fund enters into a when-issued or delayed-delivery
transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Adviser considers to be advantageous. When the
Fund engages in when-issued and delayed-delivery transactions, it does so for
the purpose of acquiring or selling securities consistent with its investment
objective and strategies or for delivery pursuant to options contracts it has
entered into, and not for the purpose of investment leverage. Although the Fund
will enter into delayed-delivery or when-issued purchase transactions to acquire
securities, it can dispose of a commitment before settlement. If the Fund
chooses to dispose of the right to acquire a when-issued security before its
acquisition or to dispose of its right to delivery or receive against a forward
commitment, it may incur a gain or loss.

At the time the Fund makes the commitment to purchase or sell a security on a
when-issued or delayed-delivery basis, it records the transaction on its books
and reflects the value of the security purchased in determining the Fund's net
asset value. In a sale transaction, it records the proceeds to be received. The
Fund will identify on its books liquid securities of any type at least equal in
value to the value of the Fund's purchase commitments until the Fund pays for
the investment.

When issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates and falling prices,
the Fund might sell securities in its portfolio on a forward commitment basis to
attempt to

limit its exposure to anticipated falling prices. In periods of falling interest
rates and rising prices, the Fund might sell portfolio securities and purchase
the same or similar securities on a when-issued or delayed-delivery basis to
obtain the benefit of currently higher cash yields.

A segregated account is not required when the Fund holds securities, options or
futures positions whose values are expected to offset its obligations that would
otherwise require a segregated account.

SEGREGATED ACCOUNTS. A number of the Fund's investment strategies require it to
establish segregated accounts. When the Fund enters into an investment strategy
that would result in a "senior security" as that term is defined in the 1940
Act, the Fund will either: (i) own an off-setting position in securities,
options or futures positions; or (ii) set aside liquid securities in a
segregated account with its custodian bank (or designated in the Fund's books
and records) in the amount prescribed. The Fund will maintain the value of such
segregated account equal to the prescribed amount by adding or removing
additional liquid securities to account for fluctuations in the value of
securities held in such account. Securities held in a segregated account cannot
be sold while the senior security is outstanding, unless they are replaced with
similar securities.

DERIVATIVES. The Fund can invest in a variety of derivative investments to
pursue its investment objective or for hedging purposes. Some derivative
investments the Fund can use are the hedging instruments described below.

Hedging. The Fund can use hedging to attempt to protect against declines in the
market value of the Fund's portfolio, to permit the Fund to retain unrealized
gains in the value of portfolio securities that have appreciated or to
facilitate selling securities for investment reasons. To do so, the Fund could:

o sell futures contracts;

o buy puts on such futures or on securities; or

o write covered calls on securities or futures.

The Fund can use hedging to establish a position in the securities market as a
temporary substitute for purchasing particular securities. In that case, the
Fund would normally seek to purchase the securities and then terminate that
hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Fund could:

o buy futures;

o buy calls on such futures or on securities; or

o sell puts on such futures or on securities.

The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Adviser's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
can employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund.

Futures. The Fund can buy and sell futures contracts that relate to: (1)
broad-based stock indices ("stock index futures"), (2) debt securities (these
are referred to as "interest rate futures"), (3) other broad-based securities
indices (these are referred to as "financial futures"), (4) foreign currencies
(these are referred to as "forward contracts"), or (5) commodities (these are
referred to as "commodity futures").

A broad-based stock index is used as the basis for trading stock index futures.
They may in some cases be based on stocks of issuers in a particular industry or
group of industries. A stock index assigns relative values to the common stocks
included in the index and its value fluctuates in response to the changes in
value of the underlying stocks. A stock index cannot be purchased or sold
directly. Financial futures are

similar contracts based on the future value of the basket of securities that
comprise the index. These contracts obligate the seller to deliver, and the
purchaser to take, cash to settle the futures transaction. There is no delivery
made of the underlying securities to settle the futures obligation. Either party
also may settle the transaction by entering into an off-setting contract.

An interest rate future obligates the seller to deliver (and the purchaser to
take) cash or a specified type of debt security to settle the futures
transaction. Either party also could enter into an off-setting contract to close
out the position.

No money is paid or received by the Fund on the purchase or sale of a future. On
entering into a futures transaction, the Fund will be required to deposit an
initial margin payment with the futures commission merchant (the "futures
broker"). Initial margin payments will be deposited with the Fund's custodian
bank in an account registered in the futures broker's name. However, the futures
broker can gain access to that account only under specified conditions. As the
future is marked to market (that is, its value on the Fund's books is changed)
to reflect changes in its market value, subsequent margin payments, called
variation margin, will be paid to or by the futures broker daily.

At any time before expiration of the future, the Fund can elect to close out its
position by taking an opposite position, at which time a final determination of
variation margin is made and any additional cash must be paid by or released to
the Fund. Any loss or gain on the future is then realized by the Fund for tax
purposes. All futures transactions, except forward contracts, are effected
through a clearinghouse associated with the exchange on which the contracts are
traded.

Put and Call Options. The Fund can buy and sell (and sell short) certain kinds
of put options ("puts") and call options ("calls"). The Fund can buy and sell
exchange-traded and over-the-counter put and call options, including index
options, securities options, currency options, commodities options and options
on the other types of futures described above.

Writing Covered Call Options. The Fund can write (that is, sell) covered calls.
If the Fund sells a call option, it must be covered. That means the Fund must
own the security subject to the call while the call is outstanding or, for
certain types of calls, the call can be covered by identifying liquid assets on
the Fund's books to enable the Fund to satisfy its obligations if the call is
exercised.

When the Fund writes a call on a security, it receives cash (a premium). The
Fund agrees to sell the underlying security to a purchaser of a corresponding
call on the same security during the call period at a fixed exercise price
regardless of market price changes during the call period. The call period is
usually not more than nine months. The exercise price may differ from the market
price of the underlying security. The Fund has the risk of loss that the price
of the underlying security may decline during the call period. That risk may be
offset to some extent by the premium the Fund receives. If the value of the
investment does not rise above the call price, it is likely that the call will
lapse without being exercised. In that case the Fund would keep the cash premium
and the investment.

When the Fund writes a call on an index, it receives cash (a premium). If the
buyer of the call exercises it, the Fund will pay an amount of cash equal to the
difference between the closing price of the call and the exercise price,
multiplied by a specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.

The Fund's custodian bank, or a securities depository acting for the custodian
bank, will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written calls traded on exchanges or as to other acceptable escrow securities.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the option or when the Fund enters into a
closing transaction.

When the Fund writes an over-the-counter ("OTC") option, it will treat as
illiquid (for purposes of its restriction on holding illiquid securities) the
marked-to-market value of any OTC option it holds, unless the

option is subject to a buy-back agreement by the executing broker. To terminate
its obligation on a call it has written, the Fund can purchase a corresponding
call in a "closing purchase transaction." The Fund will then realize a profit or
loss, depending on whether the net of the amount of the option transaction costs
and the premium received on the call the Fund wrote is more or less than the
price of the call the Fund purchases to close out the transaction. The Fund may
realize a profit if the call expires unexercised, because the Fund will retain
the underlying security and the premium it received when it wrote the call. Any
such profits are considered short-term capital gains for federal income tax
purposes, as are the premiums on lapsed calls. When distributed by the Fund they
are taxable as ordinary income. If the Fund cannot effect a closing purchase
transaction due to the lack of a market, it will have to hold the callable
securities until the call expires or is exercised.

The Fund also can write calls on a futures contract without owning the futures
contract or securities deliverable under the contract. To do so, at the time the
call is written, the Fund must cover the call by identifying an equivalent
dollar amount of liquid assets on the Fund's books. The Fund will identify
additional liquid assets on its books if the value of the segregated assets
drops below 100% of the current value of the future. Because of this segregation
requirement, in no circumstances would the Fund's receipt of an exercise notice
as to that future require the Fund to deliver a futures contract. It would
simply put the Fund in a short futures position, which is permitted by the
Fund's hedging policies.

Writing Put Options. The Fund can write/sell put options. A put option on
securities gives the purchaser the right to sell, and the writer the obligation
to buy, the underlying investment at the exercise price during the option
period.

If the Fund writes a put, the put must be covered by liquid assets identified on
the Fund's books. The premium the Fund receives from writing a put represents a
profit, as long as the price of the underlying investment remains equal to or
above the exercise price of the put. However, the Fund also assumes the
obligation during the option period to buy the underlying investment from the
buyer of the put at the exercise price, even if the value of the investment
falls below the exercise price. If a put the Fund has written expires
unexercised, the Fund realizes a gain in the amount of the premium less the
transaction costs incurred. If the put is exercised, the Fund must fulfill its
obligation to purchase the underlying investment at the exercise price. The
price usually will exceed the market value of the investment at that time. In
that case, the Fund may incur a loss if it sells the underlying investment. That
loss will be equal to the sum of the sale price of the underlying investment and
the premium received minus the sum of the exercise price and any transaction
costs the Fund incurred.

When writing a put option on a security, to secure its obligation to pay for the
underlying security the Fund will deposit in escrow liquid assets with a value
equal to or greater than the exercise price of the underlying securities. The
Fund therefore foregoes the opportunity of investing the segregated assets or
writing calls against those assets.

As long as the Fund's obligation as the put writer continues, it may be assigned
an exercise notice by the broker-dealer through which the put was sold. That
notice will require the Fund to take delivery of the underlying security and pay
the exercise price. The Fund has no control over when it may be required to
purchase the underlying security, since it may be assigned an exercise notice at
any time prior to the termination of its obligation as the writer of the put.
That obligation terminates on expiration of the put. It also may terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.

The Fund can decide to effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent the underlying
security from being exercised. Effecting a closing purchase transaction also
will permit the Fund to write another put option on the security or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for federal tax purposes and, when distributed by the
Fund, are taxable as ordinary income.

Purchasing Calls and Puts. The Fund can purchase calls to protect against the
possibility that the Fund's portfolio will not participate in an anticipated
rise in the securities market. When the Fund buys a call (other than in a
closing purchase transaction), it pays a premium. The Fund then has the right to
buy the underlying investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. The Fund benefits
only if it sells the call at a profit or if, during the call period, the market
price of the underlying investment is above the sum of the call price plus the
transaction costs and the premium paid for the call and the Fund exercises the
call. If the Fund does not exercise the call or sell it (whether or not at a
profit), the call will become worthless at its expiration date. In that case the
Fund will have paid the premium but lost the right to purchase the underlying
investment.

The Fund can buy puts whether it holds the underlying investment in its
portfolio. When the Fund purchases a put, it pays a premium and, except as to
puts on indices, has the right to sell the underlying investment to a seller of
a put on a corresponding investment during the put period at a fixed exercise
price. Buying a put on securities or futures the Fund owns enables the Fund to
attempt to protect itself during the put period against a decline in the value
of the underlying investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding put. If the
market price of the underlying investment is equal to or above the exercise
price and, as a result, the put is not exercised or resold, the put will become
worthless at its expiration date. In that case the Fund will have paid the
premium but lost the right to sell the underlying investment. However, the Fund
can sell the put prior to its expiration. That sale may or may not be at a
profit.

When the Fund purchases a call or put on an index or future, it pays a premium,
but settlement is in cash rather than by delivery of the underlying investment
to the Fund. Gain or loss depends on changes in the index in question (and thus
on price movements in the securities market generally) rather than on price
movements in individual securities or futures contracts.

Forward Contracts. Forward contracts are foreign currency exchange contracts.
They are used to buy or sell foreign currency for future delivery at a fixed
price. The Fund uses them to "lock in" the U.S. dollar price of a security
denominated in a foreign currency that the Fund has bought or sold, or to
protect against possible losses from changes in the relative values of the U.S.
dollar and a foreign currency. The Fund limits its exposure in foreign currency
exchange contracts in a particular foreign currency to the amount of its assets
denominated in that currency or a closely correlated currency. The Fund also can
use "cross-hedging" where the Fund hedges against changes in currencies other
than the currency in which a security it holds is denominated.

Under a forward contract, one party agrees to purchase, and another party agrees
to sell, a specific currency at a future date. That date may be any fixed number
of days from the date of the contract agreed on by the parties. The transaction
price is set at the time the contract is entered into. These contracts are
traded in the inter-bank market conducted directly among currency traders
(usually large commercial banks) and their customers.

The Fund can use forward contracts to protect against uncertainty in the level
of future exchange rates. The use of forward contracts does not eliminate the
risk of fluctuations in the prices of the underlying securities the Fund owns or
intends to acquire, but it does fix a rate of exchange in advance. Although
forward contracts may reduce the risk of loss from a decline in the value of the
hedged currency, at the same time they limit any potential gain if the value of
the hedged currency increases.

When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when it anticipates receiving dividend
payments in a foreign currency, the Fund might desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund might enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in the currency exchange rates during
the period between the date on which the

security is purchased or sold or on which the payment is declared and the date
on which the payments are made or received.

The Fund also could use forward contracts to lock in the U.S. dollar value of
portfolio positions. This is called a "position hedge." When the Fund believes
that foreign currency might suffer a substantial decline against the U.S.
dollar, it could enter into a forward contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar may suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Fund could enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold pursuant
to its forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are denominated.
That is referred to as a "cross hedge."

The Fund will cover its short positions in these cases by identifying to its
custodian bank assets having a value equal to the aggregate amount of the Fund's
commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge. However, to avoid excess transactions and transaction costs, the Fund can
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess. As
one alternative, the Fund can purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the forward contract price. As another alternative,
the Fund can purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high as or
higher than the forward contact price.

The precise matching of the amounts under forward contracts and the value of the
securities involved generally will not be possible because the future value of
securities denominated in foreign currencies will change as a consequence of
market movements between the date the forward contract is entered into and the
date it is sold. In some cases the Adviser might decide to sell the security and
deliver foreign currency to settle the original purchase obligation. If the
market value of the security is less than the amount of foreign currency that
the Fund is obligated to deliver, the Fund might have to purchase additional
foreign currency on the "spot" (that is, cash) market to settle the security
trade. If the market value of the security instead exceeds the amount of foreign
currency, the Fund is obligated to deliver to settle the trade, the Fund might
have to sell on the spot market some of the foreign currency received on the
sale of the security. There will be additional transaction costs on the spot
market in those cases.

The projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. Forward contracts involve the risk that anticipated currency
movements would not be accurately predicted, causing the Fund to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.

At or before the maturity of a forward contract requiring the Fund to sell a
currency, the Fund might sell a portfolio security and use the sale proceeds to
make delivery of the currency. In the alternative the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might close out a forward contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund would realize a gain or loss as a result of entering into
such an off-setting forward contract under either circumstance. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first and
off-setting contracts.

The cost to the Fund of engaging in forward contracts varies with factors such
as the currencies involved, the length of the contract period and the market
conditions then prevailing. Because forward contracts usually are entered into
on a principal basis, no brokerage fees or commissions are involved. Because
these contracts are not traded on an exchange, the Fund must evaluate the credit
and performance risk of the counterparty under each forward contract.

Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund can convert foreign currency from time to time and will
incur costs in doing so. Foreign exchange dealers do not charge a fee for
conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.

Index-Linked Notes. Principal and/or interest payments on these notes depend on
the performance of an underlying index. Currency-indexed securities are another
derivative the Fund can use. Typically these are short-term or intermediate-term
debt securities. Their value at maturity or the rates at which they pay income
are determined by the change in value of the U.S. dollar against one or more
foreign currencies or an index. In some cases, these securities may pay an
amount at maturity based on a multiple of the amount of the relative currency
movements. This type of index security offers the potential for increased income
or principal payments but at a greater risk of loss than a typical debt security
of the same maturity and credit quality.

Debt Exchangeable for Common Stock of an Issuer or "Equity-Linked Debt
Securities" of an Issuer. At maturity, the debt security is exchanged for common
stock of the issuer or it is payable in an amount based on the price of the
issuer's common stock at the time of maturity. Both alternatives present a risk
that the amount payable at maturity will be less than the principal amount of
the debt because the price of the issuer's common stock might not be as high as
the Adviser expected.

Interest Rate Swap Transactions. The Fund can enter into interest rate swap
agreements. In an interest rate swap, the Fund and another party exchange their
right to receive or their obligation to pay interest on a security. For example,
they might swap the right to receive floating rate payments for fixed rate
payments. The Fund can enter into swaps only on securities that it owns. Also,
the Fund will identify liquid assets on its books (such as cash or U.S.
government securities) to cover any amounts it could owe under swaps that exceed
the amounts it is entitled to receive, and it will adjust that amount daily as
needed.

Swap agreements entail both interest rate risk and credit risk. There is a risk
that based on movements of interest rates in the future; the payments made by
the Fund under a swap agreement will be greater than the payments it received.
Credit risk arises from the possibility that the counterparty will default. If
the counterparty defaults, the Fund's loss will consist of the net amount of
contractual interest payments that the Fund has not yet received. The Adviser
will monitor the creditworthiness of counterparties to the Fund's interest rate
swap transactions on an ongoing basis.

