0001084060-16-000023.txt : 20160222 0001084060-16-000023.hdr.sgml : 20160222 20160222154205 ACCESSION NUMBER: 0001084060-16-000023 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20151231 FILED AS OF DATE: 20160222 DATE AS OF CHANGE: 20160222 EFFECTIVENESS DATE: 20160222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAVIS VARIABLE ACCOUNT FUND INC CENTRAL INDEX KEY: 0001084060 IRS NUMBER: 850460478 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-09293 FILM NUMBER: 161444906 BUSINESS ADDRESS: STREET 1: 2949 E. ELVIRA ROAD STREET 2: SUITE 101 CITY: TUCSON STATE: AZ ZIP: 85756 BUSINESS PHONE: (520)806-7600 MAIL ADDRESS: STREET 1: 2949 E. ELVIRA ROAD STREET 2: SUITE 101 CITY: TUCSON STATE: AZ ZIP: 85756 0001084060 S000003451 Davis Value Portfolio C000009557 Davis Value Portfolio QDVPAX 0001084060 S000003452 Davis Financial Portfolio C000009558 Davis Financial Portfolio QDFPAX 0001084060 S000003453 Davis Real Estate Portfolio C000009559 Davis Real Estate Portfolio QDRPAX N-CSR 1 dvaf_1215_ncsr.htm NCSR

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-09293

DAVIS VARIABLE ACCOUNT FUND, INC.
(Exact name of registrant as specified in charter)

2949 East Elvira Road, Suite 101
Tucson, AZ  85756
(Address of principal executive offices)

Ryan M. Charles
Davis Selected Advisers, L.P.
2949 East Elvira Road, Suite 101
Tucson, AZ  85756
(Name and address of agent for service)

Registrant's telephone number, including area code: 520-806-7600
Date of fiscal year end: December 31, 2015
Date of reporting period: December 31, 2015


____________________








ITEM 1.  REPORT TO STOCKHOLDERS
 

 
 

 
DAVIS VALUE PORTFOLIO
Table of Contents


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6
 
7
 
11
 
12
 
13
 
14
 
18
 
19
 
20
 
21


This Annual Report is authorized for use by existing shareholders. Prospective shareholders must receive a current Davis Value Portfolio prospectus, which contains more information about investment strategies, risks, charges, and expenses. Please read the prospectus carefully before investing or sending money.

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.

Portfolio Proxy Voting Policies and Procedures
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under which the Fund votes proxies relating to securities held by the Fund. A description of the Fund's Portfolio Proxy Voting Policies and Procedures is available (i) without charge, upon request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.

In addition, the Fund is required to file Form N-PX, with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. The Fund's Form N-PX filing is available (i) without charge, upon request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.
Form N-Q
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q is available without charge, upon request, by calling 1-800-279-0279, on the Fund's website at www.davisfunds.com, and on the SEC's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
 

 
DAVIS VALUE PORTFOLIO
Management's Discussion of Fund Performance


Performance Overview
Davis Value Portfolio outperformed the Standard & Poor's 500® Index (S&P 500®) for the twelve-month period ended December 31, 2015. The Fund delivered a total return of 1.60%, versus a 1.38% return for the S&P 500®. The sectors1 within the S&P 500® that reported the strongest performance were Consumer Discretionary (up 10%), Health Care (up 7%), and Consumer Staples (up 7%). The sectors within the S&P 500® that reported the weakest performance were Energy (down 21%), Materials (down 8%), and Utilities (down 5%).

Contributors to Performance
The Fund's holdings in the Consumer Discretionary sector made significant contributions to performance2. The Fund's Consumer Discretionary holdings were up about 23%, compared to up 10% for the S&P 500® sector. The Fund also benefited from a higher average weighting (18%, compared to 13% for the S&P 500® sector) in the strongest performing sector. Amazon3 (up 118%) was the Fund's overall top contributor and its largest holding.

Returns from holdings in the Information Technology sector also helped performance. The Fund's Information Technology holdings were up about 26%, compared to up 5% for the S&P 500® sector. Alphabet Inc. (up 46%), a holding company for Google, Inc., was the second-largest holding in the Fund and a strong performer. Qihoo 360 Technology (up 27%), a provider of Internet and mobile security products and services in China also contributed.

Additional contributors included UnitedHealth Group (up 18%) from the Health Care sector; Costco (up 19%) and Heineken Holding (up 25%) from the Consumer Staples sector; and Julius Baer Group (up 24%), JPMorgan Chase (up 8%), and Visa (up 19%) from the Financial sector. The Fund no longer holds Julius Baer Group.

Detractors from Performance
The Fund's holdings in the Energy sector were the most significant detractor from performance. The Fund's Energy holdings were down about 44%, compared to down 21% for the S&P 500® sector. Leading detractors were Encana (down 62%), Cabot Oil & Gas (down 47%), and Ultra Petroleum (down 81%).

The Fund suffered from its heavily weighted position (34%, compared to 17% for the S&P 500® sector) in the weak performing Financial sector. American Express (down 24%) was the Fund's overall top detractor and fourth-largest holding. Standard Chartered (down 48%) and Berkshire Hathaway (down 12%) also lagged.

Several Consumer Discretionary holdings hindered performance despite the sector, as a whole, producing positive returns for the Fund. Las Vegas Sands (down 21%) and CarMax (down 19%) detracted from results.

The Fund had approximately 12% of its net assets invested in foreign securities. As a whole, the Fund's foreign holdings underperformed its domestic holdings (down 17%, versus up 5%).
 

Davis Value Portfolio's investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. Davis Value Portfolio's principal risks are: stock market risk, manager risk, common stock risk, large-capitalization companies risk, mid- and small-capitalization companies risk, headline risk, financial services risk, foreign country risk, emerging market risk, foreign currency risk, depositary receipts risk, and fees and expenses risk. See the prospectus for a full description of each risk.
 
Past performance does not guarantee future results, fund prices fluctuate, and the value of an investment may be worth more or less than the purchase price. Data provided in this performance overview is for the period ended December 31, 2015, unless otherwise noted. Return figures for underlying fund positions reflect the return of the security from the beginning of the year or the date of first purchase if subsequent thereto through the end of the year or the date the position is completely liquidated. The actual contribution to the Fund will vary based on a number of factors (e.g. trading activity, weighting).
1    The companies included in the Standard & Poor's 500® Index are divided into ten sectors. One or more industry groups make up a sector.
2    A company's or sector's contribution to or detraction from the Fund's performance is a product both of its appreciation or depreciation and its weighting within the Fund. For example, a 5% holding that rises 20% has twice as much impact as a 1% holding that rises 50%.
3    This Management Discussion of Fund Performance discusses a number of individual companies. The information provided in this report does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase, sell, or hold any particular security. The Schedule of Investments lists the Fund's holdings of each company discussed.
 
2

 
DAVIS VALUE PORTFOLIO
Management's Discussion of Fund Performance – (Continued)


Comparison of a $10,000 investment in Davis Value Portfolio versus the Standard & Poor's 500® Index 
over 10 years for an investment made on December 31, 2005


Average Annual Total Return for periods ended December 31, 2015

 Fund & Benchmark Index
1-Year
5-Year
10-Year
Since Fund's
Inception
(07/01/99)
Gross Expense
Ratio
Net Expense
Ratio
 Davis Value Portfolio
1.60%
9.27%
5.16%
4.96%
0.62%
0.62%
 Standard & Poor's 500® Index
1.38%
12.57%
7.31%
4.37%
   

The Standard & Poor's 500® Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalizations, and represents approximately two-thirds of the total market value of all domestic common stocks. Investments cannot be made directly in the Index.
The performance data for Davis Value Portfolio contained in this report represents past performance, assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Fund performance changes over time and current performance may be higher or lower than stated. The operating expense ratio may vary in future years. For more current information please call Davis Funds Investor Services at 1-800-279-0279.
Fund performance numbers are net of all Fund operating expenses, but do not include any insurance charges imposed by your insurance company's separate account. If performance included the effect of these additional charges, the return would be lower.
 
3

 
DAVIS VALUE PORTFOLIO
Fund Overview
 
December 31, 2015

Portfolio Composition
 
Industry Weightings
(% of Fund's 12/31/15 Net Assets)
 
(% of 12/31/15 Stock Holdings)
           
       
Fund
 
S&P 500®
Common Stock (U.S.)
86.80%
 
Diversified Financials
17.19%
 
4.97%
Common Stock (Foreign)
11.51%
 
Information Technology
14.54%
 
20.69%
Preferred Stock (Foreign)
0.79%
 
Retailing
12.65%
 
5.52%
Short-Term Investments
1.34%
 
Banks
12.14%
 
6.04%
Other Assets & Liabilities
(0.44)%
 
Materials
8.03%
 
2.76%
 
100.00%
 
Health Care
7.90%
 
15.15%
     
Energy
6.89%
 
6.50%
     
Capital Goods
4.33%
 
7.25%
     
Food, Beverage & Tobacco
3.02%
 
5.64%
     
Insurance
2.93%
 
2.71%
     
Media
2.74%
 
3.03%
     
Food & Staples Retailing
2.35%
 
2.36%
     
Other
2.01%
 
14.48%
     
Consumer Services
1.77%
 
1.90%
     
Automobiles & Components
1.51%
 
1.00%
       
100.00%
 
100.00%






Top 10 Long-Term Holdings
(% of Fund's 12/31/15 Net Assets)
     
Amazon.com, Inc.
Retailing
7.79%
Alphabet Inc.*
Software & Services
6.89%
Wells Fargo & Co.
Banks
6.05%
American Express Co.
Consumer Finance
4.67%
JPMorgan Chase & Co.
Banks
4.10%
Berkshire Hathaway Inc., Class A
Diversified Financial Services
3.50%
Bank of New York Mellon Corp.
Capital Markets
3.48%
United Technologies Corp.
Capital Goods
3.20%
Monsanto Co.
Materials
3.12%
Texas Instruments Inc.
Semiconductors & Semiconductor Equipment
2.77%
     
     
*Alphabet Inc. holding includes Class A and Class C
   
 
4


DAVIS VALUE PORTFOLIO
Fund Overview – (Continued)
 
December 31, 2015

New Positions Added (01/01/15-12/31/15)
(Highlighted positions are those greater than 2.00% of the Fund's 12/31/15 net assets)
Security
Industry
Date of 1st
Purchase
% of Fund's
12/31/15   
Net Assets  
Advance Auto Parts, Inc.
Retailing
05/15/15
0.56%
Apache Corp.
Energy
10/13/15
2.66%
Cabot Oil & Gas Corp.
Energy
04/28/15
1.18%
Capital One Financial Corp.
Consumer Finance
07/24/15
1.01%
Didi Kuaidi Joint Co., Series A-17, Pfd.
Software & Services
07/27/15
0.79%
Facebook Inc., Class A
Software & Services
11/16/15
1.05%
Johnson Controls, Inc.
Automobiles & Components
09/11/15
1.50%
Monsanto Co.
Materials
08/26/15
3.12%
Occidental Petroleum Corp.
Energy
07/24/15
1.56%
Precision Castparts Corp.
Capital Goods
04/01/15
Standard Chartered PLC
Banks
06/11/15
0.71%
United Technologies Corp.
Capital Goods
07/22/15
3.20%






Positions Closed (01/01/15-12/31/15)
(Gains and losses greater than $1,000,000 are highlighted)
Security
Industry
Date of
Final Sale
   
Realized  
Gain (Loss)
Agilent Technologies, Inc.
Pharmaceuticals, Biotechnology &
       
 
   Life Sciences
05/01/15
 
$
934,247
Brookfield Asset Management Inc., Class A
Capital Markets
05/06/15
   
2,386,710
Experian PLC
Commercial & Professional Services
06/08/15
   
39,631
Fairfax Financial Holdings Ltd., 144A
Multi-line Insurance
01/15/15
   
188,935
Halliburton Co.
Energy
04/06/15
   
535,041
Hang Lung Group Ltd.
Real Estate
03/09/15
   
146,285
Julius Baer Group Ltd.
Capital Markets
06/03/15
   
5,298,437
Keysight Technologies, Inc.
Technology Hardware & Equipment
05/08/15
   
382,875
Netflix Inc.
Retailing
03/19/15
   
1,815,316
Precision Castparts Corp.
Capital Goods
08/13/15
   
431,120
Sysco Corp.
Food & Staples Retailing
03/24/15
   
305,944
Textron Inc.
Capital Goods
02/10/15
   
830,974
 
5

 
DAVIS VALUE PORTFOLIO
Expense Example


As a shareholder of the Fund, you incur ongoing costs only, including advisory and administrative fees and other Fund expenses. The Expense Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Expense Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for the Fund is for the six-month period ended December 31, 2015. Please note that the Expense Example is general and does not reflect charges imposed by your insurance company's separate account or account specific costs, which may increase your total costs of investing in the Fund. If these charges or account specific costs were included in the Expense Example, the expenses would have been higher.

Actual Expenses

The information represented in the row entitled "Actual" provides information about actual account values and actual expenses. You may use the information in this row, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The information represented in the row entitled "Hypothetical" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the information in the row entitled "Hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.

 
Beginning
Account Value
(07/01/15)
 
Ending
Account Value
(12/31/15)
 
Expenses Paid
During Period*
(07/01/15-12/31/15)
           
Actual
$1,000.00
 
$988.88
 
$3.11
Hypothetical
$1,000.00
 
$1,022.08
 
$3.16

Hypothetical assumes 5% annual return before expenses.

* Expenses are equal to the Fund's annualized operating expense ratio (0.62%)**, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

** The expense ratio reflects the impact, if any, of certain reimbursements from the Adviser. 
 
6

 
DAVIS VALUE PORTFOLIO
Schedule of Investments
 
December 31, 2015

 
Shares
 
Value
(Note 1)
COMMON STOCK – (98.31%)
 
   CONSUMER DISCRETIONARY – (19.69%)
 
   Automobiles & Components – (1.50%)
     
Johnson Controls, Inc.
   
122,220
 
$
4,826,468
 
   Consumer Durables & Apparel – (1.18%)
 
Compagnie Financiere Richemont S.A., Unit A  (Switzerland)
   
43,800
   
3,152,935
 
Hunter Douglas N.V.  (Netherlands)
   
16,499
   
648,987
     
3,801,922
 
   Consumer Services – (1.75%)
 
Las Vegas Sands Corp.
   
128,420
   
5,629,933
 
   Media – (2.72%)
 
Liberty Global PLC, LiLAC Class C  *
   
10,909
   
469,087
 
Liberty Global PLC, Series C  *
   
203,020
   
8,277,125
     
8,746,212
 
   Retailing – (12.54%)
 
Advance Auto Parts, Inc.
   
11,900
   
1,791,069
 
Amazon.com, Inc.  *
   
37,066
   
25,052,539
 
CarMax, Inc.  *
   
100,660
   
5,432,620
 
Liberty Interactive Corp., Liberty Ventures, Series A  *
   
24,083
   
1,086,384
 
Liberty Interactive Corp., QVC Group, Series A  *
   
60,624
   
1,656,247
 
Liberty TripAdvisor Holdings Inc., Series A  *
   
12,958
   
393,146
 
Priceline Group Inc.  *
   
3,860
   
4,921,307
     
40,333,312
     
Total Consumer Discretionary
   
63,337,847
 
   CONSUMER STAPLES – (5.32%)
 
   Food & Staples Retailing – (2.33%)
 
Costco Wholesale Corp.
   
46,440
   
7,500,060
 
   Food, Beverage & Tobacco – (2.99%)
 
Diageo PLC, ADR  (United Kingdom)
   
56,153
   
6,124,608
 
Heineken Holding N.V.  (Netherlands)
   
45,221
   
3,489,218
     
9,613,826
 
Total Consumer Staples
   
17,113,886
 
   ENERGY – (6.83%)
 
Apache Corp.
   
192,180
   
8,546,245
 
Cabot Oil & Gas Corp.
   
213,770
   
3,781,591
 
Encana Corp.  (Canada)
   
622,480
   
3,168,423
 
EOG Resources, Inc.
   