The Fund can enter into swap transactions with certain counterparties pursuant
to master netting agreements. A master netting agreement provides that all swaps
done between the Fund and that counterparty shall be regarded as parts of an
integral agreement. If amounts are payable on a particular date in the same
currency in respect of one or more swap transactions, the amount payable on that
date in that currency shall be the net amount. In addition, the master netting
agreement may provide that if one party defaults generally or on one swap, the
counterparty can terminate all of the swaps with that party. Under these
agreements, if a default results in a loss to one party, the measure of that
party's damages is calculated by reference to the average cost of a replacement
swap for each swap. It is measured by the mark-to-market value at the time of
the termination of each swap. The gains and losses on all swaps are then netted,
and the result is the counterparty's gain or loss on termination. The
termination of all swaps and the netting of gains and losses on termination
generally is referred to as "aggregation."

Hedging Foreign Currency. To attempt to reduce exposure to currency
fluctuations, the Fund may trade in forward foreign currency exchange contracts
(forward contracts), currency futures contracts and options thereon and
securities indexed to foreign securities. These techniques are not always
effective and their use may expose the Fund to other risks, such as liquidity
and counterparty risk. The Adviser exercises its professional judgment as to
whether the reduction in currency risk justifies the expense and exposure to
liquidity and counterparty risk. These techniques may be used to lock in an
exchange rate in connection with transactions in securities denominated or
traded in foreign currencies, to hedge the currency risk in foreign securities
held by the Fund and to hedge a currency risk involved in an anticipated
purchase of foreign securities. Cross-hedging also may be utilized; that is,
entering into a hedge transaction with respect to a foreign currency different
from the one in which a trade is to be made or in which a portfolio security is
principally traded. There is no limitation on the amount of assets that may be
committed to currency hedging. However, the currency hedging transactions may be
utilized as a tool to reduce currency fluctuation risks due to a current or
anticipated position in foreign securities. The successful use of currency
hedging transactions usually depends on the Adviser's ability to forecast
interest rate and currency exchange rate movements. Should interest or exchange
rates move in an unexpected manner, the anticipated benefits of futures
contracts, options or forward contracts may not be achieved or losses may be
realized and thus the Fund could be in a worse position than if such strategies
had not been used. Unlike many exchange-traded futures contracts, there are no
daily price fluctuation limits with respect to options on currencies and forward
contracts, and adverse market movements therefore could continue to an unlimited
extent over a period of time. In addition, the correlation between movements in
the prices of such instruments and movements in the prices of the securities and
currencies hedged or used for cover will not be perfect and could produce
unanticipated losses. Unanticipated changes in currency prices may result in
poorer overall performance for the Fund than if it had not entered into such
contracts. When taking a position in an anticipatory hedge (when the Fund
purchases a futures contract or other similar instrument to gain market exposure
in anticipation of purchasing the underlying securities at a later date), the
Fund is required to set aside cash or high-grade liquid securities to fully
secure the obligation.

A forward contract is an obligation to purchase or sell a specific currency for
an agreed price at a future date that is individually negotiated and privately
traded by currency traders and their customers. Such a contract gives the Fund a
position in a negotiated, currently non-regulated market. The Fund may enter
into a forward contract; for example, when it enters into a contract for the
purchase or sale of a security denominated in a foreign currency in order to
"lock in" the U.S. dollar price of the security ("transaction hedge").
Additionally, when the Adviser believes that a foreign currency may suffer a
substantial decline against the U.S. dollar, the Fund may enter into a forward
sale contract to sell an amount of that foreign currency approximating the value
of some or all of the Fund's portfolio securities denominated in such foreign
currency. When the Adviser believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, the Fund may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar amount
in anticipation of purchasing foreign traded securities ("position hedge"). In
this situation the Fund may, in the alternative, enter into a forward contract
with respect to a different foreign currency for a fixed U.S. dollar amount
("cross hedge"). This may be done, for example, where the Adviser believes that
the U.S. dollar value of the currency to be sold pursuant to the forward
contract will fall whenever there is a decline in the U.S. dollar value of the
currency in which portfolio securities of the Fund are denominated.

The Fund may purchase and write put and call options on foreign currencies for
the purpose of protecting against declines in the U.S. dollar value of foreign
currency-denominated portfolio securities and against increases in the U.S.
dollar cost of such securities to be acquired. As in the case of other kinds of
options, however, the writing of an option on a foreign currency constitutes
only a partial hedge, up to the amount of the premium received, and the Fund
could be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on a foreign
currency may constitute an effective hedge against fluctuations in exchange
rates although, in the event of rate movements adverse to the Fund's position,
it may forfeit the entire amount of the premium plus related transaction costs.
Options on foreign currencies to be written or purchased by the Fund are traded
on U.S. and foreign exchanges or over-the-counter. Currently, a significant
portion or all of the value of an over-the-counter option may be treated as an
illiquid investment and subject to the restriction on such investments as long
as the Securities and Exchange Commission ("SEC") requires that over-the-counter

options be treated as illiquid. Generally, the Fund would utilize options traded
on exchanges where the options are standardized.

The Fund may enter into contracts for the purchase or sale for future delivery
of foreign currencies ("currency futures contracts") and may purchase and write
put and call options to buy or sell currency futures contracts. A "sale" of a
currency futures contract means the acquisition of a contractual obligation to
deliver the foreign currencies called for by the contract at a specified price
on a specified date. A "purchase" of a currency futures contract means the
incurring of a contractual obligation to acquire the foreign currencies called
for by the contract at a specified price on a specified date. Options on
currency futures contracts to be purchased by the Fund will be traded on U.S. or
foreign exchanges or over-the-counter.

The Fund may also purchase securities (debt securities or deposits) that have
their coupon rate or value at maturity determined by reference to the value of
one or more foreign currencies. These strategies will be used for hedging
purposes only. The Fund will hold securities or other options or futures
positions whose values are expected to offset its obligations under the hedge
strategies. The Fund will not enter into a currency hedging position that
exposes the Fund to an obligation to another party unless it follows its
segregated account procedures.

The Fund's ability to dispose of its positions in futures contracts, options and
forward contracts will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to currencies are still
developing. It is impossible to predict the amount of trading interest that may
exist in various types of futures contracts, options and forward contracts. If a
secondary market does not exist with respect to an option purchased or written
by the Fund over-the-counter, it might not be possible to effect a closing
transaction in the option (i.e., dispose of the option) with the result that:
(i) an option purchased by the Fund would have to be exercised in order for the
Fund to realize any profit; and (ii) the Fund may not be able to sell currencies
covering an option written by the Fund until the option expires or it delivers
the underlying futures currency on exercise. Therefore, no assurance can be
given that the Fund will be able to utilize these instruments effectively for
the purposes set forth above. The Fund's ability to engage in currency hedging
transactions may be limited by tax considerations.

Risks of Hedging With Options and Futures. The use of hedging instruments
requires special skills and knowledge of investment techniques that are
different than what is required for normal portfolio management. If the Adviser
uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's return. The Fund also
could experience losses if the prices of its futures and options positions were
not correlated with its other investments.

The Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund might cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.

The Fund could pay a brokerage commission each time it buys a call or put, sells
a call or put, or buys or sells an underlying investment in connection with the
exercise of a call or put. Those commissions could be higher on a relative basis
than the commissions for direct purchases or sales of the underlying
investments. Premiums paid for options are small in relation to the market value
of the underlying investments. Consequently, put and call options offer large
amounts of leverage. The leverage offered by trading in options could result in
the Fund's net asset value being more sensitive to changes in the value of the
underlying investment.

If a covered call written by the Fund is exercised on an investment that has
increased in value, the Fund will be required to sell the investment at the call
price. It will not be able to realize any profit if the investment has increased
in value above the call price.

An option position may be closed out only on a market that provides secondary
trading for options of the same series, and there is no assurance that a liquid
secondary market will exist for any particular option. The Fund might experience
a loss if it could not close out a position because of an illiquid market for
the future or option.

There is a risk in using short hedging by selling futures or purchasing puts on
broad-based indices or futures to attempt to protect against declines in the
value of the Fund's portfolio securities. The risk is that the prices of the
futures or the applicable index will correlate imperfectly with the behavior of
the cash prices of the Fund's securities. For example, it is possible that while
the Fund has used hedging instruments in a short hedge, the market might advance
and the value of the securities held in the Fund's portfolio might decline. If
that occurred, the Fund would lose money on the hedging instruments and also
experience a decline in the value of its portfolio securities. However, while
this could occur for a very brief period or to a very small degree, over time
the value of a diversified portfolio of securities will tend to move in the same
direction as the indices on which the hedging instruments are based. The risk of
imperfect correlation increases as the composition of the Fund's portfolio
diverges from the securities included in the applicable index. To compensate for
the imperfect correlation of movements in the price of the portfolio securities
being hedged and movements in the price of the hedging instruments, the Fund
might use hedging instruments in a greater dollar amount than the dollar amount
of portfolio securities being hedged. It might do so if the historical
volatility of the prices of the portfolio securities being hedged is more than
the historical volatility of the applicable index.

The ordinary spreads between prices in the cash and futures markets are subject
to distortions, due to differences in the nature of those markets. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through off-setting transactions that
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions.

The Fund can use hedging instruments to establish a position in the securities
markets as a temporary substitute for the purchase of individual securities
(long hedging) by buying futures and/or calls on such futures, broad-based
indices or on securities. It is possible that when the Fund does so the market
might decline. If the Fund then concludes not to invest in securities because of
concerns that the market might decline further or for other reasons, the Fund
will realize a loss on the hedging instruments that is not offset by a reduction
in the price of the securities purchased.

Regulatory Aspects of Hedging Instruments. When using futures and options on
futures, the Fund is required to operate within certain guidelines and
restrictions with respect to the use of futures as established by the
Commodities Futures Trading Commission (the "CFTC"). In particular, the Fund is
exempted from registration with the CFTC as a "commodity pool operator" if the
Fund complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for futures
margin and related options premiums for a bona fide hedging position. However,
under the Rule, the Fund must limit its aggregate initial futures margin and
related options premiums to not more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies under
the Rule. Under the Rule, the Fund also must use short futures and options on
futures solely for bona fide hedging purposes within the meaning and intent of
the applicable provisions of the Commodity Exchange Act.

Transactions in options by the Fund are subject to limitations established by
the option exchanges. The exchanges limit the maximum number of options that may
be written or held by a single investor or group of investors acting in concert.
Those limits apply regardless of whether the options were written or purchased
on the same or different exchanges, or are held in one or more accounts, or
through one or more different exchanges, or through one or more brokers. Thus,
the number of options that the Fund can write

or hold may be affected by options written or held by other entities, including
other investment companies having the same adviser as the Fund (or an adviser
that is an affiliate of the Fund's adviser). The exchanges also impose position
limits on futures transactions. An exchange may order the liquidation of
positions found to be in violation of those limits and may impose certain other
sanctions.

Under the Investment Company Act, when the Fund purchases a future, it must
maintain cash or readily marketable short-term debt instruments in an amount
equal to the market value of the securities underlying the future, less the
margin deposit applicable to it.

Tax Aspects of Certain Hedging Instruments. Certain foreign currency exchange
contracts in which the Fund can invest are treated as "Section 1256 contracts"
under the Internal Revenue Code. In general, gains or losses relating to Section
1256 contracts are characterized as 60% long-term and 40% short-term capital
gains or losses under the Code. However, foreign currency gains or losses
arising from Section 1256 contracts that are forward contracts generally are
treated as ordinary income or loss. In addition, Section 1256 contracts held by
the Fund at the end of each taxable year are "marked-to-market," and unrealized
gains or losses are treated as though they were realized. These contracts also
may be marked-to-market for purposes of determining the excise tax applicable to
investment company distributions and for other purposes under rules prescribed
pursuant to the Internal Revenue Code. An election can be made by the Fund to
exempt those transactions from this marked-to-market treatment.

Certain forward contracts the Fund enters into may result in "straddles" for
federal income tax purposes. The straddle rules may affect the character and
timing of gains (or losses) recognized by the Fund on straddle positions.
Generally, a loss sustained on the disposition of a position making up a
straddle is allowed only to the extent that the loss exceeds any unrecognized
gain in the off-setting positions making up the straddle. A previously
disallowed loss generally is allowed at the point when there is no unrecognized
gain in the off-setting positions making up the straddle or the off-setting
position is disposed of.

Under the Internal Revenue Code, the following gains or losses are treated as
ordinary income or loss: (1) gains or losses attributable to fluctuations in
exchange rates that occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities, and (2) gains or losses attributable to fluctuations in the value
of a foreign currency between the date of acquisition of a debt security
denominated in a foreign currency or foreign currency forward contracts and the
date of disposition.

Currency gains and losses are offset against market gains and losses on each
trade before determining a net "Section 988" gain or loss under the Internal
Revenue Code for that trade, which may increase or decrease the amount of the
Fund's investment income available for distribution to its shareholders.

PORTFOLIO TRANSACTIONS

The Adviser is responsible for the placement of portfolio transactions, subject
to the supervision of the Board of Directors. Following is a summary of the
Adviser's trading policies which are described in Part II of its Form ADV. The
Adviser is a discretionary investment adviser. Accordingly, the Adviser
determines the securities and quantities to be bought and sold for each client's
account.

BEST EXECUTION. The Adviser follows procedures intended to provide reasonable
assurance of best execution. However, there can be no assurance that best
execution will in fact be achieved in any given transaction. Best execution can
only be verified after the fact. The Adviser seeks to place portfolio
transactions with brokers or dealers who will execute transactions as
efficiently as possible and at the most favorable net price. In placing
executions and paying brokerage commissions or dealer markups, the Adviser
considers, among other factors, price, commission, timing, aggregated trades,
capable floor brokers or traders, competent block trading coverage, ability to
position, capital strength and stability, reliable and accurate communication
and settlement processing, use of automation, knowledge of other buyers or
sellers, arbitrage skills, administrative ability, underwriting and provision of
information on the particular security or market in which the transaction is to
occur, research, the range and quality of the services made available to
clients, and the payment of bona fide client expenses. To the extent that
Clients direct brokerage, the Adviser cannot be responsible for achieving best
execution. The applicability of specific criteria will vary depending on the
nature of the transaction, the market in which it is executed and the extent to
which it is possible to select from among multiple broker-dealers.

CROSS TRADES. When the Adviser deems it to be advantageous, one fund may
purchase or sell securities directly from or to another client account which is
managed by the Adviser. This may happen due to a variety of circumstances,
including situations when one fund must purchase securities due to holding
excess cash and, at the same time, a different fund must sell securities in
order to increase its cash position. Cross trades are only executed when deemed
beneficial to both funds. The Adviser has adopted written procedures to ensure
fairness to both funds.

INVESTMENT ALLOCATIONS. The Adviser considers many factors when allocating
securities among clients, including but not limited to the client's investment
style, applicable restrictions, availability of securities, available cash and
other current holdings. The Adviser employs several portfolio managers, each of
whom performs independent research and develops different levels of conviction
concerning potential investments. Clients managed by the portfolio manager
performing the research may receive priority allocations of limited investment
opportunities that are in short supply, including initial public offerings
("IPOs").

Clients are not assured of participating equally or at all in particular
investment allocations. The nature of a client's investment style may exclude it
from participating in many investment opportunities, even if the client is not
strictly precluded from participation based on written investment restrictions.
For example, (i) large cap equity clients are unlikely to participate in initial
public offerings of small-capitalization companies, (ii) the Adviser is likely
to allocate short-term trading opportunities to clients pursuing active trading
strategies rather than clients pursing long-term buy-and-hold strategies, and
(iii) private accounts generally do not participate in purchases of foreign
securities.

The Adviser attempts to allocate limited investment opportunities, including
IPOs, among clients in a manner that is fair and equitable when viewed over a
considerable period of time and involving many allocations. When the Adviser is
limited in the amount of a particular security it can purchase, due to a limited
supply, limited liquidity, or other reason, the Adviser may allocate the limited
investment opportunity to a subset of eligible clients. The Adviser would then
allocate the next limited investment opportunity to a different subset of
eligible clients, rotating among subsets as limited investment opportunities are
identified.

The Adviser serves as investment adviser for a number of clients and may deal
with conflicts of interest when allocating investment opportunities among its
various clients. For example: (i) the Adviser receives different advisory fees
from different clients; (ii) the performance records of some clients are more
public than the performance records of other clients; and (iii) the Adviser and
its affiliates, owners, officers and employees have invested substantial amounts
of their own capital in some client accounts (notably the Davis Funds and
Selected Funds), but do not invest their own capital in every client's account.
The majority of the Adviser's clients pursue specific investment strategies,
many of which are similar. The Adviser expects that, over long periods of time,
most clients pursuing similar investment strategies should experience similar,
but not identical, investment performance. Many factors affect investment
performance, including but not limited to: (i) the timing of cash deposits and
withdrawals to and from an account; (ii) the

fact that the Adviser may not purchase or sell a given security on behalf of all
clients pursuing similar strategies; (iii) price and timing differences when
buying or selling securities; and (iv) the clients' own different investment
restrictions. The Adviser's trading policies are designed to minimize possible
conflicts of interest in trading for its clients.