13,350
   
945,046
 
Occidental Petroleum Corp.
   
74,260
   
5,020,719
 
Ultra Petroleum Corp.  *
   
200,550
   
501,375
 
Total Energy
   
21,963,399
 
   FINANCIALS – (31.97%)
 
   Banks – (12.03%)
 
Citizens Financial Group Inc.
   
143,510
   
3,758,527
 
JPMorgan Chase & Co.
   
200,008
   
13,206,528
 
Standard Chartered PLC  (United Kingdom)
   
275,058
   
2,285,750
 
Wells Fargo & Co.
   
358,034
   
19,462,728
     
38,713,533
 
   Diversified Financials – (17.04%)
 
   Capital Markets – (5.39%)
 
Bank of New York Mellon Corp.
   
271,330
   
11,184,223
 
7

 
DAVIS VALUE PORTFOLIO
Schedule of Investments - (Continued)
 
December 31, 2015

 
Shares
 
Value
(Note 1)
COMMON STOCK – (CONTINUED)
 
   FINANCIALS – (CONTINUED)
 
   Diversified Financials – (Continued)
 
   Capital Markets – (Continued)
   
Charles Schwab Corp.
   
187,380
 
$
6,170,423
   
17,354,646
 
   Consumer Finance – (5.68%)
 
American Express Co.
   
216,099
   
15,029,686
 
Capital One Financial Corp.
   
44,840
   
3,236,551
   
18,266,237
 
   Diversified Financial Services – (5.97%)
 
Berkshire Hathaway Inc., Class A  *
   
57
   
11,274,600
 
Moody's Corp.
   
24,730
   
2,481,408
 
Visa Inc., Class A
   
70,060
   
5,433,153
   
19,189,161
     
54,810,044
 
   Insurance – (2.90%)
 
   Multi-line Insurance – (1.38%)
 
Fairfax Financial Holdings Ltd.  (Canada)
   
650
   
306,150
 
Loews Corp.
   
108,160
   
4,153,344
   
4,459,494
 
   Property & Casualty Insurance – (1.52%)
 
ACE Ltd.
   
32,010
   
3,740,368
 
Markel Corp.  *
   
1,290
   
1,139,522
   
4,879,890
     
9,339,384
     
Total Financials
   
102,862,961
 
   HEALTH CARE – (7.83%)
 
   Health Care Equipment & Services – (6.20%)
 
Express Scripts Holding Co.  *
   
81,450
   
7,119,545
 
Laboratory Corp. of America Holdings  *
   
26,920
   
3,328,389
 
Quest Diagnostics Inc.
   
52,620
   
3,743,387
 
UnitedHealth Group Inc.
   
48,860
   
5,747,890
     
19,939,211
 
   Pharmaceuticals, Biotechnology & Life Sciences – (1.63%)
 
Valeant Pharmaceuticals International, Inc.  (Canada)*
   
51,800
   
5,265,470
 
Total Health Care
   
25,204,681
 
   INDUSTRIALS – (5.11%)
 
   Capital Goods – (4.29%)
 
Orascom Construction Ltd.  (United Arab Emirates)*
   
14,625
   
102,375
 
PACCAR Inc.
   
44,990
   
2,132,526
 
Schneider Electric SE  (France)
   
22,180
   
1,266,912
 
United Technologies Corp.
   
107,270
   
10,305,429
     
13,807,242
 
   Transportation – (0.82%)
 
Kuehne + Nagel International AG  (Switzerland)
   
16,839
   
2,316,708
 
Wesco Aircraft Holdings, Inc.  *
   
25,330
   
303,200
     
2,619,908
 
Total Industrials
   
16,427,150
 
8

 
DAVIS VALUE PORTFOLIO
Schedule of Investments - (Continued)
 
December 31, 2015

 
Shares/Principal
 
Value
(Note 1)
COMMON STOCK – (CONTINUED)
 
   INFORMATION TECHNOLOGY – (13.61%)
 
   Semiconductors & Semiconductor Equipment – (2.77%)
   
Texas Instruments Inc.
   
162,520
 
$
8,907,721
 
   Software & Services – (10.84%)
 
Alphabet Inc., Class A  *
   
11,530
   
8,970,455
 
Alphabet Inc., Class C  *
   
17,383
   
13,191,611
 
Facebook Inc., Class A  *
   
32,270
   
3,377,378
 
Microsoft Corp.
   
64,730
   
3,591,220
 
Oracle Corp.
   
76,900
   
2,809,157
 
Qihoo 360 Technology Co. Ltd., Class A, ADR  (China)*
   
21,170
   
1,541,388
 
SouFun Holdings Ltd., Class A, ADR  (China)
   
191,140
   
1,412,525
     
34,893,734
     
Total Information Technology
   
43,801,455
 
   MATERIALS – (7.95%)
 
Ecolab Inc.
   
36,890
   
4,219,478
 
LafargeHolcim Ltd.  (Switzerland)*
   
102,716
   
5,215,194
 
Monsanto Co.
   
101,750
   
10,024,410
 
OCI N.V.  (Netherlands)*
   
29,250
   
724,754
 
Praxair, Inc.
   
52,840
   
5,410,816
 
Total Materials
   
25,594,652
     
 
TOTAL COMMON STOCK – (Identified cost $217,546,880)
 
   
316,306,031
PREFERRED STOCK – (0.79%)
 
   INFORMATION TECHNOLOGY – (0.79%)
 
   Software & Services – (0.79%)
 
Didi Kuaidi Joint Co., Series A-17  (China)*(a)
   
90,931
   
2,548,659
 
 
TOTAL PREFERRED STOCK – (Identified cost $2,518,831)
 
   
2,548,659
SHORT-TERM INVESTMENTS – (1.34%)
 
Mizuho Securities USA Inc. Joint Repurchase Agreement, 0.27%,
01/04/16, dated 12/31/15, repurchase value of $1,169,035 (collateralized
by: U.S. Government agency mortgages in a pooled cash account,
3.59%-6.50%, 06/01/22-12/01/45, total market value $1,192,380)
 
$
1,169,000
   
1,169,000
 
Nomura Securities International, Inc. Joint Repurchase Agreement,
0.34%, 01/04/16, dated 12/31/15, repurchase value of $2,444,092
(collateralized by: U.S. Government agency mortgages in a pooled cash
account, 2.50%-9.50%, 07/01/17-10/20/65, total market value
$2,492,880)
   
2,444,000
   
2,444,000
 
SunTrust Robinson Humphrey, Inc. Joint Repurchase Agreement,
0.45%, 01/04/16, dated 12/31/15, repurchase value of $698,035
(collateralized by: U.S. Government agency mortgages in a pooled cash
account, 2.373%-2.88%, 02/01/21-10/01/44, total market value
$711,960)
   
698,000
   
698,000
 
 
TOTAL SHORT-TERM INVESTMENTS – (Identified cost $4,311,000)
 
   
4,311,000
 
 
          Total Investments – (100.44%) – (Identified cost $224,376,711) – (b)
   
323,165,690
 
          Liabilities Less Other Assets – (0.44%)
   
(1,419,373)
 
          Net Assets – (100.00%)
 
$
321,746,317
 
 
ADR: American Depositary Receipt
 
9

 
DAVIS VALUE PORTFOLIO
Schedule of Investments - (Continued)
 
December 31, 2015

 
*
Non-Income producing security.
 
 
(a)
Restricted Security – See Note 7 of the Notes to Financial Statements.
 