ORDER PRIORITY. The Adviser's trading desk prioritizes incoming orders of
similar purchases and sales of securities between institutional and managed
accounts/wrap orders. The Adviser's trading desk typically executes orders for
institutional clients, including investment companies, institutional private
accounts, sub-advised accounts and others. Managed account/wrap program sponsors
typically execute orders for managed account/wrap clients. The Adviser's trading
desk attempts to coordinate the timing of orders to prevent the Adviser from
"bidding against itself" on such orders.

PATTERN ACCOUNTS. The Adviser serves as investment adviser for a number of
clients which are patterned after model portfolios or designated mutual funds
managed by the Adviser. For example, a client pursuing Davis Large Cap Value
investment strategy may be patterned after Davis New York Venture Fund. The
client portfolio would be expected to own many, but not all, of the same
portfolio securities as Davis New York Venture Fund. Davis New York Venture Fund
usually owns more securities positions than the Adviser's typical Large Cap
Value client. New portfolio holdings are not usually added to a client account
pursuing a Large Cap Value strategy until the Adviser makes it a significant
holding in Davis New York Venture Fund. The Adviser may not purchase or sell a
given security on behalf of all clients (even clients managed in a similar
style), and it may not execute a purchase of securities or a sale of securities
for all participating clients at the same time.

The Adviser generally attempts to aggregate trades for accounts that are
purchasing or selling the same security at approximately the same time. However,
at times the Adviser executes trades for patterned client accounts after the
trade has been executed for the designated mutual fund or the model portfolio
that the client account is patterned after. Since most of the Adviser's
transactions are in large capitalization exchange-traded equities, the Adviser
believes that this does not usually impact the long-term performance of these
clients.

Orders for accounts which are not patterned after model portfolios or designated
mutual funds are generally executed in the order received by the trading desk,
with the following exceptions: (i) the execution of orders for clients that have
directed that particular brokers be used may be delayed until the orders which
do not direct a particular broker have been filled; (ii) the execution of orders
may be delayed when the client (or responsible portfolio manager) requests such
delay due to market conditions in the security to be purchased or sold; and
(iii) the execution of orders which are to be bunched or aggregated.

AGGREGATED TRADES. The Adviser frequently follows the practice of aggregating
orders of various institutional clients for execution, if the Adviser believes
that this will result in the best net price and most favorable execution. In
some instances, aggregating trades could adversely affect a given client.
However, the Adviser believes that aggregating trades generally benefits clients
because larger orders tend to have lower execution costs, and the Adviser
clients do not compete with one another trading in the market. Directed
brokerage trades in a particular security are typically executed separately
from, and possibly after, the Adviser's other client trades.

In general, all the Adviser clients (excluding clients who are directing
brokerage and managed money/wrap accounts) seeking to purchase or sell a given
security at approximately the same time will be aggregated into a single order.
When that order is filled, all participating clients receive the price at which
the order was executed. If, at a later time, the participating clients wish to
purchase or sell additional shares of the same security, or if additional
clients seek to purchase or sell the same security, then the Adviser will issue
a new order and the clients participating in the new order will receive the
price at which the new order was executed.

In the event that an aggregated order is not entirely filled, the Adviser will
allocate the purchases or sales among participating clients in the manner it
considers to be most equitable and consistent with its fiduciary

obligations to all such clients. Generally, partially-filled orders are
allocated pro rata based on the initial order submitted by each participating
client.

In accordance with the various managed account/wrap programs in which the
Adviser participates, the Adviser typically directs all trading to the
applicable program sponsor unless, in the Adviser's reasonable discretion, doing
so would adversely affect the client. Clients typically pay no commissions on
trades executed through program sponsors. In the event that an order to the
sponsor of a managed account/wrap program is not entirely filled, the Adviser
will allocate the purchases or sales among the clients of that sponsor in the
manner it considers to be most equitable and consistent with its fiduciary
obligations to all such clients. Generally, partially-filled orders are
allocated among the particular sponsor's participating clients on a random basis
that is anticipated to be equitable over time.

TRADING ERROR CORRECTION. In the course of managing client accounts, it is
possible that trading errors will occur from time to time. The Adviser has
adopted Trading Error Correction Policies & Procedures which, when the Adviser
is at fault, seeks to place a client's account in the same position it would
have been had there been no error. The Adviser retains flexibility in attempting
to place a client's account in the same position it would have been had there
been no error. The Adviser attempts to treat all material errors uniformly,
regardless of whether they would result in a profit or loss to the client. For
example, The Adviser may purchase securities from a client account at cost if
they were acquired due to a trading error. If more than one trading error, or a
series of trading errors, is discovered in a client account, then gains and
losses on the erroneous trades may be netted.

RESEARCH PAID FOR WITH COMMISSIONS, "SOFT DOLLARS". The Adviser does not use
client commissions, "soft dollars", to pay for (i) computer hardware or
software, or other electronic communications facilities; (ii) publications, both
paper based or electronic that are available to the general public; and (iii)
third-party research services. If the Adviser determines to purchase such
services, it pays for them using its own resources.

The Adviser's portfolio managers may take into account the research resources,
as well as the execution capacity, of a brokerage firm in selecting brokers.
Thus, transactions may be directed to a brokerage firm which provides: (i)
important information concerning a company; (ii) introductions to key company
officers; (iii) industry and company conferences; and (iv) other value added
research services.

The Adviser follows the concepts of Section 28(e) of the Securities Exchange Act
of 1934. Subject to the criteria of Section 28(e), the Adviser may pay a broker
a brokerage commission in excess of that which another broker might have charged
for effecting the same transactions, in recognition of the value of the
brokerage and research services provided by or through the broker. The Adviser
believes it is important to its investment decision-making to have access to
independent research.

EXCEPTIONS. There are occasions when the Adviser varies the trading procedures
and considerations described above. The Adviser exercises its best judgment in
determining whether clients should execute portfolio transactions simultaneously
with, prior to, or subsequent to the model portfolio or designated mutual fund
that they are patterned after. The factors that the Adviser considers in
exercising its judgment include, but are not limited to, the need for
confidentiality of the purchase or sale, market liquidity of the securities in
issue, the particular events or circumstances that prompt the purchase or sale
of the securities, and operational efficiencies. Even when transactions are
executed on the same day, clients may not receive the same prices as the model
portfolios or designated mutual funds they are patterned after. If the
transactions are not aggregated, such prices may be better or worse.

Portfolio Turnover. Because the Funds' portfolios are managed using the Davis
Investment Discipline, portfolio turnover is expected to be low. The Funds
anticipate that, during normal market conditions, their annual portfolio
turnover rate will be less than 100%. However, depending upon market conditions,
portfolio turnover rate will vary. At times it could be high, which could
require the payment of larger amounts in brokerage commissions and possibly more
taxable distributions.

When the Adviser deems it to be appropriate, a Fund may engage in active and
frequent trading to achieve its investment objectives. Active trading may
include participation in initial public offerings. Active trading may result in
the realization and distribution to shareholders of higher capital gains
compared with a fund with less active trading strategies, which would increase
shareholder tax liability. Frequent trading also increases transaction costs,
which could detract from a Fund's performance.

Portfolio Commissions

The Funds paid the following brokerage commissions:

2005 2004 2003
-------- -------- --------
Davis Value Portfolio
Brokerage commissions paid: $194,476 $200,539 $143,953
Amount paid to brokers
providing research: None None 7%
Amount Paid to Brokers providing
services to the Funds: 4% None None

Davis Financial Portfolio
Brokerage commissions paid: $ 37,729 $ 32,913 $ 28,023
Amount paid to brokers
providing research: None None 8%
Amount Paid to Broker providing
services to the Funds: 4% None None

Davis Real Estate Portfolio
Brokerage commissions paid: $ 33,009 $ 30,882 $ 22,317
Amount paid to brokers
providing research: None None None
Amount Paid to Brokers providing
services to the Funds: 2% 1% None

The Adviser reimbursed Davis Value Portfolio for commissions paid to certain
broker-dealers that received brokerage, which was directed for sale of fund
shares from January 1, 2000 to July 31, 2003. The amount paid to Davis Value
Portfolio was $128.

Investments in Certain Broker-Dealers. As of December 31, 2005, the Funds owned
the following securities (excluding repurchase agreements) issued by any of the
10 broker-dealers with whom they transacted the most business during the fiscal
year ended December 31, 2005:

Fund Broker-dealer $ Value
--------------------- -------------- -----------
Davis Value Portfolio Morgan Stanley $ 4,403,024
Davis Value Portfolio Citigroup Inc. $14,939,135

INVESTMENT RESTRICTIONS

The Funds follow investment strategies developed in accordance with the
investment objective, policies and restrictions described in their prospectuses
and this Statement of Additional Information.

The Funds have adopted the fundamental investment policies set forth below,
which may not be changed without a shareholder vote. Where necessary, an
explanation beneath a fundamental policy describes the

Funds' practices with respect to that policy, as allowed by current law. If the
law governing a policy changes, the Funds' practices may change accordingly
without a shareholder vote.

The fundamental investment restrictions set forth below may not be changed
without the approval of the holders of the lesser of: (i) 67% of the eligible
votes, if the holders of more than 50% of the eligible votes are represented; or
(ii) more than 50% of the eligible votes.

Except for the fundamental investment policies regarding illiquid securities and
borrowing, all percentage restrictions apply as of the time of an investment
without regard to any later fluctuations in the value of portfolio securities or
other assets. All references to the assets of a Fund are in terms of current
market value.

(1) DIVERSIFICATION (DAVIS VALUE PORTFOLIO AND DAVIS FINANCIAL PORTFOLIO). The
Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.

Further Explanation of Diversification Policy. To remain classified as a
diversified investment company under the 1940 Act, the Fund must conform with
the following: With respect to 75% of its total assets, a diversified investment
company may not invest more than 5% of its total assets, determined at market or
other fair value at the time of purchase, in the securities of any one issuer,
or invest in more than 10% of the outstanding voting securities of any one
issuer, determined at the time of purchase. These limitations do not apply to
investments in securities issued or guaranteed by the United States ("U.S.")
government or its agencies or instrumentalities.

DIVERSIFICATION (DAVIS REAL ESTATE PORTFOLIO). The Fund is not required to
diversify its investments.

Further Explanation of Diversification Policy. The Fund intends to remain
classified as a regulated investment company under the Internal Revenue Code.
This requires the Fund to conform to the following: at the end of each quarter
of the taxable year, at least 50% of the value of the Fund's total assets must
be represented by: cash and cash items; U.S. government securities; securities
of other regulated investment companies; and "other securities." For this
purpose, "other securities" does not include investments in the securities of
any one issuer that represent more than 5% of the value of the Fund's total
assets or more than 10% of the issuer's outstanding voting securities.

(2) CONCENTRATION (DAVIS VALUE PORTFOLIO). The Fund may not concentrate its
investments in the securities of issuers primarily engaged in any
particular industry.

Further Explanation of Concentration Policy. The Fund may not invest 25% or more
of its total assets, taken at market value, in the securities of issuers
primarily engaged in any particular industry (other than securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities).

CONCENTRATION (DAVIS FINANCIAL PORTFOLIO). The Fund concentrates its investments
in the financial services industry.

Further Explanation of Concentration Policy. Financial services is a "sector"
composed of a number of "industries", examples of which are included in the
following paragraph. The concentration policy requires the Fund to invest at
least 25% of its assets in securities principally engaged in the financial
services group of industries which together makeup the financial services
sector. Due to the non-fundamental Name Policy, under normal circumstances the
Fund invests at least 80% of its net assets, plus any borrowing for investment
purposes, in securities issued by companies principally engaged in the financial
services sector.

A company is "principally engaged" in financial services if it owns financial
services related assets constituting at least 50% of the total value of the
company's assets, or if at least 50% of the company's revenues are derived from
its provision of financial services. The financial services sector consists of
several different industries that behave differently in different economic and
market environments; for example, banking, insurance and securities brokerage
houses. Companies in the financial services sector

include commercial banks, industrial banks, savings institutions, finance
companies, diversified financial services companies, investment banking firms,
securities brokerage houses, investment advisory companies, leasing companies,
insurance companies and companies providing similar services. The Fund may not
invest 25% or more of its total assets, taken at market value, in the securities
of issuers primarily engaged in any particular industry (other than issuers in
the financial services sector or securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities).

CONCENTRATION (DAVIS REAL ESTATE PORTFOLIO). The Fund concentrates its
investments in real estate securities.

Further Explanation of Concentration Policy. Real estate is a "sector" composed
of a number of "industries", examples of which are included in the following
paragraph. The concentration policy requires the Fund to invest at least 25% of
its assets in securities principally engaged in the real estate group of
industries which together makeup the real estate sector. Due to the
non-fundamental Name Policy, under normal circumstances the Fund invests at
least 80% of its net assets plus any borrowing for investment purposes in
securities issued by companies principally engaged in the real estate industry.

Real estate securities are issued by companies that have at least 50% of the
value of their assets, gross income, or net profits attributable to ownership,
financing, construction, management or sale of real estate, or to products or
services that are related to real estate or the real estate industry. Real
estate companies include real estate investment trusts or other securitized real
estate investments, brokers, developers, lenders and companies with substantial
real estate holdings such as paper, lumber, hotel and entertainment companies.

The Fund may not invest 25% or more of its total assets, taken at market value,
in the securities of issuers primarily engaged in any particular industry (other
than real estate securities or securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities).

Industry Classification for Concentration Policy. (Davis Value Portfolio, Davis
Financial Portfolio and Davis Real Estate Portfolio) The Funds generally use BLP
Equity Economic Sectors ("BLP Code") as published by Bloomberg L.P. to determine
industry classification. The Adviser may reclassify a company if it believes
that the BLP Code on a specific company does not accurately describe the
company.

(3) ISSUING SENIOR SECURITIES. The Fund may not issue senior securities, except
as permitted under applicable law, including the 1940 Act and published SEC
staff positions.

Further Explanation of Issuing Senior Securities. The Fund may not issue senior
securities, except as provided by the 1940 Act and any rules, regulations,
orders or letters issued thereunder. This limitation does not apply to selling
short against the box. The 1940 Act defines a "Senior Security" as any bond,
debenture, note or similar obligation constituting a security and evidencing
indebtedness.

(4) BORROWING. The Fund may not borrow money, except to the extent permitted by
applicable law; including the 1940 Act and published SEC staff positions.

Further Explanation of Borrowing Policy. The Fund may borrow from banks provided
that, immediately thereafter the Fund has 300% asset coverage for all
borrowings. The Fund may purchase additional securities so long as borrowings do
not exceed 5% of its total assets. The Fund may obtain such short-term credit as
may be necessary for the clearance of purchases and sales of portfolio
securities. In the event that market fluctuations cause borrowing to exceed the
limits stated above, the Adviser would act to remedy the situation as promptly
as possible (normally within three business days), although it is not required
to dispose of portfolio holdings immediately if the Fund would suffer losses as
a result.

(5) UNDERWRITING. The Fund may not underwrite securities of other issuers
except to the extent permitted by applicable law, including the 1940 Act
and published SEC staff positions.

Further Explanation of Underwriting Policy. The Fund may not underwrite
securities of other issuers, except insofar as the Fund may be deemed to be an
underwriter in connection with the disposition of its portfolio securities.

(6) INVESTMENTS IN COMMODITIES AND REAL ESTATE. The Fund may not purchase or
sell commodities or real estate, except to the extent permitted by
applicable law, including the 1940 Act and published SEC staff positions.

Further Explanation of Policy Restricting Investments in Commodities and Real
Estate. The Fund may purchase or sell financial futures contracts, options on
financial futures contracts, currency contracts and options on currency
contracts as described in its prospectus and Statement of Additional
Information. The Fund may not purchase or sell real estate, except that the Fund
may invest in securities that are directly or indirectly secured by real estate
or issued by issuers that invest in real estate.

(7) MAKING LOANS. The Fund may not make loans to other persons, except as
allowed by applicable law; including the 1940 Act and published SEC staff
positions.

Further Explanation of Lending Policy. The acquisition of investment securities
or other investment instruments, entering into repurchase agreements, leaving
cash on deposit with the Fund's custodian, and similar actions are not deemed to
be the making of a loan.

To generate income and offset expenses, the Fund may lend portfolio securities
to broker-dealers and other financial institutions that the Adviser believes to
be creditworthy in an amount up to 33 1/3% of its total assets, taken at market
value. While securities are on loan, the borrower will pay the Fund any income
accruing on the security. The Fund may invest any collateral it receives in
additional portfolio securities, such as U.S. Treasury notes, certificates of
deposit, other high-grade, short-term obligations or interest-bearing cash
equivalents. The Fund is still subject to gains or losses due to changes in the
market value of securities that it has lent.

When the Fund lends its securities, it will require the borrower to give the
Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.

NON-FUNDAMENTAL RESTRICTIONS

In addition to the foregoing restrictions, the Funds each have adopted the
following non-fundamental policies that may be changed without shareholder
approval:

1. Illiquid Securities. The Fund may not purchase illiquid securities if more
than 15% of the value of the Fund's net assets would be invested in such
securities.

2. High-Yield, High-Risk Securities. The Fund will not purchase debt
securities rated BB or Ba or lower if the securities are in default at the
time of purchase or if such purchase would then cause more than 35% of the
Fund's net assets to be invested in such lower-rated securities.

3. Options. The Fund will not purchase an option if the purchase would cause
the total premiums (at market) of all options then owned to exceed 5% of
the Fund's total assets. The Fund will not sell covered calls if the
transaction would cause the total premiums (at market) of all covered calls
then written to exceed 25% of the Fund's total assets. For additional
information concerning option strategies and their risks, see the section
entitled "Derivatives."

4. Futures Contracts. The Fund will not engage in a futures transaction if the
transaction would cause the nominal value of futures contracts then
purchased or sold to exceed 25% of the Fund's total assets.

5. Borrowing. The Fund will not borrow in excess of 35% of net assets. The
Board of Directors will be notified in the event borrowings exceed 10% of
the Fund's total assets.

6. Short Selling. The Fund will not sell any security short if it would cause
more than 5% of its total assets, taken at market value, to be sold short.
This limitation does not apply to selling short against the box.

7. Investing For Control. The Fund does not invest for the purpose of
exercising control or management of other companies.

Name Policy (all Funds except Davis Value Portfolio). Under normal circumstances
Davis Financial Portfolio invests at least 80% of its net assets plus any
borrowing for investment purposes in securities issued by companies principally
engaged in the financial services industry.

Under normal circumstances Davis Real Estate Portfolio invests at least 80% of
its net assets plus any borrowing for investment purposes in securities issued
by companies principally engaged in the real estate industry.

Davis Financial Portfolio and Davis Real Estate Portfolio will comply with the
Name Policy as of the time an investment is made. In the event that market
fluctuations or shareholder actions cause a Fund's investments to fall below the
Name Policy limits, that Fund would act to remedy the situation as promptly as
possible, normally within three business days. Neither Fund will be required to
dispose of portfolio holdings or purchase additional investments immediately if
the Adviser believes such action would subject that Fund to losses or
unreasonable risks of loss.

Davis Financial Portfolio and Davis Real Estate Portfolio comply with the Name
Policy under normal circumstances. However, either Fund may depart from the Name
Policy from time to time. For example, either Fund may depart from the Name
Policy in response to unusually large cash inflows or redemptions, or to avoid
losses in response to adverse market, economic, political, or other conditions.

Davis Financial Portfolio and Davis Real Estate Portfolio will provide their
respective shareholders with at least 60 days' prior notice before changing
their Name Policies such that they would invest, under normal circumstances,
less than 80% of their net assets plus any borrowing for investment purposes in
financial or real estate companies, respectively.

State-Imposed-Investment Limitations. In order to enable California investors to
allocate variable annuity or variable life insurance contract values to one or
more of the Funds, the Funds have committed to comply with the following
guidelines: (i) the borrowing limits for any Fund are (a) 10% of net asset value
when borrowing for any general purpose, and (b) 25% of net asset value when
borrowing as a temporary measure to facilitate redemptions (for purposes of this
clause, the net asset value of a Fund is the market value of all investments or
assets owned less outstanding liabilities of the Fund at the time that any new
or additional borrowing is undertaken); and (ii) if a Fund invests in foreign
companies, the foreign country diversification guidelines to be followed by the
Fund are as follows:

(a) The Fund will be invested in a minimum of five different foreign
countries at all times. However, this minimum is reduced to four when
foreign country investments comprise less than 80% of the Fund's net
asset value, to three when less than 60% of such value, to two when
less than 40% and to one when less than 20%.

(b) Except as set forth in items (c) and (d) below, the Fund will have no
more than 20% of its net asset value invested in securities of issuers
located in any one country.

(c) The Fund may have an additional 15% of its net asset value invested in
securities of issuers located in any one of the following countries:
Australia, Canada, France, Japan, the United Kingdom or Germany.

(d) The Fund's investments in United States issuers are not subject to the
foreign country diversification guidelines.

State insurance laws and regulations may impose additional limitations on
lending securities and the use of options, futures and other derivative
instruments.

SECTION II: KEY PERSONS

This Statement of Additional Information should be read in conjunction with the
prospectus. This Statement of Additional Information supplements the information
available in the prospectus.

ORGANIZATION OF THE FUNDS

DAVIS VARIABLE ACCOUNT FUND, INC. Davis Variable Account Fund, Inc. is an
open-end, diversified management investment company incorporated in Maryland in
1999 and registered under the 1940 Act. Davis Variable Account Fund, Inc. is a
series investment company that may issue multiple series, each of which would
represent an interest in its separate portfolio. Davis Variable Account Fund,
Inc. currently offers three series: Davis Value Portfolio, Davis Financial
Portfolio and Davis Real Estate Portfolio (a "Fund" or the "Funds").

SOLD EXCLUSIVELY TO INSURANCE COMPANIES, POTENTIAL CONFLICTS. Davis Variable
Account Fund Inc.'s shares are not offered directly to the public, but are sold
exclusively to insurance companies ("Participating Insurance Companies") as a
pooled funding vehicle for variable annuity and variable life insurance
contracts issued by separate accounts of Participating Insurance Companies.
Differences in tax treatment or other considerations may cause the interests of
various shareholders investing through the Participating Insurance Companies
participating in the Funds to conflict with one another. The Board will monitor
the Funds for any material conflicts and determine what action, if any, should
be taken.

FUND SHARES. While they have not done so at this time, the Funds may issue
shares in different classes. The Board of Directors may offer additional classes
in the future and may at any time discontinue the offering of any class of
shares. Each share, when issued and paid for in accordance with the terms of the
offering, is fully paid and non-assessable. Shares have no preemptive or
subscription rights. Each of the Funds' shares represents an interest in the
assets of the Fund issuing the share and has identical voting, dividend,
liquidation and other rights and the same terms and conditions as any other
shares except that: (i) each dollar of net asset value per share is entitled to
one vote; (ii) the expenses related to a particular class, such as those related
to the distribution of each class and the transfer agency expenses of each class
are borne solely by each such class; (iii) each class of shares votes separately
with respect to provisions of the Rule 12b-1 Distribution Plan that pertain to a
particular class; and (iv) other matters for which separate class voting is
appropriate under applicable law. Each fractional share has the same rights, in
proportion, as a full share. Shares do not have cumulative voting rights;
therefore, the holders of more than 50% of the voting power of Davis Variable
Account Fund, Inc. can elect all of the directors of Davis Variable Account
Fund, Inc. For some issues, such as the election of directors, all of Davis
Variable Account Fund, Inc.'s authorized series vote together. For other issues,
such as approval of the advisory agreement, each authorized series votes
separately.

Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
under the provisions of the 1940 Act or applicable state law or otherwise to the
shareholders of the outstanding voting securities of an investment company, such
as Davis Variable Account Fund, Inc., will not be deemed to have been
effectively acted on unless approved by the holders of a majority of the
outstanding shares of each series affected by such matter. Rule 18f-2 further
provides that a series shall be deemed to be affected by a matter unless it is
clear that the interests of each series in the matter are identical or that the
matter does not affect any interest of such series. Rule 18f-2 exempts the
selection of independent accountants and the election of Board members from the
separate voting requirements of the Rule.

In accordance with Maryland law and Davis Variable Account Fund, Inc.'s bylaws,
Davis Variable Account Fund does not hold regular annual shareholder meetings.
Shareholder meetings are held when they are required under the 1940 Act or when
otherwise called for special purposes. Special shareholder meetings may be
called on the written request of shareholders of at least 25% of the voting
power that could be cast at the meeting. Davis Variable Account Fund, Inc. will
provide assistance in calling and holding such special meeting to the extent
required by Maryland statutes or SEC rules and regulations then in effect.

DIRECTORS AND OFFICERS

Each of the directors and officers holds identical offices with each of the
Davis Funds (three registrants, a total of 12 separate series): Davis New York
Venture Fund, Inc., Davis Series, Inc., and Davis Variable Account Fund, Inc. As
indicated below, certain directors and officers also may hold similar positions
with Selected American Shares, Inc., Selected Special Shares, Inc., and Selected
Capital Preservation Trust (collectively the "Selected Funds"), mutual funds
that are managed by the Adviser.

The Board of Directors supervises the business and management of the Davis
Funds. The Board approves all significant agreements between the Davis Funds and
those companies that furnish services to the Davis Funds. The names and
addresses of the directors and officers are set forth below, together with their
principal business affiliations and occupations for the last five years.

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.

TERM OF NO. OF PORTFOLIOS
POSITION(S) OFFICE AND IN FUND COMPLEX
NAME HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN
(birth date) FUNDS TIME SERVED DURING PAST FIVE YEARS BY DIRECTOR
---------------------- ----------- ----------- -------------------------- -----------------

INDEPENDENT DIRECTORS:

MARC P. BLUM Director Since 1986 Chief Executive Officer, 12
(9/9/42) World Total Return Fund,
LLLP; Of Counsel to
Gordon, Feinblatt,
Rothman, Hoffberger and
Hollander, LLC (law firm).

OTHER DIRECTORSHIP CURRENTLY SERVING: Director, Legg Mason Trust (asset
management company) and Rodney Trust Company (Delaware).

THOMAS GAYNER Director Since 2004 Executive Vice President 12
(12/16/61) and Chief Investment
Officer, Markel
Corporation (Markel
Corporation Markets and
underwrites specialty
insurance products).

OTHER DIRECTORSHIPS CURRENTLY SERVING: First Market Bank.

JERRY D. GEIST Director Since 1986 Chairman, Santa Fe Center 12
(5/23/34) Enterprises (energy project
development); retired
Chairman and President,
Public Service Company of
New Mexico.

OTHER DIRECTORSHIPS CURRENTLY SERVING: Director, CH2M Hill, Inc. (engineering);
Chairman, Santa Fe Center Enterprises, Member, Investment Committee for
Microgeneration Technology Fund, UTECH Funds.

D. JAMES GUZY Director Since 1982 Chairman, PLX Technology, 12
(3/7/36) Inc. (semi-conductor
manufacturer).

OTHER DIRECTORSHIPS CURRENTLY SERVING: Director, Intel Corp. (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 HAMILTON Director Since 1978 Retired from 1990-2005, 12
(3/18/37) Managing General Partner,
Avanti Partners, L.P.
(investment partnership).

OTHER DIRECTORSHIP CURRENTLY SERVING: None

SAMUEL H. IAPALUCCI Director Since 2006 Executive Vice President 12
(07/19/52) and Chief Financial
Officer, CH2M-Hill, Ltd.,
(engineering).

OTHER DIRECTORSHIP CURRENTLY SERVING: None

ROBERT P. MORGENTHAU Director Since 2002 Chairman, NorthRoad 12
(3/22/57) Capital Management, LLC (an
investment management firm)
since June 2002; President
of Private Advisory
Services of Bank of America
(an investment management
firm) from 2001 until 2002;
prior to that a managing
director and global head of
marketing and distribution
for Lazard Asset Management
(an investment management
firm) for ten years.

OTHER DIRECTORSHIPS CURRENTLY SERVING: None

THEODORE B. SMITH, JR. Director Since 1994 Chairman of John Hassall, 12
(12/23/32) Inc. (fastener
manufacturing); Chairman of
Cantrock Realty; Mayor,
Incorporated Village of
Mill Neck, NY.

OTHER DIRECTORSHIPS CURRENTLY SERVING: None.

CHRISTIAN R. SONNE Director Since 1990 General Partner of Tuxedo 12
(5/6/36) Park Associates (land
holding and development
firm); President and Chief
Executive Officer of
Mulford Securities
Corporation (private
investment fund) until
1990; formerly Vice
President of Goldman
Sachs & Co. (investment
banking); Chairman of
Board of Trustees,
American Scandinavian
Foundation.

OTHER DIRECTORSHIPS CURRENTLY SERVING: None

MARSHA WILLIAMS Director Since 1999 Chief Financial Officer of 15
(3/28/51) Equity Office Properties
Trust (a real estate
investment trust); former
Chief Administrative
Officer of Crate & Barrel
(home furnishings
retailer); former Vice
President and Treasurer,
Amoco Corporation (oil &
gas company).

OTHER DIRECTORSHIPS CURRENTLY SERVING: Director of the Selected Funds
(consisting of 3 portfolios); Director, Modine Manufacturing, Inc. (heat
transfer technology); Chicago Bridge & Iron Company, N.V. (industrial
construction and engineering).

INSIDE DIRECTORS*:

JEREMY H. BIGGS Director/ Since 1994 Vice Chairman of Fiduciary 12
(8/16/35) Chairman Trust Company International
(money management firm);
member of the Investment
Policy Committee, and
member of the International
Investment Committee;
Consultant to Davis
Selected Advisers, L.P.

OTHER DIRECTORSHIPS CURRENTLY SERVING: None

ANDREW A. DAVIS Director Since 1997; President or Vice President 15
(6/25/63) Davis Funds of each Davis Fund and
officer Selected Fund; President,
since 1997 Davis Selected Advisers,
L.P., and also serves as an
executive officer in
certain companies
affiliated with the
Adviser.

OTHER DIRECTORSHIPS CURRENTLY SERVING: Director of the Selected Funds
(consisting of 3 portfolios) since 1998.

CHRISTOPHER C. DAVIS Director Since 1997; Chief Executive Officer, 15
(7/13/65) Davis Funds President or Vice President
officer of each Davis Fund,
since 1997 Selected Fund, and Clipper
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).

OTHER DIRECTORSHIPS CURRENTLY SERVING: Director of the Selected Funds
(consisting of 3 portfolios) since 1998; Director of the Washington Post (media
and publishing).

o 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.

INDEPENDENT DIRECTORS' COMPENSATION

During the fiscal year ended December 31, 2005, the compensation paid to the
directors who are not considered to be interested persons of the Fund was as
follows:

DAVIS DAVIS DAVIS TOTAL
VALUE FINANCIAL REAL ESTATE DAVIS VARIABLE TOTAL COMPLEX
NAME PORTFOLIO PORTFOLIO PORTFOLIO ACCOUNT FUNDS, INC. COMPENSATION
--------------------- --------- --------- ----------- ------------------- -------------

Wesley Bass $8,517 $1,479 $804 $10,800 $ 79,000
Marc Blum $8,517 $1,479 $804 $10,800 $ 79,000
Thomas Gayner $8,517 $1,479 $804 $10,800 $ 79,000
Jerry Geist $8,517 $1,479 $804 $10,800 $ 79,000
D.James Guzy $8,517 $1,479 $804 $10,800 $ 79,000
G. Bernard Hamilton $8,517 $1,479 $804 $10,800 $ 79,000
Samuel Iapalucci** N/A N/A N/A N/A N/A
Robert Morgenthau $8,517 $1,479 $804 $10,800 $ 79,000
Theodore Smith, Jr. $8,517 $1,479 $804 $10,800 $ 79,000
Christian Sonne $8,517 $1,479 $804 $10,800 $ 79,000
Marsha Williams $8,927 $1,550 $843 $11,320 $125,488

* "Total complex compensation" is the aggregate compensation paid for service as
a director by all mutual funds with the same investment adviser. There are eight
registered investment companies in the complex.

**Mr. Iapalucci became a Director in January 2006.

OFFICERS

All Davis Funds officers (including some Inside Directors) hold positions as
executive officers with the Adviser and its affiliates, including Davis Selected
Advisers, L.P. (Adviser), Davis Selected Advisers - NY, Inc. (sub-adviser),
Davis Distributors, LLC (the principal underwriter), Davis Investments, LLC (the
sole general partner of the Adviser), and other affiliated companies. The Davis
Funds do not pay salaries to any of their officers. Each of the Davis Funds'
officers serves for one year and until his or her successor is chosen and
qualifies.

CHRISTOPHER C. DAVIS (BORN 7/13/65, DAVIS FUNDS OFFICER SINCE 1997). See
description in the section on Inside Directors.

ANDREW A. DAVIS (BORN 6/25/63, DAVIS FUNDS OFFICER SINCE 1997). See description
in the section on Inside Directors.

KENNETH C. EICH (BORN 8/14/53, DAVIS FUNDS OFFICER SINCE 1997). Executive Vice
President and Principal Executive Officer of each of the Davis Funds (consisting
of 12 portfolios), Selected Funds (consisting of three portfolios), and Clipper
Funds Inc. (consisting of one portfolio); Chief Operating Officer, Davis
Selected Advisers, L.P.; and also serves as an executive officer in certain
companies affiliated with the Adviser. Mr. Eich serves on the board of governors
of the Investment Company Institute and on the board of directors of ICI Mutual.

DOUGLAS A. HAINES, CPA, (BORN 3/4/71, DAVIS FUNDS OFFICER SINCE 2004). Vice
President, Treasurer, Chief Financial Officer, Principal Financial Officer, and
Principal Accounting Officer of each of the Davis Funds (consisting of 12
portfolios), Selected Funds (consisting of three portfolios), and Clipper Funds
Inc.