 
(b)
Aggregate cost for federal income tax purposes is $225,783,563. At December 31, 2015 unrealized appreciation (depreciation) of securities for federal income tax purposes is as follows:
 
 
Unrealized appreciation
 
$
124,866,621
 
Unrealized depreciation
   
(27,484,494)
 
Net unrealized appreciation
 
$
97,382,127
 
See Notes to Financial Statements
 
10

 
DAVIS VALUE PORTFOLIO
Statement of Assets and Liabilities
 
At December 31, 2015
 
ASSETS:
         
Investments in securities at value* (see accompanying Schedule of Investments)
 
$
323,165,690
Receivables:
     
 
Capital stock sold
   
10,391
 
Dividends and interest
   
291,196
Prepaid expenses
   
8,826
   
Total assets
   
323,476,103
 
LIABILITIES:
     
Cash overdraft
   
31,236
Payables:
     
 
Capital stock redeemed
   
255,633
 
Investment securities purchased
   
1,240,476
Accrued investment advisory fee
   
155,940
Other accrued expenses
   
46,501
 
Total liabilities
   
1,729,786
 
NET ASSETS
 
$
321,746,317
 
SHARES OUTSTANDING
   
33,455,076
 
NET ASSET VALUE, offering, and redemption price per share (Net assets ÷ Shares outstanding)
 
$
9.62
 
NET ASSETS CONSIST OF:
     
Par value of shares of capital stock
 
$
33,455
Additional paid-in capital
   
219,226,279
Undistributed net investment income
   
295,710
Accumulated net realized gains from investments
   
3,412,329
Net unrealized appreciation on investments and foreign currency transactions
   
98,778,544
 
Net Assets
 
$
321,746,317
         
*Including:
     
 
Cost of Investments
 
$
224,376,711
 
 
See Notes to Financial Statements
 
11

 
DAVIS VALUE PORTFOLIO
Statement of Operations
 
For the year ended December 31, 2015
 
INVESTMENT INCOME:
              
Income:
     
Dividends*
 
$
5,134,157
Interest
   
12,433
Net securities lending fees
   
15,110
   
Total income
     
5,161,700
 
Expenses:
     
Investment advisory fees (Note 3)
 
$
1,913,397
     
Custodian fees
   
73,791
     
Transfer agent fees
   
17,851
     
Audit fees
   
21,840
     
Legal fees
   
8,042
     
Accounting fees (Note 3)
   
8,496
     
Reports to shareholders
   
23,028
     
Directors' fees and expenses
   
79,161
     
Registration and filing fees
   
222
     
Miscellaneous
   
21,266
     
 
Total expenses
     
2,167,094
Net investment income
   
2,994,606
 
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
           
Net realized gain from:
     
 
Investment transactions
   
47,581,823
 
Foreign currency transactions
   
4,073
Net realized gain
   
47,585,896
Net decrease in unrealized appreciation
   
(44,512,888)
 
Net realized and unrealized gain on investments and
foreign currency transactions
     
3,073,008
Net increase in net assets resulting from operations
 
$
6,067,614
                 
*Net of foreign taxes withheld as follows
 
$
127,443
 
 
See Notes to Financial Statements
 
12

 
DAVIS VALUE PORTFOLIO
Statements of Changes in Net Assets


   
Year ended December 31,
   
2015
    
2014
 
OPERATIONS:
           
Net investment income
 
$
2,994,606
 
$
3,094,645
Net realized gain from investments and foreign currency transactions
   
47,585,896
   
75,593,880
Net decrease in unrealized appreciation on investments and foreign currency
transactions
   
(44,512,888)
   
(56,348,187)
 
Net increase in net assets resulting from operations
   
6,067,614
   
22,340,338
 
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
           
Net investment income
   
(2,634,719)
   
(3,407,176)
 
Realized gains from investment transactions
   
(50,844,472)
   
(73,745,408)
 
CAPITAL SHARE TRANSACTIONS:
           
Net increase in net assets resulting from capital share transactions (Note 4)
   
4,032,524
   
23,686,496
 
 
Total decrease in net assets
   
(43,379,053)
   
(31,125,750)
 
NET ASSETS:
           
Beginning of year
   
365,125,370
   
396,251,120
End of year*
 
$
321,746,317
 
$
365,125,370
               
*Including undistributed (overdistributed) net investment income of
 
$
295,710
 
$
(69,415)
               
See Notes to Financial Statements
 
13

 
DAVIS VALUE PORTFOLIO
Notes to Financial Statements
 
December 31, 2015

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Fund is a separate series of Davis Variable Account Fund, Inc. (a Maryland corporation), which is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. Only insurance companies, for the purpose of funding variable annuity or variable life insurance contracts, may purchase shares of the Fund. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.

Security Valuation - The Fund calculates the net asset value of its shares as of the close of the New York Stock Exchange ("Exchange"), normally 4:00 P.M. Eastern time, on each day the Exchange is open for business. Securities listed on the Exchange (and other national exchanges including NASDAQ) are valued at the last reported sales price on the day of valuation. Listed securities for which no sale was reported on that date are valued at the average of closing bid and asked prices. Securities traded on foreign exchanges are valued based upon the last sales price on the principal exchange on which the security is traded prior to the time when the Fund's assets are valued. Securities (including restricted securities) for which market quotations are not readily available or securities whose values have been materially affected by what Davis Selected Advisers, L.P. ("Davis Advisors" or "Adviser"), the Fund's investment adviser, identifies as a significant event occurring before the Fund's assets are valued, but after the close of their respective exchanges will be fair valued using a fair valuation methodology applicable to the security type or the significant event as previously approved by the Fund's Pricing Committee and Board of Directors. The Pricing Committee considers all facts it deems relevant that are reasonably available, through either public information or information available to the Adviser's portfolio management team, when determining the fair value of a security. To assess the appropriateness of security valuations, the Adviser may consider (i) comparing prior day prices and/or prices of comparable securities; (ii) comparing sale prices to the prior or current day prices and challenge those prices exceeding certain tolerance levels with the third-party pricing service or broker source; (iii) new rounds of financing; (iv) the performance of the market or the issuer's industry; (v) the liquidity of the security; (vi) the size of the holding in a fund; and/or (vii) any other appropriate information. The determination of a security's fair value price often involves the consideration of a number of subjective factors and is therefore subject to the unavoidable risk that the value assigned to a security may be higher or lower than the security's value would be if a reliable market quotation of the security was readily available. Fair value determinations are subject to review, approval, and ratification by the Fund's Board of Directors at its next regularly scheduled meeting covering the period in which the fair valuation was determined. Fair valuation methods used by the Fund may include, but are not limited to, valuing securities initially at cost (excluding commissions) and subsequently adjusting the value due to: additional transactions by the issuer, changes in company specific fundamentals and changes in the value of similar securities. Values may be further adjusted for any discounts related to security-specific resale restrictions.

Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value.

The Fund's valuation procedures are reviewed and subject to approval by the Board of Directors. There have been no significant changes to the fair valuation procedures during the period.

Fair Value Measurements - Fair value is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal market for the investment. Various inputs are used to determine the fair value of the Fund's investments. These inputs are summarized in the three broad levels listed below.

Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment
                 speeds, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Fund's own assumptions in determining the fair value of
                 investments)

The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities nor can it be assured that the Fund can obtain the fair value assigned to a security if it were to sell the security.
 
14

 
DAVIS VALUE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2015

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)

Fair Value Measurements - (Continued)

The following is a summary of the inputs used as of December 31, 2015 in valuing the Fund's investments carried at value:

 
Investments in Securities at Value
 
Valuation Inputs
     
Level 2:
 
Level 3:
   
     
Other Significant
 
Significant
   
 
Level 1:
 
Observable
 
Unobservable
   
 
Quoted Prices
   
Inputs
   
Inputs
   
Total
Equity securities:
                     
Consumer Discretionary
$
63,337,847
 
$
 
$
 
$
63,337,847
Consumer Staples
 
17,113,886
   
   
   
17,113,886
Energy
 
21,963,399
   
   
   
21,963,399
Financials
 
102,862,961
   
   
   
102,862,961
Health Care
 
25,204,681
   
   
   
25,204,681
Industrials
 
16,427,150
   
   
   
16,427,150
Information Technology
 
43,801,455
   
   
2,548,659
   
46,350,114
Materials
 
25,594,652
   
   
   
25,594,652
Short-term securities
 
   
4,311,000
   
   
4,311,000
Total Investments
$
316,306,031
 
$
4,311,000
 
$
2,548,659
 
$
323,165,690
                       
Level 2 to Level 1 Transfers*:
                     
        Consumer Discretionary
$
3,801,922
                 
        Consumer Staples
 
3,489,218
                 
        Industrials
 
3,583,620
                 
        Materials
 
724,754
                 
                Total
$
11,599,514
                 
 
*Application of fair value procedures for securities traded on foreign exchanges triggered the transfers of investments between Level 1 and Level 2 of the fair value hierarchy during the year ended December 31, 2015.

The following table reconciles the valuation of assets in which significant unobservable inputs (Level 3) were used in determining fair value during the year ended December 31, 2015:

Investment Securities:
     
Beginning balance
 
$
Cost of purchases
   
2,518,831
Increase in unrealized appreciation
   
29,828
Ending balance
 
$
2,548,659
       
Increase in unrealized appreciation during the period on Level 3 securities still held at
December 31, 2015 and included in the change in net assets for the year
 
$
29,828

There were no transfers of investments into or out of Level 3 of the fair value hierarchy during the period. The cost of purchases may include securities received through corporate actions or exchanges. Realized and unrealized gains (losses) are included in the related amounts on investments in the Statement of Operations.

The following table is a summary of those assets in which significant unobservable inputs (Level 3), if any, were used by the Adviser in determining fair value. Note that these amounts exclude any valuations provided by a pricing service or broker.

Assets Table
   
Fair Value at
 
Valuation
 
Unobservable
   
Investments at Value
  
December 31, 2015
  
Technique
  
Input
  
Amount
Equity securities
 
$
2,548,659
 
Market Approach
 
Transaction Price
 
$
28.0285

The significant unobservable input in the table above is attributable to a private security and includes assumptions made from a private transaction, and if changed, would affect the fair value of the Fund's investment. An increase in this input would result in a higher fair value measurement.
 
15

 
DAVIS VALUE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2015

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)

Master Repurchase Agreements - The Fund, along with other affiliated funds, may transfer uninvested cash balances into one or more master repurchase agreement accounts. These balances are invested in one or more repurchase agreements, secured by U.S. Government securities. A custodian bank holds securities pledged as collateral for repurchase agreements until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal; however, in the event of default by the other party to the agreement, retention of the collateral may be subject to legal proceedings.

Currency Translation - The market values of all assets and liabilities denominated in foreign currencies are recorded in the financial statements after translation to the U.S. Dollar based upon the mean between the bid and offered quotations of the currencies against U.S. Dollars on the date of valuation. The cost basis of such assets and liabilities is determined based upon historical exchange rates. Income and expenses are translated at average exchange rates in effect as accrued or incurred.

Foreign Currency - The Fund may enter into forward purchases or sales of foreign currencies to hedge certain foreign currency denominated assets and liabilities against declines in market value relative to the U.S. Dollar. Forward currency contracts are marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the forward currency contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the forward currency contract at the time it was opened and value at the time it was closed. Investments in forward currency contracts may expose the Fund to risks resulting from unanticipated movements in foreign currency exchange rates or failure of the counter-party to the agreement to perform in accordance with the terms of the contract.

Reported net realized foreign exchange gains or losses arise from the sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on security transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. Dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate. The Fund includes foreign currency gains and losses realized on the sales of investments together with market gains and losses on such investments in the Statement of Operations.

Federal Income Taxes - It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute substantially all of its taxable income, including any net realized gains on investments not offset by loss carryovers, to shareholders. Therefore, no provision for federal income or excise tax is required. The Adviser has analyzed the Fund's tax positions taken on federal and state income tax returns for all open tax years and has concluded that as of December 31, 2015, no provision for income tax is required in the Fund's financial statements related to these tax positions. The Fund's federal and state (Arizona) income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state department of revenue. The earliest tax year that remains subject to examination by these jurisdictions is 2012.

Securities Transactions and Related Investment Income - Securities transactions are accounted for on the trade date (date the order to buy or sell is executed) with realized gain or loss on the sale of securities being determined based upon identified cost. Dividend income is recorded on the ex-dividend date. Interest income, which includes accretion of discount and amortization of premium, is accrued as earned.

Dividends and Distributions to Shareholders - Dividends and distributions to shareholders are recorded on the ex-dividend date. Net investment income (loss), net realized gains (losses), and net unrealized appreciation (depreciation) on investments may differ for financial statement and tax purposes primarily due to differing treatments of wash sales, Directors' deferred compensation payments, and foreign currency transactions. The character of dividends and distributions made during the fiscal year from net investment income and net realized securities gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividends and distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which income or realized gain was recorded by the Fund. The Fund adjusts certain components of capital to reflect permanent differences between financial statement amounts and net income and realized gains/losses determined in accordance with income tax rules. Accordingly, during the year ended December 31, 2015, amounts have been reclassified to reflect an increase in undistributed net investment income of $5,238 and a corresponding decrease in accumulated net realized gains from investments and foreign currency transactions. The Fund's net assets have not been affected by this reclassification.
 
16

 
DAVIS VALUE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2015

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)

Dividends and Distributions to Shareholders - (Continued)

The tax character of distributions paid during the years ended December 31, 2015 and 2014 was as follows:

 
2015
 
2014
Ordinary income
$
2,751,671
 
$
3,407,176
Long-term capital gain
 
50,727,520
   
73,745,408
Total
$
53,479,191
 
$
77,152,584

As of December 31, 2015, the components of distributable earnings on a tax basis were as follows:

Undistributed net investment income
$
383,292    
Undistributed long-term capital gain
 
4,819,169    
Net unrealized appreciation on investments
 
97,371,692    
Total
$
102,574,153    

Indemnification - Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, some of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims.

Use of Estimates in Financial Statements - In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.

Directors Fees and Expenses - The Fund set up a Rabbi Trust to provide for the deferred compensation plan for Independent Directors that enables them to elect to defer receipt of all or a portion of annual fees they are entitled to receive. The value of an eligible Director's account is based upon years of service and fees paid to each Director during the years of service. The amount paid to the Director by the Trust under the plan will be determined based upon the performance of the Davis Funds in which the amounts are invested.

NOTE 2 - PURCHASES AND SALES OF SECURITIES

The cost of purchases and proceeds from sales of investment securities (excluding short-term securities) during the year ended December 31, 2015 were $90,585,589 and $125,080,306, respectively.

NOTE 3 - FEES AND OTHER TRANSACTIONS WITH SERVICE PROVIDERS (INCLUDING AFFILIATES)

Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of the Adviser, acts as sub-adviser to the Fund. DSA-NY performs research and portfolio management services for the Fund under a Sub-Advisory Agreement with the Adviser. The Fund pays no fees directly to DSA-NY.

Certain directors and officers of the Fund are also directors and officers of the general partner of the Adviser.

Investment Advisory Fees - Advisory fees are paid monthly to the Adviser at an annual rate of 0.55% of the Fund's average net assets. The Adviser 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 1.00%.

Accounting Fees - State Street Bank and Trust Company ("State Street Bank") is the Fund's primary accounting provider. Fees for accounting services are included in the custodian fees as State Street Bank also serves as the Fund's custodian. The Adviser is also paid for certain accounting services. The fee paid to the Adviser for these services during the year ended December 31, 2015 amounted to $8,496.
 
17

 
DAVIS VALUE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2015

NOTE 4 - CAPITAL STOCK

At December 31, 2015, there were 500 million shares of capital stock ($0.001 par value per share) authorized. Transactions in capital stock were as follows:

 
Year ended December 31, 2015
   
Sold
   
Reinvestment of Distributions
   
Redeemed
   
Net Increase
                       
Shares:                          
 
570,876
   
5,479,425
   
(4,838,229)
   
1,212,072
Value:
$
6,488,176
 
$
53,479,191
 
$
(55,934,843)
 
$
4,032,524
                       
 
 
Year ended December 31, 2014
   
Sold
   
Reinvestment of Distributions
   
Redeemed
   
Net Increase
                       
Shares:                          
 
573,457
   
6,726,467
   
(4,462,207)
   
2,837,717
Value:
$
7,836,605
 
$
77,152,584
 
$
(61,302,693)
 
$
23,686,496
                       

NOTE 5 - BANK BORROWINGS

The Fund may borrow up to 5% of its assets from a bank to purchase portfolio securities, or for temporary and emergency purposes. The purchase of securities with borrowed funds creates leverage in the Fund. The Fund has entered into an agreement, which enables it to participate with certain other funds managed by the Adviser in an unsecured line of credit with a bank, which permits borrowings up to $50 million, collectively. Interest is charged based on its borrowings, at a rate equal to the higher of the Federal Funds Rate or the one month LIBOR Rate, plus 1.25%. The Fund had no borrowings during the year ended December 31, 2015.