(consisting of one portfolio); Vice president and Director of Fund Accounting,
Davis Selected Advisers, L.P.

SHARRA L. REED (BORN 9/25/66, DAVIS FUNDS OFFICER SINCE 1997). Vice President,
Chief Compliance Officer of each of the Davis Funds (consisting of 12
portfolios), Selected Funds (consisting of three portfolios), and Clipper Funds
Inc. (consisting of one portfolio); Vice President and Chief Compliance Officer,
Davis Selected Advisers, L.P.; and also serves as an executive officer in
certain companies affiliated with the Adviser.

THOMAS D. TAYS, CPA, CFA, (BORN 3/7/57, DAVIS FUNDS OFFICER SINCE 1997). Vice
President and Secretary of each of the Davis Funds (consisting of 12
portfolios), Selected Funds (consisting of three portfolios), and Clipper Funds
Inc. (consisting of one portfolio); Vice President, Chief Legal Officer and
Secretary, Davis Selected Advisers, L.P.; and also serves as an executive
officer in certain companies affiliated with the Adviser.

ARTHUR DON (BORN 9/24/53, DAVIS FUNDS OFFICER SINCE 1991). Assistant Secretary
(for clerical purposes only) of each of the Davis Funds and Selected Funds;
Partner, Seyfarth Shaw, LLP (a law firm); counsel to the Independent Directors
and the Davis Funds.

STANDING COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE. The Davis Funds have an Audit Committee, which is comprised
entirely of Independent Directors (Marsha Williams, Chair; Samuel H. Iapalucci;
Robert Morgenthau; and Christian R. Sonne). The Audit Committee reviews
financial statements and other audit-related matters for the Davis Funds. The
Audit Committee also holds discussions with management and with the Independent
Accountants concerning the scope of the audit and the auditor's independence.
The Audit Committee meets as often as deemed appropriate by the Audit Committee.
The Audit Committee met four times during calendar year 2005.

The Board of Directors has determined that Marsha Williams is an independent
Audit Committee Financial Expert pursuant to Section 407 of the Sarbanes-Oxley
Act and as defined by Item 3 of Form N-CSR of the Investment Company Act of
1940. In their deliberations the Board of Directors considered Ms. Williams' (i)
professional experience; (ii) independence as defined in Item 3 of Form N-CSR;
and (iii) integrity and absence of disciplinary history.

NOMINATING COMMITTEE. The Davis Funds have a Nominating Committee, which is
comprised entirely of Independent Directors (Jerry D. Geist, Chair; Marc P.
Blum; G. Bernard Hamilton; Theodore B. Smith Jr., and Christian R. Sonne), which
meets as often as deemed appropriate by the Nominating Committee. The Funds do
not elect Directors annually. Each director serves until his or her retirement,
resignation, death or removal. Subject to exceptions and exemptions which may be
granted by the Independent Directors, effective January 1, 2006, Directors must
retire at the close of business on the last day of the calendar year in which
the Director attains age seventy-four (74). The Nominating Committee met four
times during calendar year 2005. The Nominating Committee reviews and nominates
persons to serve as members of the Board of Directors, and reviews and makes
recommendations concerning the compensation of the Independent Directors. The
chairperson of the Nominating Committee also serves as the Lead Independent
Director. The Nominating Committee does not have a charter. When the board of
directors is seeking a candidate to become a Director, qualified candidates will
be men or women of proven character and talent who have achieved notable success
in their professional careers. The specific talents which the Nominating
Committee seeks in a candidate, depends upon the board of directors' needs at
the time a vacancy occurs. When the board of directors is seeking a candidate to
become a director, it considers qualified candidates received from a variety of
sources, including having authority to retain third parties that may receive
compensation related to identifying and evaluating candidates. Shareholders may
propose nominees by writing to the Nominating Committee, in care of the
Secretary of the Davis Funds, at 2949 East Elvira, Suite 101, Tucson, Arizona
85706.

BROKERAGE COMMITTEE. The Davis Funds have a Brokerage Committee, which is
comprised entirely of Independent Directors (D. James Guzy, Chair; Thomas S.
Gayner; and G. Bernard Hamilton), which meets as often as deemed appropriate by
the Brokerage Committee. The Brokerage Committee met once during calendar year
2005. The Brokerage Committee reviews and makes recommendations concerning Davis
Funds portfolio brokerage and trading practices.

PRICING COMMITTEE. The Davis Funds have a Pricing Committee (Marc P. Blum,
Chair, Independent Director, Kenneth C. Eich, an officer of the Fund, and
Douglas A. Haines, an officer of the Fund) that meets as often as deemed
appropriate by the Pricing Committee. The Pricing Committee met more than 50
times during calendar year 2005. The Pricing Committee reviews and makes
recommendations concerning pricing of the Fund's portfolio securities.

DIRECTORS' FUND HOLDINGS

Davis Value Portfolio, Davis Financial Portfolio and Davis Real Estate Portfolio
are sold exclusively to insurance company separate accounts for variable annuity
and variable life insurance contracts, therefore the directors may not invest
directly in the Funds. As of December 31, 2005, the Directors had invested the
following amounts in all Funds managed by the Adviser. Investments are listed in
the following ranges: none, $1-10,000, $10,001-50,000, $50,001-100,000 and over
$100,000:

DAVIS VALUE PORTFOLIO
DAVIS FINANCIAL PORTFOLIO TOTAL INVESTED
NAME DAVIS REAL ESTATE PORTFOLIO IN ALL FUNDS(2)
-------------------------------------- --------------------------- ---------------

INDEPENDENT DIRECTORS:
Wesley E. Bass None 50,001-100,000
Marc P. Blum None over $100,000
Thomas Gayner None over $100,000
Jerry D. Geist None over $100,000
D. James Guzy None over $100,000
G. Bernard Hamilton None over $100,000
Samuel H. Iapalucci (3) None $10,001-50,000
Robert P. Morgenthau None over $100,000
Theodore B. Smith, Jr. None over $100,000
Christian R. Sonne None over $100,000
Marsha Williams None over $100,000
INSIDE DIRECTORS: (1)
Jeremy H. Biggs None over $100,000
Andrew A. Davis None over $100,000
Christopher C. Davis None over $100,000

(1) Andrew A. Davis and Christopher C. Davis are employed by and own shares in
the Adviser. Jeremy Biggs owns shares of the Adviser. All three are
considered to be "interested persons" of the Funds as defined in the
Investment Company Act of 1940.

(2) Total Invested in All Funds is the aggregate dollar range of investments in
all Funds overseen by the individual director and managed by Davis Selected
Advisers, L.P. This includes the Davis Funds for all directors and also the
Selected Funds for Andrew Davis, Christopher Davis and Marsha Williams.

(3) Mr. Iapalucci became a director on January 1, 2006.

INDEPENDENT DIRECTORS' AFFILIATIONS AND TRANSACTIONS

None of the Independent Directors (or their immediate family members) owns any
securities issued by the Davis Funds' investment adviser, sub-adviser, principal
underwriter or any company (other than a registered investment company) directly
or indirectly controlling, controlled by or under common control with the above
listed companies (hereafter referred to as the "Adviser and its affiliates").
Jeremy H. Biggs, Andrew A. Davis and Christopher C. Davis own partnership units
(directly, indirectly or both) in the Adviser and are considered Inside
Directors.

In October 2004, Christopher Davis, an officer and controlling person of the
Adviser and an officer and director of each of the Davis Funds, sold a
residential house to Robert Morgenthau, an Independent Director, for
approximately $375,000, which represented fair market value as determined by
Bunce Realty, a licensed real estate agent employing generally accepted methods
of real estate appraisal. Christopher Davis had owned the house for more than
two years prior to the date of sale. As part of the same transaction,
Christopher Davis sold the furnishings of the house to Robert Morgenthau for
approximately $75,000, which was equivalent to fair market value as determined
by invoices for the furniture.

Other than as described above, none of the Independent Directors (or their
immediate family members) have had any direct or indirect interest, the value of
which exceeds $60,000, during the last two calendar years in the Adviser and its
affiliates.

None of the Independent Directors (or their immediate family members) have had
any material interest in any transaction, or series of transactions, during the
last two years, in which the amount involved exceeds $60,000 and to which any of
the following persons was a party: any Davis Fund, an officer of the Davis
Funds, or any fund managed by the Adviser or the Adviser and its affiliates.

None of the Independent Directors (or their immediate family members) have had
any direct or indirect relationships during the last two years, in which the
amount involved exceeds $60,000 and to which any of the following persons was a
party: any Davis Fund, an officer of the Davis Funds, or any fund managed by the
Adviser, or the Adviser and its affiliates.

None of the officers of the Adviser and its affiliates have served during the
last two years on the board of directors of a company where an Independent
Director (or their immediate family members) served as an officer.

CERTAIN SHAREHOLDERS OF THE FUND

As of March 31, 2006, officers and directors owned less than 1% of the
outstanding shares of each of the Funds.

The following table sets forth as of March 31, 2006, the name and holdings of
each person known by Davis Variable Account Fund, Inc. to be a record owner of
more than 5% of the outstanding shares of any the Funds. Other than as indicated
below, the Funds are not aware of any shareholder that beneficially owns more
than 25% of the Funds' total outstanding shares.

NAME AND ADDRESS OF SHAREHOLDER(S) OWNING
MORE THAN 5% OF PERCENT OF CLASS
PORTFOLIO DAVIS VARIABLE ACCOUNT FUND, INC. OUTSTANDING
--------------------------- ----------------------------------------- ----------------

DAVIS VALUE PORTFOLIO Merrill Lynch Life Insurance Co.
Jacksonville, FL 36.03%

Allianz Life Insurance Company of North
America Minneapolis, MN 29.85%

Pruco Life Insurance Company of Arizona
Newark, NJ 10.50%

Guardian Ins & Annuity Co. Inc.
Guardian Separate A/C E
Bethlehem, PA 7.40%

DAVIS FINANCIAL PORTFOLIO Allianz Life Insurance Company of North
America Minneapolis, MN 84.65%

Guardian Ins & Annuity Co. Inc.
Guardian Separate A/C E
Bethlehem, PA 9.78%

DAVIS REAL ESTATE PORTFOLIO Guardian Ins & Annuity Co. Inc.
Guardian Separate A/C E
Bethlehem, PA 51.85%

Guardian Ins & Annuity Co. Inc.
Guardian Separate A/C D
Bethlehem, PA 27.60%

Guardian Ins & Annuity Co. Inc.
Guardian Separate A/C A
Bethlehem, PA 10.15%

INVESTMENT ADVISORY SERVICES

DAVIS SELECTED ADVISERS, L.P. AND DAVIS SELECTED ADVISERS-NY, INC. Davis
Selected Advisers, L.P. (the "Adviser"), whose principal office is at 2949 East
Elvira Road, Suite 101, Tucson, Arizona 85706, serves as investment adviser for
Davis New York Venture Fund, Inc., Davis Series, Inc., Davis Variable Account
Fund, Inc. (collectively the "Davis Funds"), Selected American Shares, Inc.,
Selected Special Shares, Inc., and Selected Capital Preservation Trust
(collectively the "Selected Funds"). The Adviser also provides advisory or
sub-advisory services to other parties including other registered investment
companies, private accounts, offshore funds, and managed money/wrap accounts.
Davis Investments, LLC, an entity controlled by Christopher C. Davis is the
Adviser's sole general partner. Christopher C. Davis is Chief Executive Officer
of the Adviser and, as the sole member of the general partner, controls the
Adviser. Davis Distributors, LLC (the "Distributor"), a subsidiary of the
Adviser, serves as the distributor or principal underwriter of the funds that
the Adviser administers, including Davis Funds, Selected Funds, and offshore
funds. Davis Selected Advisers - NY, Inc., ("Sub-Adviser") a wholly owned
subsidiary of the Adviser, performs investment management, research and other
services for the Davis Funds on behalf of the Adviser under sub-advisory
agreements with the Adviser.

ADVISORY AGREEMENT WITH DAVIS SELECTED ADVISERS, L.P. AND SUB-ADVISORY AGREEMENT
WITH DAVIS SELECTED ADVISERS-NY, INC. Each Fund pays the Adviser an advisory fee
at fixed annual rate based on average net assets, equal to 0.75%. These fees may
be higher than those of most other mutual funds but are not necessarily higher
than those paid by funds with similar objectives. The Funds paid the following
aggregate advisory fees to the Adviser:

FOR FISCAL YEAR ENDED DECEMBER 31,
------------------------------------
2005 2004 2003
---------- ---------- ----------
DAVIS VALUE PORTFOLIO $4,893,824 $4,578,270 $2,684,022
DAVIS FINANCIAL PORTFOLIO $ 839,332 $ 676,192 $ 349,711
DAVIS REAL ESTATE PORTFOLIO $ 457,652 $ 331,425 $ 189,005

The Adviser is contractually committed to waive fees and/or reimburse the Funds'
expenses to the extent necessary to cap total annual fund operating expenses at
1% until May 1, 2007; after that date, there is no assurance that expenses will
be capped. What the Funds' expense ratios would have been without the expense
cap are discussed in the Financial Highlights table.

In accordance with the provisions of the 1940 Act, the Advisory Agreement and
Sub-Advisory Agreement will terminate automatically on assignment and are
subject to cancellation on 60 days' written notice by the Board of Directors,
the vote of the holders of a majority of the Funds' outstanding shares or the
Adviser. The continuance of the Advisory Agreement and Sub-Advisory Agreement
must be approved at least annually by the Funds' Board of Directors or by the
vote of holders of a majority of the outstanding shares of the Funds. In
addition, any new agreement, or the continuation of the existing agreement, must
be approved by a majority of Directors who are not parties to the agreements or
interested persons of any such party. The Advisory Agreement also makes
provisions for portfolio transactions and brokerage policies of the Fund, which
are discussed above under "Portfolio Transactions."

The Adviser has entered into a Sub-Advisory Agreement with its wholly owned
subsidiary, Davis Selected Advisers - NY, Inc., where the Sub-Adviser performs
research and other services on behalf of the Adviser. Under the Agreement, the
Adviser pays all of the Sub-Adviser's direct and indirect costs of operation.
All of the fees paid to the Sub-Adviser are paid by the Adviser and not the
Funds.

Pursuant to the Advisory Agreement, the Adviser, subject to the general
supervision of the Funds' Board of Directors, provides management and investment
advice and furnishes statistical, executive and clerical personnel, bookkeeping,
office space and equipment necessary to carry out its investment advisory
functions and such corporate managerial duties as requested by the Board of
Directors of the Funds. The Funds bear all expenses other than those
specifically assumed by the Adviser under the Advisory Agreement, including
preparation of its tax returns, financial reports to regulatory authorities,
dividend

determinations, transaction and accounting matters related to its custodian
bank, transfer agency, custodial and shareholder services, and qualification of
its shares under federal and state securities laws. The Funds reimburse the
Adviser for providing certain services, including accounting and administrative
services, and shareholder services. Such reimbursements are detailed below:

DAVIS VALUE PORTFOLIO 2005 2004 2003
--------------------------------------- ------ ------ ------
Accounting and administrative services: $6,000 $6,000 $6,000
Shareholder services: $ 49 $ 57 $ 56

DAVIS FINANCIAL PORTFOLIO
Accounting and administrative services: $6,000 $6,000 $6,000
Shareholder services: $ 29 $ 35 $ 34

DAVIS REAL ESTATE PORTFOLIO
Accounting and administrative services: $6,000 $6,000 $6,000
Shareholder services: $ 27 $ 32 $ 31

APPROVAL OF THE ADVISORY AND SUB-ADVISORY AGREEMENTS. The Board of Directors is
scheduled to meet four times a year. The Directors, including the Independent
Directors, believe that matters bearing on the Advisory and Sub-Advisory
Agreements are considered at most, if not all, of their meetings. The
Independent Directors are advised by independent legal counsel selected by the
Independent Directors. A discussion of the Directors considerations is included
in the semi-annual report.

UNIQUE NATURE OF EACH FUND. The Adviser may serve as the investment adviser or
sub-adviser to other funds that have investment objectives and principal
investment strategies similar to those of the Davis Funds. While the Davis Funds
may have many similarities to these other funds, the investment performance of
each fund will be different due to a number of differences between the funds,
including differences in sales charges, expense ratios and cash flows.

CODE OF ETHICS. The Adviser, Sub-Adviser, Distributor and the Davis Funds have
adopted a Code of Ethics meeting the requirements of Rule 17j-1 that regulate
the personal securities transactions of the Adviser's investment personnel,
other employees and affiliates with access to information regarding securities
transactions of the Davis Funds. Such employees may invest in securities,
including securities that may be purchased or held by the Davis Funds. A copy of
the Code of Ethics is on public file with, and available from, the Securities
and Exchange Commission.

CONTINUING REGULATION. Davis Advisors, like most other asset managers, is
subject to ongoing inquiries from the SEC and/or NASD regarding industry
practices.

LITIGATION. In June 2004, a proposed class action lawsuit was filed in the
United States District Court for the Southern District of New York on behalf of
investors in certain mutual funds ("Funds") managed by Davis Selected Advisers
L.P. ("Davis Advisors") including the Davis Funds (but not Davis Variable
Account Funds). The plaintiffs claim that Davis Advisors and its affiliates, and
the individual directors of the Funds (collectively the "Defendants") used Fund
assets to pay brokers to market the Funds and that the Defendants disguised such
payments as brokerage commissions and further failed to disclose such payments
in public filings or elsewhere. The lawsuit seeks damages of unspecified
amounts. Three substantially identical proposed class action lawsuits were filed
against the Defendants later in June and July 2004 in the United States District
Court for the Southern District of New York. All four suits were consolidated
into a single action. In October 2005 the District Court issued an order
dismissing the consolidated amended class action complaint. The plaintiffs
subsequently sought a motion for reconsideration which was denied in November
2005. In December 2005 the plaintiffs filed an appeal with the United States
Court of Appeals for the Second Circuit. In April 2006, the plaintiffs notified
the Defendants that they are withdrawing their appeal.

PROXY VOTING POLICIES. The Board has directed the Adviser to vote the Fund's
portfolio securities in conformance with the Adviser's Proxy Voting Policies and
Procedures. These procedures are summarized in Appendix B.

PORTFOLIO MANAGERS

DAVIS VALUE PORTFOLIO AND DAVIS FINANCIAL PORTFOLIO

The Portfolio Managers of Davis Value Portfolio and Davis Financial Portfolio
are Christopher Davis and Kenneth Feinberg. They are the persons primarily
responsible for investing the Funds' assets on a daily basis.

Other Accounts Managed. As of December 31, 2005, Christopher Davis and Kenneth
Feinberg served as portfolio manager for (i) 24 registered investment companies
with approximately $57 billion in total net assets; (ii) 10 other pooled
investment vehicles with approximately $1 billion in total net assets; and (iii)
approximately 38 thousand other accounts (primarily managed money/wrap accounts)
with approximately $11 billion in total net assets.

Structure of Compensation. Kenneth Feinberg's compensation for services provided
to the Adviser consists of (i) a base salary; (ii) an annual bonus equal to a
percentage of growth in the Adviser's profits; (iii) awards of equity ("Units")
in the Adviser including Units, options on Units, and/or phantom Units; and (iv)
an incentive plan whereby the Adviser purchases shares in selected funds managed
by the Adviser. At the end of specified periods, generally five-years following
the date of purchase, some, all, or none of the fund shares will be registered
in the employee's name based on fund performance after expenses on a pre-tax
basis, versus the S&P 500 Index, and versus peer groups as defined by
Morningstar or Lipper. The Adviser's portfolio managers are provided benefits
packages including life insurance, health insurance, and participation in
company 401(k) plan comparable to that received by other company employees.

Christopher Davis' compensation for services provided to the Adviser consists of
a base salary. The Adviser's portfolio managers are provided benefits packages
including life insurance, health insurance, and participation in company 401(k)
plan comparable to that received by other company employees.

Ownership of Fund Shares. Ownership of shares issued by Davis Variable Account
Funds, Inc. is limited to insurance companies which offer variable annuity
and/or variable life products. Neither Christopher Davis nor Kenneth Feinberg
own any shares of Davis Variable Account Funds, Inc.

DAVIS REAL ESTATE PORTFOLIO

The Portfolio Managers of Davis Real Estate Portfolio are Andrew Davis and
Chandler Spears. They are the persons primarily responsible for investing the
Fund's assets on a daily basis.

Other Accounts Managed As of December 31, 2005. Andrew Davis served as portfolio
manager for (i) 4 registered investment companies with approximately $1.3
billion in total net assets; (ii) 2 other pooled investment vehicles with
approximately $552 million in total net assets; and (iii) two other accounts
with approximately $55 million in total net assets.

Chandler Spears served as portfolio manager for (i) 3 registered investment
companies with approximately $937 million in total net assets; (ii) 2 other
pooled investment vehicles with approximately $552 million in total net assets;
and (iii) two other accounts with approximately $55 million in total net assets.

Structure of Compensation. Mr. Spears' compensation for services provided to the
Adviser consists of (i) a base salary; (ii) an annual discretionary bonus; (iii)
awards of equity ("Units") in the Adviser including options on Units and/or
phantom Units; and (iv) an incentive plan whereby the Adviser purchases shares
in selected funds managed by the Adviser. At the end of specified periods,
generally five-years following the date of purchase, some, all, or none of the
fund shares will be registered in the employee's name based on fund performance
after expenses on a pre-tax basis, versus relative to the performance of similar
funds. The

Adviser's portfolio managers are provided benefits packages including life
insurance, health insurance, and participation in company 401(k) plan comparable
to that received by other company employees.

Andrew Davis' compensation for services provided to the Adviser consists of a
base salary. The Adviser's portfolio managers are provided benefits packages
including life insurance, health insurance, and participation in company 401(k)
plan comparable to that received by other company employees.

Ownership of Fund Shares. Ownership of shares issued by Davis Variable Account
Funds, Inc. is limited to insurance companies which offer variable annuity
and/or variable life products. Neither Andrew Davis nor Chandler Spears own any
shares of Davis Variable Account Funds, Inc.

Potential Conflicts of Interest. Actual or apparent conflicts of interest may
arise when a portfolio manager has day-to-day management responsibilities with
respect to more than one portfolio or other account. More specifically,
portfolio managers who manage multiple portfolios and/or other accounts are
presented with the following potential conflicts:

The management of multiple portfolios and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management of each
portfolio and/or other account. The Adviser seeks to manage such competing
interests for the time and attention of portfolio managers by having portfolio
managers, focus on a particular investment discipline. Most other accounts
managed by a portfolio manager are managed using the same investment weightings
that are used in connection with the management of the portfolios.

If a portfolio manager identifies a limited investment opportunity which may be
suitable for more than one portfolio or other account, a portfolio may not be
able to take full advantage of that opportunity due to an allocation of filled
purchase or sale orders across all eligible portfolios and other accounts. To
deal with these situations, the Adviser has adopted procedures for allocating
portfolio transactions across multiple accounts.

With respect to securities transactions for the portfolios, the Adviser
determines which broker to use to execute each order, consistent with its duty
to seek best execution of the transaction. However, with respect to certain
other accounts (such as mutual funds, other pooled investment vehicles that are
not registered mutual funds, and other accounts managed for organizations and
individuals) the Adviser may be limited by the client with respect to the
selection of brokers or may be instructed to direct trades through a particular
broker. In these cases, the Adviser may place separate, non-simultaneous,
transactions for a portfolio and another account which may temporarily affect
the market price of the security or the execution of the transaction, or both,
to the detriment of the portfolio or the other account.

Finally, substantial investment of the Adviser or Davis Family assets in certain
mutual funds may lead to conflicts of interest. To mitigate these potential
conflicts of interest, the Adviser has adopted policies and procedures intended
to ensure that all clients are treated fairly over time. The Adviser does not
receive an incentive based fee on any account.

DISCLOSURE OF PORTFOLIO HOLDINGS

PORTFOLIO HOLDINGS INFORMATION IS PROTECTED. Davis Funds' portfolio holdings are
proprietary information which the Adviser is committed to protecting. Davis
Funds have adopted procedures reasonably designed to ensure that portfolio
holdings are not released on a selective basis except to qualified persons
rendering services to the Funds which require that they receive information
concerning portfolio holdings. Neither the Funds, nor the Adviser receive
compensation with respect to the disclosure of portfolio holdings.

HOW PORTFOLIO HOLDINGS INFORMATION IS RELEASED. Davis Funds may disclose
portfolio holdings to outside persons in a number of situations, including the
following: (1) disclosure to a broker-dealer of one or more securities in
connection with the purchase or sale by a Fund of such securities; (2) requests
for price

quotations on individual securities from a broker-dealer for the purpose of
calculating the Fund's net asset value; (3) requests for bids on one or more
securities; (4) disclosures in connection with litigation involving Fund
portfolio securities; (5)disclosure to regulatory authorities; (6) Davis Funds'
portfolio managers may from time to time make statements to the press about a
Fund's portfolio and the securities subject to these statements may or may not
have been previously disclosed; (7) employees of the Adviser may attend due
diligence meetings with existing or potential investors in which specific Fund
holdings are discussed and other information which the employee reasonably
believes cannot be used in a manner which would be harmful to the Funds; and the
Adviser may provide a wide variety of information about Davis Funds (other than
portfolio holdings) to existing and potential investors and intermediaries
working on behalf of such investors. Such information may not be available from
publicly available information and may consist of statistical and analytical
information concerning the portfolio as a whole and how it has performed,
without naming specific portfolio securities.

Davis Funds' portfolio holdings procedures prohibit release of information
concerning portfolio holdings which have not previously been made public to
individual investors, institutional investors, intermediaries which distribute
the Funds' shares and other parties which are not employed by the Adviser or its
affiliates. Portfolio holdings may be reviewed by third parties for legitimate
business purposes, but only if: (1) the Chief Operating Officer, or his
designee, currently the Funds' Chief Compliance Officer, considers the
application for review and, in his or her business judgment, the requesting
third party (i) has a legitimate business purpose for reviewing the portfolio
holdings and (ii) does not pose a material risk to the client(s) whose
portfolios will be reviewed; and (2) the third party enters into an acceptable
Confidentiality Agreement (including a duty not to trade). Davis Funds' Board of
Directors are notified of the addition of new third parties at the next
scheduled quarterly meeting of the Board of Directors. The Directors review the
addition of new third parties, considering whether or not the release of
information to the third parties is in the best interest of the Funds and
shareholders.

PUBLIC DISCLOSURE OF PORTFOLIO HOLDINGS. Information about portfolio holdings
which has previously been made public may be freely shared. Information about
portfolio holdings may become "public" by (1) publication on the Davis Funds'
website, (2) filing with the SEC on Form N-CSR or Form N-Q (only quarterly
filings, not voluntary filings), or (3) other publication determined by the
Adviser's Chief Legal Officer or his designee, in writing stating his rational,
to be public.

Davis Funds generally publish their portfolio holdings at the end of each fiscal
quarter with a 60-day lag. Davis Funds' Executive Vice President, or his
designee, currently the Funds' Chief Compliance Officer, may authorize
publication portfolio holdings on a more frequent basis. Portfolio holdings will
then be published on the Davis Funds' website.

THIRD PARTIES RECEIVING PORTFOLIO HOLDINGS INFORMATION. As of December 1, 2005,
each of the below listed third party service providers have been approved to
receive information concerning Davis Funds' portfolio holdings: (1) KPMG LLP
(serves the as the Fund's Independent Registered Public Accounting Firm); (2)
IRRC (provides proxy voting services); (3) UBS (provides securities lending
services); (4) Wilshire Associates (provides investment performance attribution
reports); and (5) State Street Bank and Trust (serves as the Funds' custodian
bank).

ADMINISTRATION. The Fund's Chief Compliance Officer oversees the release of
portfolio holdings information, including authorizing the release of portfolio
holdings.

DISTRIBUTION OF FUND SHARES

Davis Variable Account Fund, Inc. has adopted a plan under Rule 12b-1
("Distribution Plan"), which, in the future, would allow each Fund to pay
distribution and other fees for the distribution of its shares and for services
provided to shareholders or shareholders of the insurance separate accounts
investing in the Fund. At the current time the Funds are not paying any
distribution fees. In the future the Funds may pay up to 0.25% of average annual
net assets. Because these fees would be paid out of the Fund's assets on an
on-

going basis, over time these fees may increase the cost of your investment and
may cost you more than paying other types of sales charges.

Under the Distribution Plan each Fund may in the future reimburse the
Distributor for some of its distribution expenses. The Distribution Plan was
approved by the Funds' Board of Directors in accordance with Rule 12b-1 under
the 1940 Act. Rule 12b-1 regulates the manner in which a mutual fund may assume
costs of distributing and promoting the sale of its shares. Payments pursuant to
a Distribution Plan would be included in the operating expenses of the Fund. The
Distribution Plan continues annually so long as it is approved in the manner
provided by Rule 12b-1 or unless earlier terminated by vote of the majority of
the Independent Directors or a majority of a Fund's outstanding shares. The
Distributor is required to furnish quarterly written reports to the Board of
Directors detailing the amounts expended under the Distribution Plan. The
Distribution Plan may be amended, provided that all such amendments comply with
the applicable requirements then in effect under Rule 12b-1. Currently, Rule
12b-1 provides that as long as the Distribution Plan is in effect, Davis
Variable Account Fund, Inc. must commit the selection and nomination of
candidates for new Independent Directors to the sole discretion of the existing
Independent Directors.

Payments under the Distribution Plan are limited to an annual rate of 0.25% of a
Fund's average daily net asset value. Such payments are made to reimburse the
Distributor for the fees it pays to its salespersons and other firms for selling
the Funds' shares, servicing its shareholders and maintaining its shareholder
accounts, producing sales literature, printing prospectuses for prospective
investors and other marketing purposes. In addition, to the extent that any
investment advisory fees paid by Davis Variable Account Fund, Inc. may be deemed
to be indirectly financing any activity that is principally intended to result
in the sale of Davis Variable Account Fund, Inc. shares within the meaning of
Rule 12b-1, the Distribution Plan authorizes the payment of such fees.

THE DISTRIBUTOR. Davis Distributors, LLC (the "Distributor"), 2949 East Elvira
Road, Suite 101, Tucson, Arizona 85706, is a wholly owned subsidiary of the
Adviser and, pursuant to a Distributing Agreement, acts as principal underwriter
of the Davis Funds' shares on a continuing basis. By the terms of the
Distributing Agreement, the Distributor pays for all expenses in connection with
the preparation, printing and distribution of advertising and sales literature
for use in offering the Davis Funds' shares to the public, including reports to
shareholders to the extent they are used as sales literature. The Distributor
also pays for the preparation and printing of prospectuses other than those
forwarded to existing shareholders. The continuance and assignment provisions of
the Distributing Agreement are the same as those of the Advisory Agreement.

OTHER IMPORTANT SERVICE PROVIDERS

CUSTODIAN. State Street Bank and Trust Company ("State Street" or "Custodian"),
P.O Box 8406, Boston, MA 02266-8406, serves as custodian of each Davis Fund's
assets. The Custodian maintains all of the instruments representing the Davis
Funds' investments and all cash. The Custodian delivers securities against
payment on sale and pays for securities against delivery on purchase. The
Custodian also remits the Davis Funds' assets in payment of their expenses,
pursuant to instructions of officers or resolutions of the Board of Directors.
The Custodian also provides certain fund accounting and transfer agent services.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. KPMG LLP ( KPMG ), 707 17 Street,
Suite 2700, Denver, CO 80202, serves as independent registered public
accountants for each of the Davis Funds. KPMG audits the Fund's financial
statements and performs other related audit services and meets with the Audit
Committee of the Board of Directors. In addition, KPMG reviews federal and state
income tax returns and related forms.

COUNSEL. Seyfarth Shaw LLP, 55 E. Monroe St., Suite 4200, Chicago, IL
60603-5803, serves as counsel to the Davis Funds and also serves as counsel for
the Independent Directors.

SECTION III: GENERAL INFORMATION

DETERMINING THE PRICE OF SHARES

The prospectus describes procedures used to determine the price of shares. This
Statement of Additional Information supplements that discussion.

NET ASSET VALUE. The net asset value per share of each Fund's shares is
determined daily by dividing the total value of investments and other assets,
less any liabilities, by the total outstanding shares. The net asset value of
each Fund is determined daily as of the earlier of the close of the New York
Stock Exchange (the "Exchange") or 4 p.m. Eastern Standard Time on each day that
the Exchange is open for trading.

The price per share for purchases or redemptions made directly through State
Street Bank and Trust generally is the value next computed after State Street
Bank and Trust receives the purchase order or redemption request.

The Davis Funds do not price their shares or accept orders for purchases or
redemptions on days when the New York Stock Exchange is closed. Such days
currently include New Year's Day, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

Certain brokers and certain designated intermediaries on their behalf may accept
purchase and redemption orders. The Distributor will be deemed to have received
such an order when the broker or the designee has accepted the order. Customer
orders are priced at the net asset value next computed after such acceptance.
Such order may be transmitted to the Davis Funds or their agents several hours
after the time of the acceptance and pricing.

VALUATION OF PORTFOLIO SECURITIES. The valuation of each Fund's portfolio
securities is described in the Fund's prospectus and annual report.

FEDERAL INCOME TAXES

Each Fund intends to continue to conduct its business and satisfy the applicable
diversification of assets, distribution and source of income requirements to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). Each Fund has qualified as a
regulated investment company and expects to remain qualified as such. It is the
policy of each Fund to distribute all investment company taxable income and net
capital gains. As a result of this policy and the Funds' qualification as
regulated investment companies, it is anticipated that none of the Funds will
pay federal income or excise taxes and that all of the Funds will be accorded
conduit or "pass through" treatment for federal income tax purposes. Therefore,
any taxes that a Fund would ordinarily owe are paid by its shareholders on a
pro-rata basis. If a Fund does not qualify as a regulated investment company, it
will be subject to corporate tax on its net investment income and net capital
gains at the corporate tax rates. If a Fund does not distribute all of its net
investment income or net capital gains, it will be subject to tax on the amount
that is not distributed.