NOTE 6 - SECURITIES LOANED

The Fund has entered into a securities lending arrangement with State Street Bank. Under the terms of the agreement, the Fund receives fee income from lending transactions; in exchange for such fees, State Street Bank is authorized to loan securities on behalf of the Fund, against receipt of collateral at least equal to the value of the securities loaned. As of December 31, 2015, the Fund did not have any securities on loan. The Fund bears the risk of any deficiency in the amount of the collateral available for return to a borrower due to a loss in an approved investment.

NOTE 7 - RESTRICTED SECURITIES

Restricted securities are not registered under the Securities Act of 1933 and may have contractual restrictions on resale. They are fair valued under methods approved by the Board of Directors. The aggregate value of restricted securities amounted to $2,548,659 or 0.79% of the Fund's net assets as of December 31, 2015. Information regarding restricted securities is as follows:

Security
Acquisition
Date
      
 
Shares
 
Cost per
Share
 
Valuation per Share
as of December 31, 2015
Didi Kuaidi Joint Co., Series A-17, Pfd.
 
07/27/15
 
90,931
 
$
27.7005
 
$
28.0285

 

 
 
FEDERAL INCOME TAX INFORMATION (UNAUDITED)

During the calendar year ended December 31, 2015, the Fund declared and paid long-term capital gain distributions in the amount of $50,727,520.

During the calendar year ended December 31, 2015, $2,751,671 of dividends paid by the Fund constituted income dividends for federal income tax purposes. The Fund designates $2,751,671 or 100% as income qualifying for the corporate dividends-received deduction.
 
18

 
DAVIS VALUE PORTFOLIO
Financial Highlights


The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 
Year ended  December 31,
     
2015
  
2014
  
2013
  
2012
  
2011
Net Asset Value, Beginning of Period
 
$
11.32
 
$
13.48
 
$
10.93
 
$
10.47
 
$
11.97
 
Income (Loss) from Investment Operations:
                                                 
Net Investment Income
 
0.10
 
0.12
 
0.12
 
0.20
 
0.13
Net Realized and Unrealized Gains (Losses)
 
0.10
 
0.73
 
3.53
 
1.16
 
(0.63)
   
Total from Investment Operations
 
0.20
 
0.85
 
3.65
 
1.36
 
(0.50)
 
Dividends and Distributions:
                                                 
Dividends from Net Investment Income
 
(0.09)
 
(0.13)
 
(0.12)
 
(0.19)
 
(0.10)
Distributions from Realized Gains
 
(1.81)
 
(2.88)
 
(0.98)
 
(0.71)
 
(0.90)
 
Total Dividends and Distributions
 
(1.90)
 
(3.01)
 
(1.10)
 
(0.90)
 
(1.00)
 
Net Asset Value, End of Period
 
$
9.62
 
$
11.32
 
$
13.48
 
$
10.93
 
$
10.47
 
Total Returna
 
1.60
%
 
6.06
%
 
33.43
%
 
13.08
%
 
(4.18)
%
 
Ratios/Supplemental Data:
                                                 
Net Assets, End of Period (in thousands)
 
$
321,746
   
$
365,125
   
$
396,251
   
$
345,556
   
$
351,369
 
Ratio of Expenses to Average Net Assets:
                                                 
 
Gross
 
0.62
%
 
0.62
%
 
0.62
%
 
0.64
%
 
0.63
%
 
Netb
 
0.62
%
 
0.62
%
 
0.62
%
 
0.64
%
 
0.63
%
Ratio of Net Investment Income to Average Net Assets
 
0.86
%
 
0.82
%
 
0.84
%
 
1.63
%
 
1.15
%
Portfolio Turnover Ratec
 
27
%
 
26
%
 
10
%
 
10
%
 
13
%

a
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.
   
b
The Net Ratio of Expenses to Average Net Assets reflects the impact, if any, of the reduction of expenses paid indirectly and of certain reimbursements from the Adviser.
   
c
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.
 
See Notes to Financial Statements
 
19

 
DAVIS VALUE PORTFOLIO
Report of Independent Registered Public Accounting Firm


The Shareholders and Board of Directors
Davis Variable Account Fund, Inc.:


We have audited the accompanying statement of assets and liabilities of Davis Value Portfolio (a separate series of Davis Variable Account Fund, Inc.), including the schedule of investments, as of December 31, 2015, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two‑year period then ended, and the financial highlights for each of the years in the five‑year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2015, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Davis Value Portfolio as of December 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two‑year period then ended, and the financial highlights for each of the years in the five‑year period then ended, in conformity with U.S. generally accepted accounting principles.
 
Denver, Colorado
February 8, 2016
 
20

 
DAVIS VALUE PORTFOLIO
Directors and Officers


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 85756. Each Director serves until their retirement, resignation, death, or removal. Subject to exceptions and exemptions, which may be granted by the Independent Directors, Directors must retire at the close of business on the last day of the calendar year in which the Director attains age seventy-four (74).

Name
(birthdate)
Position(s)
Held With
Fund
Term of
Office and
Length of
Time
Served
Principal Occupation(s)
During Past Five Years
Number of
Portfolios in
Fund
Complex
Overseen by
Director
Other Directorships
Held by Director
           
Independent Directors
           
Marc P. Blum
(09/09/42)
Director
Director since
1986
Chief Executive Officer, World
Total Return Fund, LLLP; of
Counsel to Gordon Feinblatt LLC
(law firm).
13
Director, Rodney Trust
Company (trust and asset
management company).
           
John S. Gates,
Jr.
(08/02/53)
Director
Director since
2007
Chairman and Chief Executive
Officer of PortaeCo LLC (private
investment company).
13
 
Director, Care Capital
Properties (REIT); Director,
DCT Industrial Trust (REIT).
           
Thomas S.
Gayner
(12/16/61)
Director/
Chairman
Director since
2004
President and Chief Investment
Officer, Markel Corp. (diversified
financial holding company).
13
Director, Graham Holdings
Company (educational and
media company); Director,
Colfax Corp. (engineering and
manufacturer of pumps and
fluid handling equipment);
Director, Cable One Inc. (cable
service provider).
           
Samuel H.
Iapalucci
(07/19/52)
Director
Director since
2006
Retired; Executive Vice President
and Chief Financial Officer, CH2M-
HILL Companies, Ltd. (engineering)
until 2008.
13
Director, exp Global Inc.
(engineering).
           
Robert P. Morgenthau
(03/22/57)
Director
Director since
2002
Principal, Spears Abacus Advisors,
LLC (investment management firm)
since 2011; Chairman, NorthRoad
Capital Management, LLC
(investment management firm)
2002-2011.
13
none
           
Marsha
Williams
(03/28/51)
Director
Director since
1999
Retired; Senior Vice President and
Chief Financial Officer, Orbitz
Worldwide, Inc. (travel-services
provider) 2007-2010.
13
Director, Modine
Manufacturing Company (heat
transfer technology); Director,
Chicago Bridge & Iron
Company, N.V. (industrial
construction and engineering);
Director, Fifth Third Bancorp
(diversified financial services).
 
21

 
DAVIS VALUE PORTFOLIO
Directors and Officers – (Continued)


Name
(birthdate)
Position(s) Held
With Fund
Term of
Office and
Length of
Time
Served
Principal Occupation(s)
During Past Five Years
Number of
Portfolios in
Fund
Complex
Overseen by
Director
Other Directorships
Held by Director
           
Interested Directors*
           
Andrew A.
Davis
(06/25/63)
Director
Director since
1997
President or Vice President of each
Davis Fund and Selected Fund;
President, Davis Selected Advisers,
L.P., and also serves as an executive
officer of certain companies
affiliated with the Adviser.
16
Director, Selected Funds
(consisting of two portfolios)
since 1998; Trustee of Clipper
Funds Trust (consisting of one
portfolio) since 2014.
           