If it invests in foreign securities, a Fund may be subject to the withholding of
foreign taxes on dividends or interest it receives on foreign securities.
Foreign taxes withheld will be treated as an expense of the Fund unless the Fund
meets the qualifications and makes the election to enable it to pass these taxes
through to shareholders for use by them as a foreign tax credit or deduction.
Tax conventions between certain countries and the United States may reduce or
eliminate such taxes.

Each Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and its net capital gains for the one-year period
ending on October 31 of that year, plus certain other amounts.

Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of segregated asset accounts that fund contracts such as the
variable annuity contracts and variable life insurance policies (that is, the
assets of the Funds) that are in addition to the diversification requirements
imposed on the Funds by the 1940 Act and Subchapter M. Failure to satisfy those
standards would result in imposition of Federal income tax on a variable annuity
contract or variable life insurance policy owner with respect to the increase in
the value of the variable annuity contract or variable life insurance policy.
Section 817(h)(2) provides that a segregated asset account that funds contracts
such as the variable annuity contracts and variable life insurance policies is
treated as meeting the diversification standards if, as of the close of each
calendar quarter, the assets in the account meet the diversification
requirements for a regulated investment company and no more than 55% of those
assets consist of cash, cash items, U.S. Government securities and securities of
other regulated investment companies.

The Treasury Regulations amplify the diversification standards set forth in
Section 817(h) and provide an alternative to the provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (i) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (ii) no more than 70% of such
value is represented by any two investments; (iii) no more than 80% of such
value is represented by any three investments; and (iv) no more than 90% of such
value is represented by any four investments. For purposes of these Regulations
all securities of the same issuer are treated as a single investment, but each
United States government agency or instrumentality is treated as a separate
issuer.

Each Fund is managed with the intention of complying with these diversification
requirements. It is possible that, in order to comply with these requirements,
less desirable investment decisions may be made that would affect the investment
performance of a Portfolio.

You should consult your contract prospectus and your own tax adviser regarding
specific questions about federal, state and local tax issues relating to your
contract.

PERFORMANCE DATA

From time to time, the Funds may advertise information regarding their
performance. These performance figures are based on historical results and are
not intended to indicate future performance.

THE FUNDS' TOTAL RETURNS DO NOT REFLECT FEES AND EXPENSES APPLICABLE TO YOUR
VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE CONTRACT. IF THOSE FEES AND EXPENSES
WERE REFLECTED, THE RETURNS WOULD BE LOWER. Consult your contract prospectus for
the amounts of those contract fees and charges. To keep shareholders and
potential investors informed, the Funds may, from time to time, advertise
information regarding their performance. These performance figures are based on
historical results and are not intended to indicate future performance.

CUMULATIVE TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN

The cumulative total return and the average annual total return (each is defined
below) with respect to each of the Funds for the periods indicated below is as
follows:

Cumulative Average Annual
Total Return(1) Total Return(2)
--------------- ---------------
Davis Value Portfolio
For periods ended December 31, 2005:
One year 9.44% 9.44%
Five years 19.70% 3.66%
Period from July 1, 1999 (life of portfolio) 34.28% 4.63%

Davis Financial Portfolio
For periods ended December 31, 2005:
One year 8.38% 8.38%
Five years 17.77% 3.32%
Period from July 1, 1999 (life of portfolio) 43.17% 5.67%

Davis Real Estate Portfolio
For periods ended December 31, 2005:
One year 13.14% 13.14%
Five years 130.55% 18.18%
Period from July 1, 1999 (life of portfolio) 153.64% 15.37%

(1) "Cumulative Total Return" is a measure of a fund's performance encompassing
all elements of return. Total return reflects the change in share price
over a given period and assumes all distributions are taken in additional
fund shares. Total return is determined by assuming a hypothetical
investment at the beginning of the period, adding in the reinvestment of
all income dividends and capital gains, calculating the ending value of the
investment at the net asset value as of the end of the specified time
period and subtracting the amount of the original investment and dividing
the original investment. This calculated amount then is expressed as a
percentage by multiplying by 100. Periods of less than one year are not
annualized.

(2) "Average Annual Total Return" represents the average annual compounded rate
of return for the periods presented. Periods of less than one year are not
annualized. Average annual total return measures both the net investment
income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the underlying investments in the fund's
portfolio. Average annual total return is calculated separately for each
Fund in accordance with the standardized method prescribed by the SEC by
determining the average annual compounded rates of return over the periods
indicated, which would equate the initial amount invested to the ending
redeemable value, according to the following formula:

P(1+T)n = ERV

Where: P = hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value at the end of
the period of a hypothetical $1,000
payment made at the beginning of such
period.

This calculation: (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates; and (ii) deducts all
recurring fees, such as advisory fees, charged as expenses to all shareholder
accounts.

30-DAY SEC YIELD

The 30-Day SEC Yield (defined below) of Davis Real Estate Portfolio for the
period ended December 31, 2005 was 3.00%.

"30-Day SEC Yield" is computed in accordance with a standardized method
prescribed by the rules of the SEC. Thirty-Day SEC Yield is a measure of the net
investment income per share (as defined) earned over a specified 30-day period
expressed as a percentage of the maximum offering price of the Funds' shares at
the end of the period. Such yield figure was determined by dividing the net
investment income per share on the last day of the period, according to the
following formula:

30-Day SEC Yield = 2 [(a - b + 1) 6 - 1]
------
cd

Where: a = dividends and interest earned during the period.

b = expenses accrued for the period.

c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.

d = the maximum offering price per share on the last day
of the period.

Davis Real Estate Portfolio's 30-Day SEC Yield will fluctuate depending on
prevailing interest rates, quality, maturities, types of instruments held and
operating expenses. Thus, any yield quotation should not be considered
representative of future results. If a broker-dealer charges investors for
services related to the purchase or redemption of Fund shares, the yield
effectively will be reduced.

PERFORMANCE RANKINGS

Lipper Rankings. From time to time the Funds may publish the ranking of the
performance of its classes of shares by Lipper Analytical Services, Inc. Lipper
is a widely recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods in categories based on
investment style. The Lipper performance rankings are based on total returns
that include the reinvestment of capital gain distributions and income dividends
but do not take sales charges or taxes into consideration. Lipper also publishes
"peer-group" indices of the performance of all mutual funds in a category that
it monitors and averages of the performance of the funds in particular
categories.

Morningstar Ratings and Rankings. From time to time the Funds may publish the
ranking and/or star rating of the performance of its classes of shares by
Morningstar, Inc., an independent mutual fund monitoring service. Morningstar
rates and ranks mutual funds in broad investment categories: domestic stock
funds, international stock funds, taxable bond funds and municipal bond funds.

Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is
proprietary to Morningstar and/or its content providers; (2) may not be copied
or distributed; and (3) is not warranted to be accurate, complete or timely.
Neither Morningstar nor its content providers are responsible for any damages or
losses arising from any use of this information. Past performance is no
guarantee of future result.

For each fund with at least a three-year history, Morningstar calculates a
Morningstar Rating(TM) metric each month by subtracting the return on a 90-day
U.S. Treasury Bill from the fund's load-adjusted return for the same period, and
then adjusting this excess return for risk. The top 10% of funds in each broad
asset class receive five stars, the next 22.5% receive four stars, the next 35%
receive three stars, the next 22.5% receive two stars and the bottom 10% receive
one star. The Overall Morningstar Rating for a fund is derived from a weighted
average of the performance figures associated with its three-, five- and 10-year
(if applicable) Morningstar Rating metrics. Past performance is no guarantee of
future results.

Each Fund also may compare its total return ranking to that of other funds in
its Morningstar category, in addition to its star ratings. Those total return
rankings are percentages from one percent to one hundred percent and are not
risk adjusted. For example, if a fund is in the 94th percentile, that means that
94% of the funds in the same category performed better than it did.

Performance Rankings and Comparisons by Other Entities and Publications. From
time to time the Fund may include in its advertisements and sales literature
performance information about the Fund cited in newspapers and other periodicals
such as The New York Times, The Wall Street Journal, Barron's or similar
publications. That information may include performance quotations from other
sources, including Lipper and Morningstar. The performance of the Fund's classes
of shares may be compared in publications to the performance of various market
indices or other investments and averages, performance rankings or other
benchmarks prepared by recognized mutual fund statistical services.

Investors also may wish to compare the returns of each Davis Fund to the return
on fixed-income investments available from banks and thrift institutions. Those
include certificates of deposit, ordinary interest-paying checking and savings
accounts and other forms of fixed- or variable-time deposits and various other
instruments such as Treasury bills. However, none of the Davis Funds' returns or
share prices are guaranteed or insured by the FDIC or any other agency and will
fluctuate daily, while bank depository obligations may be insured by the FDIC
and may provide fixed rates of return. Repayment of principal and payment of
interest on Treasury securities is backed by the full faith and credit of the
U.S. government.

From time to time, the Fund may publish rankings or ratings of the Adviser or
Transfer Agent and of the investor services provided by them to shareholders of
the Davis Funds, other than performance rankings of the Funds themselves. Those
ratings or rankings of shareholder and investor services by third parties may
include comparisons of their services to those provided by other mutual fund
families selected by the rating or ranking services. They may be based on the
opinions of the rating or ranking service itself, using its research or
judgment, or based on surveys of investors, brokers, shareholders or others.

OTHER PERFORMANCE STATISTICS

In reports or other communications to shareholders and in advertising material,
the performance of the Fund may be compared to recognized unmanaged indices or
averages of the performance of similar securities. Also, the performance of the
Fund may be compared to that of other funds of comparable size and objectives as
listed in the rankings prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc., or similar independent mutual fund rating services, and the
Fund may use evaluations published by nationally recognized independent ranking
services and publications. Any given performance comparison should not be
considered representative of the Fund's performance for any future period.

In advertising and sales literature the Davis Funds may publish various
statistics describing its investment portfolio such as the Fund's average Price
to Book and Price to Earnings ratios, beta, alpha, R-squared, standard
deviation, etc.

The performance of the Funds may be compared in publications to the performance
of various indices and investments for which reliable performance data is
available and to averages, performance rankings or other information prepared by
recognized mutual fund statistical services. The Fund's Annual Report and
Semi-Annual Report contain additional performance information and will be made
available on request and without charge by calling Davis Funds toll-free at
1-800-279-0279, Monday through Friday, 9 a.m. to 6 p.m. Eastern Standard Time.

APPENDIX A:
QUALITY RATINGS OF DEBT SECURITIES

MOODY'S CORPORATE BOND RATINGS

AAA - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and generally are referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are unlikely to impair the
fundamentally strong position of such issues.

AA - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what generally are known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
that make the long-term risks appear somewhat larger than Aaa securities.

A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade-obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.

BAA - Bonds that are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA - Bonds that are rated Ba are judged to have speculative elements as their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any longer period of time may be small.

CAA - Bonds that are rated Caa are of poor standing. Such issues may be in
default, or there may be present elements of danger with respect to principal or
interest.

CA - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

STANDARD & POOR'S CORPORATE BOND RATINGS

AAA - Debt rated AAA has the highest rating assigned by Standard and Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
also is used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.

B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.

CCC - Debt rated CCC has a currently identifiable vulnerability to default and
is dependent on favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.

CC - The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.

C - The rating C is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

CI - The rating CI is reserved for income bonds on which no interest is being
paid.

D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used on the
filing of a bankruptcy petition if debt service payments are jeopardized.

MOODY'S COMMERCIAL PAPER RATINGS

Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 (superior capacity), Prime-2 (strong capacity) and Prime-3 (acceptable
capacity). In assigning ratings to an issuer that represents that its commercial
paper obligations are supported by the credit of another entity or entities,
Moody's evaluates the financial strength of the indicated affiliated
corporations, commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating assessment.

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

The S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded in four categories, ranging from A for the highest quality to
D for the lowest. Issues assigned an A rating are regarded as having the
greatest capacity for timely payment. Within the A category, the numbers 1, 2
and 3 indicate relative degrees of safety. The addition of a plus sign to the
category A-1 denotes that the issue is determined to possess overwhelming safety
characteristics.

APPENDIX B
SUMMARY OF DAVIS ADVISORS'
PROXY VOTING PROCEDURES AND POLICIES
APRIL 1, 2004

Davis Selected Advisers, L.P. ("Davis Advisors") votes on behalf of its clients
in matters of corporate governance through the proxy voting process. Davis
Advisors takes its ownership responsibilities very seriously and believes the
right to vote proxies for its Clients' holdings is a significant asset of the
clients. Davis Advisors exercises its voting responsibilities as a fiduciary,
solely with the goal of maximizing the value of its clients' investments.

Davis Advisors votes proxies with a focus on the investment implications of each
issue. For each proxy vote, Davis Advisors takes into consideration its duty to
clients and all other relevant facts available to Davis Advisors at the time of
the vote. Therefore, while these guidelines provide a framework for voting,
votes are ultimately cast on a case-by-case basis.

Davis Advisors has adopted written Proxy Voting Procedures and Policies and
established a Proxy Oversight Group to oversee voting policies and deal with
potential conflicts of interest. In evaluating issues, the Proxy Oversight Group
may consider information from many sources, including the portfolio manager for
each client account, management of a company presenting a proposal, shareholder
groups, and independent proxy research services.

Clients may obtain a copy of Davis Advisors' Proxy Voting Procedures and
Policies, and/or a copy of how their own proxies were voted, by writing to:

Davis Selected Advisers, L.P.
Attn: Chief Compliance Officer
2949 East Elvira Road, Suite 101
Tucson, Arizona, 85706

A copy of Davis Advisors' Proxy Voting Procedures and Policies is also included
in Davis Advisors' Form ADV Part II.

GUIDING PRINCIPLES

Creating Value for Existing Shareholders. The most important factors that we
consider in evaluating proxy issues are: (i) the Company's or management's
long-term track record of creating value for shareholders. In general, we will
consider the recommendations of a management with a good record of creating
value for shareholders as more credible than the recommendations of managements
with a poor record; (ii) whether, in our estimation, the current proposal being
considered will significantly enhance or detract from long-term value for
existing shareholders; and (iii) whether a poor record of long term performance
resulted from poor management or from factors outside of managements control.

Other factors which we consider may include:

(a) Shareholder Oriented Management. One of the factors that Davis Advisors
considers in selecting stocks for investment is the presence of
shareholder-oriented management. In general, such managements will have a large
ownership stake in the company. They will also have a record of taking actions
and supporting policies designed to increase the value of the company's shares
and thereby enhance shareholder wealth. Davis Advisors' research analysts are
active in meeting with top management of portfolio companies and in discussing
their views on policies or actions which could enhance shareholder value.
Whether management shows evidence of responding to reasonable shareholder
suggestions, and otherwise improving general corporate governance, is a factor
which may be taken into consideration in proxy voting.

(b) Allow responsible management teams to run the business. Because we try
generally to invest with "owner oriented" managements (see above), we vote with
the recommendation of management on most routine matters, unless circumstances
such as long standing poor performance or a change from our initial assessment
indicate otherwise. Examples include the election of directors and ratification
of auditors. Davis Advisors supports policies, plans and structures that give
management teams appropriate latitude to run the business in the way that is
most likely to maximize value for owners. Conversely, Davis Advisors opposes
proposals that limit management's ability to do this. Davis Advisors will
generally vote with management on shareholder social and environmental proposals
on the basis that their impact on share value is difficult to judge and is
therefore best done by management.

(c) Preserve and expand the power of shareholders in areas of corporate
governance. Equity shareholders are owners of the business, and company boards
and management teams are ultimately accountable to them. Davis Advisors supports
policies, plans and structures that promote accountability of the board and
management to owners, and align the interests of the board and management with
owners. Examples include: annual election of all board members, cumulative
voting, and incentive plans that are contingent on delivering value to
shareholders. Davis Advisors generally opposes proposals that reduce
accountability or misalign interests, including but not limited to classified
boards, poison pills, excessive option plans, and repricing of options.

Davis Advisors exercises its professional judgment in applying these principles
to specific proxy votes. Davis Advisors Proxy Procedures and Policies provides
additional explanation of the analysis which Davis Advisors may conduct when
applying these guiding principles to specific proxy votes.

CONFLICTS OF INTEREST

A potential conflict of interest arises when Davis Advisors has business
interests that may not be consistent with the best interests of its client. In
reviewing proxy issues to identify any potential material conflicts between
Davis Advisors' interests and those of its clients,

Davis Advisors' Proxy Oversight Group is charged with resolving material
potential conflicts of interest which it becomes aware of. It is charged with
resolving conflicts in a manner that is consistent with the best interests of
clients. There are many acceptable methods of resolving potential conflicts, and
the Proxy Oversight Group exercises its judgment and discretion to determine an
appropriate means of resolving a potential conflict in any given situation:

(1) Votes consistent with the "General Proxy Voting Policies," are
presumed to be consistent with the best interests of clients;

(2) Davis Advisors may disclose the conflict to the client and obtain the
client's consent prior to voting the proxy;

(3) Davis Advisors may obtain guidance from an independent third party;

(4) The potential conflict may be immaterial; or

(5) Other reasonable means of resolving potential conflicts of interest
which effectively insulate the decision on how to vote client proxies
from the conflict.



                                    FORM N-1A

                        DAVIS VARIABLE ACCOUNT FUND, INC.

        POST-EFFECTIVE AMENDMENT NO. 10 UNDER THE SECURITIES ACT OF 1933
                      REGISTRATION STATEMENT NO. 333-76407

                                       AND

    POST-EFFECTIVE AMENDMENT NO. 10 UNDER THE INVESTMENT COMPANY ACT OF 1940
                            REGISTRATION NO. 811-9293

                                     PART C

                                OTHER INFORMATION

Item 22. Exhibits:

               (a)       Articles of Incorporation. Articles of Incorporation.
                         Incorporated by reference to Exhibit (a) of Registrants
                         registration statement 333-76407 filed on Edgar April
                         16, 1999.

               (b)       By-laws. Incorporated by reference to Exhibit (b) of
                         Registrants registration statement 333-76407 filed on
                         Edgar April 16, 1999.

               (c)       Instruments Defining Rights of Security Holders. Not
                         applicable.

               (d)(1)    Investment Advisory Contracts. Between Davis Variable
                         Account Fund, Inc. and Davis Selected Advisers, L.P.
                         dated January 1, 2001. Incorporated by reference to
                         Exhibit (d)(1) of Registrants registration statement
                         333-76407 filed on Edgar February 23, 2001.

               (d)(2)    Sub-Advisory Agreement between Davis Selected Advisers,
                         L.P., and Davis Selected Advisers - NY, Inc., dated
                         January 1, 2001. Incorporated by reference to Exhibit
                         (d)(2) of Registrants registration statement 333-76407
                         filed on Edgar February 23, 2001.

               (e)       Underwriting Contracts. Distributor's Agreement dated
                         January 1, 2001. Incorporated by reference to Exhibit
                         (e) of Registrants registration statement 333-76407
                         filed on Edgar April 26, 2002.

               (f)       Bonus or Profit Sharing Contracts. Not applicable.

               (g)       Custodian Agreements. Custodian Agreement with State
                         Street Bank and Trust Company, dated September 5, 2000.
                         Incorporated by reference to Exhibit (g) of Registrants
                         registration statement 333-76407 filed on Edgar
                         February 23, 2001.

               (h)(1)*   Other Material Contracts. Transfer Agent Agreement with
                         Boston Financial Data Services dated January 1, 2006.

               (h)(2)    Form of Participation Agreement. Incorporated by
                         reference to Exhibit (h)(2) of Registrants registration
                         statement 333-76407 filed on Edgar April 16, 1999.


                                       1



               (h)(3)    Agreement to Waive Fees and Reimburse Expenses.
                         Incorporated by reference to Exhibit (h)(3) of
                         Registrants registration statement 333-76407 filed on
                         Edgar February 23, 2001.

               (i)*      Legal Opinion. Opinion and Consent of Counsel, Seyfarth
                         Shaw, LLP.

               (j)*      Other Opinions. Consent of Independent Accountants,
                         KPMG, LLP.

               (k)       Omitted Financial Statements. Incorporated from the
                         most recent annual report filed on Edgar.

               (l)       Initial Capital Agreements. Not applicable.

               (m)       Rule 12b-1 Plan. Rule 12b-1 Plan, as amended 12/05/00.
                         Incorporated by reference to Exhibit (m) of Registrants
                         registration statement 333-76407 filed on Edgar
                         February 23, 2001.

               (n)       Rule 18f-3 Plan. Not applicable

               (o)       Reserved

               (p)       Code of Ethics. Code of Ethics as amended February 1,
                         2005. Incorporated by reference to Exhibit (p) of
                         Registrants registration statement 333-76407 filed on
                         Edgar February 15, 2005.

               (q)(1)    Other Exhibits. Powers of Attorney of the Registrant,
                         Officers and Board of Directors of Davis New York
                         Venture Fund, Inc., Davis Series, Inc., and Davis
                         Variable Account Fund, Inc. appointing Arthur Don and
                         Thomas Tays as attorneys-in-fact dated January 11,
                         2001. Incorporated by reference to Exhibit (q) of
                         Registrants registration statement 333-76407 filed on
                         Edgar February 23, 2001.

               (q)(2)    Other Exhibits. Powers of Attorney of the Registrant,
                         Officers of Davis New York Venture Fund, Inc. (Eich and
                         Reed), dated September 13, 2002 appointing Arthur Don
                         and Thomas Tays as attorneys-in-fact. Incorporated by
                         reference to Exhibit (q)(2) of Registrants registration
                         statement 333-76407 filed on Edgar April 17, 2003

               (q)(3)    Other Exhibits. Power of Robert Morgenthau, dated
                         December 3, 2002 appointing Arthur Don and Thomas Tays
                         as attorneys-in-fact. Incorporated by reference to
                         Exhibit (q)(3) of Registrants registration statement
                         333-76407 filed on Edgar April 17, 2003

               (q)(4)    Other Exhibits. Power of Thomas Gayner, dated April 19,
                         2004 appointing Arthur Don and Thomas Tays as
                         attorneys-in-fact. Incorporated by reference to Exhibit
                         (q)(4) of Registrants registration statement 333-76407
                         filed on Edgar April 27, 2004

               (q)(5)    Other Exhibits. Power of Douglas Haines, Principal
                         Financial Officer, dated September 14, 2004 appointing
                         Arthur Don and Thomas Tays as attorneys-in-fact. Filed
                         herein. Incorporated by reference to Exhibit (q)(5) of
                         Registrants registration statement 333-76407 filed on
                         Edgar February 15, 2005.

               (q)(7)*   Other Exhibits. Power of Samuel H. Iapalucci, dated
                         February 17, 2006 appointing Arthur Don and Thomas Tays
                         as attorneys-in-fact.


                                       2



                                 * Filed herein

Item 23. Persons Controlled by or Under Common Control With Registrant

Information pertaining to persons controlled by or under common control with
Registrant is incorporated by reference from the Statement of Additional
Information contained in Part B of this Registration Statement.


Item 24. Indemnification

Registrant's Articles of Incorporation indemnifies its directors, officers and
employees to the full extent permitted by Section 2-418 of the Maryland General
Corporation Law, subject only to the provisions of the Investment Company Act of
1940. The indemnification provisions of the Maryland General Corporation Law
(the "Law") permit, among other things, corporations to indemnify directors and
officers unless it is proved that the individual (1) acted in bad faith or with
active and deliberate dishonesty, (2) actually received an improper personal
benefit in money, property or services, or (3) in the case of a criminal
proceeding, had reasonable cause to believe that his act or omission was
unlawful. The Law was also amended to permit corporations to indemnify directors
and officers for amounts paid in settlement of stockholders' derivative suits.

In addition, the Registrant's directors and officers are covered under a policy
to indemnify them for loss (subject to certain deductibles) including costs of
defense incurred by reason of alleged errors or omissions, neglect or breach of
duty. The policy has a number of exclusions including alleged acts, errors, or
omissions which are finally adjudicated or established to be deliberate,
dishonest, malicious or fraudulent or to constitute willful misfeasance, bad
faith, gross negligence or reckless disregard of their duties in respect to any
registered investment company. This coverage is incidental to a general policy
carried by the Registrant's adviser.

In addition to the foregoing indemnification, Registrant's Articles of
Incorporation exculpate directors and officers with respect to monetary damages
except to the extent that an individual actually received an improper benefit in
money property or services or to the extent that a final adjudication finds that
the individual acted with active and deliberate dishonesty.

Item 25. Business and Other Connections of Investment Adviser

Davis Selected Advisers, L.P. ("DSA") and affiliated companies comprise a
financial services organization whose business consists primarily of providing
investment management services as the investment adviser and manager for
investment companies registered under the Investment Company Act of 1940,
unregistered domestic and off-shore investment companies, and as an investment
adviser to institutional and individual accounts. DSA also serves as sub-adviser
to other investment companies. Affiliated companies include:

Davis Investments, LLC: the sole general partner of DSA. Controlled by its sole
member, Christopher C. Davis.

Venture Advisers, Inc.: is a corporation whose primary purpose is to hold
limited partner units in DSA.

Davis Selected Advisers - NY, Inc.: a wholly-owned subsidiary of DSA, is a
federally registered investment adviser which serves as sub-adviser for may of
DSA's advisory clients.

Davis Distributors LLC: a wholly-owned subsidiary of DSA, is a registered
broker-dealer which serves as primary underwriter of the Davis Funds and
Selected Funds.

Other business of a substantial nature that directors or officers of DSA are or
have been engaged in the last two years:

ANDREW A. DAVIS (6/25/63), 124 East Marcy Street, Santa Fe, NM 87501. Director
and President or Vice President of each of the Davis Funds and the Selected
Funds. President of Davis Investments, LLC. Also serves as a director and/or
senior officer for several companies affiliated with DSA which are described
above.


                                       3



CHRISTOPHER C. DAVIS (7/13/65), 609 Fifth Avenue, New York, NY 10017. Director
and Chief Executive Officer, President, and/or Vice President of each of the
Davis Funds and the Selected Funds; Director, Chairman and Chief Executive
Officer of Davis Investments, LLC. Also serves as a director and/or senior
officer for several companies affiliated with DSA, which are described above. Is
an employee of Shelby Cullom Davis & Co., a registered broker/dealer.

KENNETH C. EICH (8/14/53), 2949 East Elvira Road, Suite 101, Tucson, AZ 85706.
Executive Vice President and Principal Executive Officer of each of the Davis
Funds, Selected Funds, and Clipper Fund; Chief Operating Officer of Davis
Investments, LLC. Also serves as a senior officer for several companies
affiliated with DSA which are described above.

DOUGLAS HAINES (3/4/71) 2949 East Elvira Road, Suite 101, Tucson, AZ 85706. Vice
President, Treasurer Chief Financial Officer, Principal Financial Officer, and
Principal Accounting Officer of each of the Davis Funds, the Selected Funds, and
Clipper Fund; Vice President of Davis Investments, LLC.

SHARRA L. REED (9/25/66) 2949 East Elvira Road, Suite 101, Tucson, AZ 85706.
Vice President Chief Compliance Officer of each of the Davis Funds, the Selected
Funds, and Clipper Fund; Vice President of Davis Investments, LLC. Also serves
as Chief Compliance Officer for DSA and as a senior officer for several
companies affiliated with DSA which are described above.

THOMAS D. TAYS (03/07/57), 2949 East Elvira Road, Suite 101, Tucson, AZ 85706.
Vice President, Secretary of each of the Davis Funds, Selected Funds, and
Clipper Fund; Vice President Chief Legal Officer and Secretary, Davis
Investments, LLC. Also serves as a senior officer for several companies
affiliated with DSA which are described above.

GARY TYC (05/27/56), 2949 East Elvira Road, Suite 101, Tucson, AZ 85706. Vice
President, Chief Financial Officer Treasurer, and Assistant Secretary of Davis
Investments, LLC. Also serves as a senior officer for several companies
affiliated with DSA which are described above.

RUSSELL O. WIESE (05/18/66) 609 Fifth Avenue, New York, NY 10017. Chief
Marketing Officer of Davis Investments, LLC. Also serves as a director and/or
senior officer for several companies affiliated with DSA which are described
above.

Item 26. Principal Underwriter

(a) Davis Distributors, LLC, a wholly owned subsidiary of the Adviser, located
at 2949 East Elvira Road, Suite 101, Tucson, AZ 85706, is the principal
underwriter for each of the Davis Funds, the Selected Funds, and Clipper Fund:
Davis New York Venture Fund Inc., Davis Series, Inc., Davis Variable Account
Fund, Inc., Selected American Shares, Inc., Selected Special Shares, Inc., and
Selected Capital Preservation Trust, Clipper Fund, Inc. and Clipper Funds Trust.

(b) Management of the Principal Underwriter:



NAME AND PRINCIPAL             POSITIONS AND OFFICES WITH       POSITIONS AND OFFICES
BUSINESS ADDRESS                      UNDERWRITER                  WITH REGISTRANT
----------------------------   --------------------------   ----------------------------

Kenneth C. Eich                President                    Executive Vice President and
2949 East Elvira Road, Suite                                Principal Executive Officer
101
Tucson, AZ  85706
Russell Wiese                  Chief Marketing Officer      None
609 Fifth Avenue,
New York, NY  10017.



                                        4





Gary P. Tyc                    Vice President, Treasurer    None
2949 East Elvira Road, Suite   and Assistant Secretary
101
Tucson, AZ  85706
Anthony Frazia                 Chief Compliance Officer     None
609 Fifth Avenue,
New York, NY  10017.

Thomas D. Tays                 Vice President and           Vice President and Secretary
2949 East Elvira Road, Suite   Secretary
101
Tucson, AZ  85706


(c) Not applicable.

Item 27. Location of Accounts and Records

Accounts and records are maintained at the offices of Davis Selected Advisers,
L.P., 2949 East Elvira Road, Suite 101, Tucson, Arizona 85706, and at the
offices of the Registrant's custodian, State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02107, and the Registrant's transfer
agent State Street Bank and Trust, c/o Service Agent, BFDS, Two Heritage Drive,
Seventh Floor, North Quincy, Massachusetts 02107.

Item 28. Management Services

         Not  applicable

Item 29. Undertakings

Registrant undertakes to furnish each person to whom a prospectus is delivered
with a copy of Registrant's latest annual report to shareholders upon request
and without charge.

                        DAVIS VARIABLE ACCOUNT FUND, INC.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and/or the Investment
Company Act of 1940, the Registrant has caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Tucson and State of Arizona on the 24th day of April, 2006.

The Registrant hereby certifies that this Post Effective Amendment meets all the
requirements for effectiveness under paragraph (b) of Rule 485 of the Securities
Act of 1933.

                                               DAVIS VARIABLE ACCOUNT FUND, INC.


                                               *By: /s/ Thomas Tays
                                                    ----------------------------
                                                        Thomas Tays
                                                        Attorney-in-Fact

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated.


                                        5



    Signature                    Title                     Date
    ---------                    -----                     ----
Kenneth  Eich*     Principal Executive Officer        April 24, 2006
Kenneth  Eich

Douglas  Haines*   Principal Financial Officer; and
Douglas  Haines    Principal Accounting Officer       April 24, 2006


                                                  *By: /s/ Thomas Tays
                                                       -------------------------
                                                           Thomas Tays
                                                           Attorney-in-Fact

*Thomas Tays signs this document on behalf of the Registrant and each of the
foregoing officers pursuant to powers of attorney. Incorporated by reference to
Exhibits (q)(1), (q)(2) and (q)(5), of Part C of this Registration Statement. .


                                                  /s/ Thomas Tays
                                                  ------------------------------
                                                  Thomas Tays
                                                  Attorney-in-Fact


                                        6



                        DAVIS VARIABLE ACCOUNT FUND, INC.

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed on April 24, 2006 by the following persons in the
capacities indicated.

              Signature                  Title
              ---------                 --------


Jeremy H. Biggs*                        Director
-------------------------------------
Jeremy H. Biggs


Marc P. Blum*                           Director
-------------------------------------
Marc P. Blum


Andrew A. Davis*                        Director
-------------------------------------
Andrew A. Davis


Christopher C. Davis*                   Director
-------------------------------------
Christopher C. Davis


Thomas  S.  Gayner*                     Director
-------------------------------------
Thomas  S. Gayner


Jerry D. Geist*                         Director
-------------------------------------
Jerry D. Geist


D. James Guzy*                          Director
-------------------------------------
D. James Guzy


G. Bernard Hamilton*                    Director
-------------------------------------
G. Bernard Hamilton


Samuel H. Iapalucci*                    Director
-------------------------------------
Samuel H. Iapalucci


Robert P. Morgenthau*                   Director
-------------------------------------
Robert P. Morgenthau


Theodore B. Smith, Jr*.                 Director
-------------------------------------
Theodore B. Smith, Jr.


Christian R. Sonne*                     Director
-------------------------------------
Christian R. Sonne


Marsha Williams*                        Director
-------------------------------------
Marsha Williams

*Thomas Tays signs this document on behalf of each of the foregoing persons
pursuant to powers of attorney. Incorporated by reference to Exhibits (q)(1),
(q)(3), (q)(4), and (q)(7) of Part C of this Registration Statement.


                                        /s/ Thomas Tays
                                        ----------------------------------------
                                        Thomas Tays
                                        Attorney-in-Fact


                                        7



                                  EXHIBIT LIST

23(h)(1)   Transfer Agent Agreement
23(i)      Opinion and Consent of Counsel, Seyfarth Shaw, LLP.
23(j)      Consent of Independent Accountants, KPMG, LLP.
23(q)(7)   POA of Samuel H. Iapalucci


                                        8