Christopher C.
Davis
(07/13/65)
Director
Director since
1997
President or Vice President of each
Davis Fund, Selected Fund, and
Clipper Fund; Chairman, Davis
Selected Advisers, L.P., and also
serves as an executive officer of
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).
16
Director, Selected Funds
(consisting of two portfolios)
since 1998; Trustee of Clipper
Funds Trust (consisting of
one portfolio) since 2014; Director,
Graham Holdings Company
(educational and media
company).

*    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.

Officers

Andrew A. Davis (born 06/25/63, Davis Funds officer since 1997). See description in the section on Interested Directors.

Christopher C. Davis (born 07/13/65, Davis Funds officer since 1997). See description in the section on Interested Directors.

Kenneth C. Eich (born 08/14/53, Davis Funds officer since 1997). Executive Vice President and Principal Executive Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Chief Operating Officer, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.

Douglas A. Haines (born 03/04/71, 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 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President and Director of Fund Accounting, Davis Selected Advisers, L.P.

Sharra L. Haynes (born 09/25/66, Davis Funds officer since 1997). Vice President and Chief Compliance Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President and Chief Compliance Officer, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.

Ryan M. Charles (born 07/25/78, Davis Funds officer since 2014). Vice President and Secretary of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President, Chief Legal Officer, and Secretary, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
 
22

 
DAVIS VALUE PORTFOLIO


Investment Adviser
Davis Selected Advisers, L.P. (Doing business as "Davis Advisors")
2949 East Elvira Road, Suite 101
Tucson, Arizona 85756
(800) 279-0279
 
Distributor
Davis Distributors, LLC
2949 East Elvira Road, Suite 101
Tucson, Arizona 85756
 
Transfer Agent
Boston Financial Data Services, Inc.
c/o The Davis Funds
P.O. Box 8406
Boston, Massachusetts 02266-8406
 
Custodian
State Street Bank and Trust Co.
One Lincoln Street
Boston, Massachusetts 02111
 
Counsel
Greenberg Traurig, LLP
77 West Wacker Drive, Suite 3100
Chicago, Illinois 60601
 
Independent Registered Public Accounting Firm
KPMG LLP
1225 Seventeenth Street, Suite 800
Denver, Colorado 80202







 

For more information about Davis Value Portfolio, including management fee, charges, and expenses, see the current prospectus, which must precede or accompany this report. The Fund's Statement of Additional Information contains additional information about the Fund's Directors and is available without charge, upon request, by calling 1-800-279-0279 and on the Fund's website at www.davisfunds.com. Quarterly Fact Sheets are available on the Fund's website at www.davisfunds.com.

 

 
 

 
DAVIS FINANCIAL PORTFOLIO
Table of Contents


Management's Discussion of Fund Performance                                                                                                                                                                  
2
 
Fund Overview                                                                                                                                                                  
4
 
Expense Example                                                                                                                                                                  
5
 
Schedule of Investments                                                                                                                                                                  
6
 
Statement of Assets and Liabilities                                                                                                                                                                  
8
 
Statement of Operations                                                                                                                                                                  
9
 
Statements of Changes in Net Assets                                                                                                                                                                  
10
 
Notes to Financial Statements                                                                                                                                                                  
11
 
Federal Income Tax Information                                                                                                                                                                  
15
 
Financial Highlights                                                                                                                                                                  
16
 
Report of Independent Registered Public Accounting Firm                                                                                                                                                                  
17
 
Directors and Officers                                                                                                                                                                  
18


This Annual Report is authorized for use by existing shareholders. Prospective shareholders must receive a current Davis Financial Portfolio prospectus, which contains more information about investment strategies, risks, charges, and expenses. Please read the prospectus carefully before investing or sending money.

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.

Portfolio Proxy Voting Policies and Procedures
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under which the Fund votes proxies relating to securities held by the Fund. A description of the Fund's Portfolio Proxy Voting Policies and Procedures is available (i) without charge, upon request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.

In addition, the Fund is required to file Form N-PX, with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. The Fund's Form N-PX filing is available (i) without charge, upon request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.
Form N-Q
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q is available without charge, upon request, by calling 1-800-279-0279, on the Fund's website at www.davisfunds.com, and on the SEC's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
 

 
DAVIS FINANCIAL PORTFOLIO
Management's Discussion of Fund Performance


Performance Overview

Davis Financial Portfolio outperformed the Standard & Poor's 500® Index (S&P 500®) for the twelve-month period ended December 31, 2015. The Fund delivered a total return of 2.01%, versus a 1.38% return for the S&P 500®. The Fund's Financial sector1 outperformed the Index's Financial sector (up about 1%, versus down 1%).

Contributors to Performance

Insurance companies made significant contributions to performance2. The Fund's Insurance holdings were up about 13%, compared to up 2% for the S&P 500® Insurance industry group. Markel3 (up 29%) was the Fund's overall top contributor and its second-largest holding. Chubb (up 31%), Everest Re Group (up 10%), and American International Group (up 12%) were also key contributors.

The Fund held one company in the Information Technology sector, which helped returns. This strong performer was Alphabet Inc. (up 46%), a holding company for Google, Inc.

Additional contributors included Visa (up 19%), Julius Baer Group (up 8%), and Charles Schwab (up 10%), all from the Diversified Financials industry group; and JPMorgan Chase (up 8%) and Citizens Financial Group (up 7%), both from the Banking industry group.

Detractors from Performance

Diversified Financial companies represented the largest industry group in the Fund and detracted from performance. The Fund's Diversified Financial holdings were down about 3%, compared to down 6% for the S&P 500® Diversified Financials industry group. Specifically, the Consumer Finance sub-industry group produced the overall top detractor, American Express (down 24%), along with another key detractor, Capital One Financial (down 11%).

Additional detractors from the Diversified Financials industry group included Berkshire Hathaway (down 12%), Cielo (down 34%), and Goldman Sachs (down 6%).

Banking companies also hindered performance. The Fund's Bank holdings were down about 4%, compared to up 1% for the S&P 500® Banking industry group. Standard Chartered (down 48%), ICICI Bank (down 31%), U.S. Bancorp (down 3%), and DBS Group Holdings (down 5%) were weak performers.

The Fund had approximately 11% of its net assets invested in foreign securities. As a whole, the Fund's foreign holdings underperformed its domestic holdings (down 15%, versus up 5%).


Davis Financial Portfolio's investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. Davis Financial Portfolio's principal risks are: stock market risk, manager risk, common stock risk, large-capitalization companies risk, mid- and small-capitalization companies risk, headline risk, financial services risk, foreign country risk, emerging market risk, foreign currency risk, depositary receipts risk, focused portfolio risk, interest rate sensitivity risk, credit risk, and fees and expenses risk. See the prospectus for a full description of each risk.

Davis Financial Portfolio concentrates its investments in the financial sector, and it may be subject to greater risks than a fund that does not concentrate its investments in a particular sector. The Fund's investment performance, both good and bad, is expected to reflect the economic performance of the financial sector more than a fund that does not concentrate its portfolio.

Past performance does not guarantee future results, fund prices fluctuate, and the value of an investment may be worth more or less than the purchase price. Data provided in this performance overview is for the period ended December 31, 2015, unless otherwise noted. Return figures for underlying fund positions reflect the return of the security from the beginning of the year or the date of first purchase if subsequent thereto through the end of the year or the date the position is completely liquidated. The actual contribution to the Fund will vary based on a number of factors (e.g. trading activity, weighting).
1    The companies included in the Standard & Poor's 500® Index are divided into ten sectors. One or more industry groups make up a sector.
2    A company's or sector's contribution to or detraction from the Fund's performance is a product both of its appreciation or depreciation and its weighting within the Fund. For example, a 5% holding that rises 20% has twice as much impact as a 1% holding that rises 50%.
3    This Management Discussion of Fund Performance discusses a number of individual companies. The information provided in this report does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase, sell, or hold any particular security. The Schedule of Investments lists the Fund's holdings of each company discussed.
 
2

 
DAVIS FINANCIAL PORTFOLIO
Management's Discussion of Fund Performance – (Continued)


Comparison of a $10,000 investment in Davis Financial Portfolio versus the Standard & Poor's 500® Index 
over 10 years for an investment made on December 31, 2005

Average Annual Total Return for periods ended December 31, 2015

 Fund & Benchmark Index
1-Year
5-Year
10-Year
Since Fund's
Inception
(07/01/99)
Gross Expense
Ratio
Net Expense
Ratio
 Davis Financial Portfolio
2.01%
10.57%
4.46%
4.94%
0.68%
0.68%
 Standard & Poor's 500® Index
1.38%
12.57%
7.31%
4.37%
   

The Standard & Poor's 500® Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalizations, and represents approximately two-thirds of the total market value of all domestic common stocks. Investments cannot be made directly in the Index.
The performance data for Davis Financial Portfolio contained in this report represents past performance, assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Fund performance changes over time and current performance may be higher or lower than stated. The operating expense ratio may vary in future years. For more current information please call Davis Funds Investor Services at 1-800-279-0279.
Fund performance numbers are net of all Fund operating expenses, but do not include any insurance charges imposed by your insurance company's separate account. If performance included the effect of these additional charges, the return would be lower.
 
3

 
DAVIS FINANCIAL PORTFOLIO
Fund Overview
 
December 31, 2015

Portfolio Composition
 
Industry Weightings
(% of Fund's 12/31/15 Net Assets)
 
(% of 12/31/15 Stock Holdings)
             
       
Fund
 
S&P 500®
Common Stock (U.S.)
87.47%
 
Diversified Financials
43.13%
 
4.97%
Common Stock (Foreign)
10.57%
 
Insurance
27.96%
 
2.71%
Short-Term Investments
1.97%
 
Banks
25.47%
 
6.04%
Other Assets & Liabilities
(0.01)%
 
Information Technology
3.44%
 
20.69%
 
100.00%
 
Health Care
 
15.15%
     
Capital Goods
 
7.25%
     
Energy
 
6.50%
     
Food, Beverage & Tobacco
 
5.64%
     
Retailing
 
5.52%
     
Media
 
3.03%
     
Other
 
22.50%
       
100.00%
 
100.00%






Top 10 Long-Term Holdings
(% of Fund's 12/31/15 Net Assets)
     
Wells Fargo & Co.
Banks
8.23%
Markel Corp.
Property & Casualty Insurance
7.57%
Bank of New York Mellon Corp.
Capital Markets
6.06%
Visa Inc., Class A
Diversified Financial Services
5.80%
American Express Co.
Consumer Finance
5.66%
JPMorgan Chase & Co.
Banks
5.10%
Berkshire Hathaway Inc., Class A
Diversified Financial Services
4.69%
ACE Ltd.
Property & Casualty Insurance
4.27%
Everest Re Group, Ltd.
Reinsurance
4.19%
Citizens Financial Group Inc.
Banks
3.80%






New Positions Added (01/01/15-12/31/15)
Security
Industry
Date of 1st
Purchase
% of Fund's  
             12/31/15    
              Net Assets   
DBS Group Holdings Ltd.
Banks
09/02/15
1.92%
Standard Chartered PLC
Banks
05/18/15
1.81%



Positions Closed (01/01/15-12/31/15)
NONE
 
4

 
DAVIS FINANCIAL PORTFOLIO
Expense Example


As a shareholder of the Fund, you incur ongoing costs only, including advisory and administrative fees and other Fund expenses. The Expense Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Expense Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for the Fund is for the six-month period ended December 31, 2015. Please note that the Expense Example is general and does not reflect charges imposed by your insurance company's separate account or account specific costs, which may increase your total costs of investing in the Fund. If these charges or account specific costs were included in the Expense Example, the expenses would have been higher.

Actual Expenses

The information represented in the row entitled "Actual" provides information about actual account values and actual expenses. You may use the information in this row, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The information represented in the row entitled "Hypothetical" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the information in the row entitled "Hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.

 
Beginning
Account Value
(07/01/15)
 
Ending
Account Value
(12/31/15)
 
Expenses Paid
During Period*
(07/01/15-12/31/15)
           
Actual
$1,000.00
 
$989.66
 
$3.41
Hypothetical
$1,000.00
 
$1,021.78
 
$3.47

Hypothetical assumes 5% annual return before expenses.

* Expenses are equal to the Fund's annualized operating expense ratio (0.68%)**, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

** The expense ratio reflects the impact, if any, of certain reimbursements from the Adviser. 
 
5

 
DAVIS FINANCIAL PORTFOLIO
Schedule of Investments
 
December 31, 2015

 
Shares
 
Value
(Note 1)
COMMON STOCK – (98.04%)
 
   FINANCIALS – (94.67%)
 
   Banks – (24.97%)
   
Citizens Financial Group Inc.
   
97,880
 
$
2,563,477
 
DBS Group Holdings Ltd.  (Singapore)
   
110,000
   
1,294,802
 
ICICI Bank Ltd., ADR  (India)
   
52,390
   
410,214
 
JPMorgan Chase & Co.
   
52,170
   
3,444,785
 
Standard Chartered PLC  (United Kingdom)
   
147,502
   
1,225,751
 
U.S. Bancorp
   
55,410
   
2,364,345
 
Wells Fargo & Co.
   
102,270
   
5,559,397
     
16,862,771
 
   Diversified Financials – (42.29%)
 
   Capital Markets – (17.40%)
 
Bank of New York Mellon Corp.
   
99,280
   
4,092,322
 
Brookfield Asset Management Inc., Class A  (Canada)
   
51,750
   
1,631,677
 
Charles Schwab Corp.
   
62,830
   
2,068,992
 
Goldman Sachs Group, Inc.
   
10,800
   
1,946,484
 
Julius Baer Group Ltd.  (Switzerland)
   
41,484
   
2,015,387
   
11,754,862
 
   Consumer Finance – (9.13%)
 
American Express Co.
   
54,970
   
3,823,163
 
Capital One Financial Corp.
   
32,420
   
2,340,076
   
6,163,239
 
   Diversified Financial Services – (15.76%)
 
Berkshire Hathaway Inc., Class A  *
   
16
   
3,164,800
 
Cielo S.A.  (Brazil)
   
65,828
   
558,904
 
McGraw Hill Financial Inc.
   
14,750
   
1,454,055
 
Moody's Corp.
   
15,460
   
1,551,256
 
Visa Inc., Class A
   
50,500
   
3,916,275
   
10,645,290
     
28,563,391
 
   Insurance – (27.41%)
 
   Insurance Brokers – (3.22%)
 
Marsh & McLennan Cos, Inc.
   
39,210
   
2,174,195
 
   Multi-line Insurance – (5.68%)
 
American International Group, Inc.
   
32,420
   
2,009,067
 
Loews Corp.
   
47,580
   
1,827,072
   
3,836,139
 
   Property & Casualty Insurance – (14.32%)
 
ACE Ltd.
   
24,660
   
2,881,521
 
Chubb Corp.
   
12,670
   
1,680,549
 
Markel Corp.  *
   
5,785
   
5,110,180
   
9,672,250
 
   Reinsurance – (4.19%)
 
Everest Re Group, Ltd.
   
15,460
   
2,830,571
     
18,513,155
     
Total Financials
   
63,939,317
 
6

 
DAVIS FINANCIAL PORTFOLIO
Schedule of Investments – (Continued)
 
December 31, 2015
 
 
Shares/Principal
 
Value
(Note 1)
COMMON STOCK – (CONTINUED)
 
   INFORMATION TECHNOLOGY – (3.37%)
 
   Software & Services – (3.37%)
     
Alphabet Inc., Class A  *
   
1,480
 
$
1,151,455
 
Alphabet Inc., Class C  *
   
1,485
   
1,126,937
 
Total Information Technology
   
2,278,392
     
 
TOTAL COMMON STOCK – (Identified cost $40,635,763)
 
   
66,217,709
SHORT-TERM INVESTMENTS – (1.97%)
 
Mizuho Securities USA Inc. Joint Repurchase Agreement, 0.27%,
01/04/16, dated 12/31/15, repurchase value of $361,011 (collateralized
by: U.S. Government agency mortgages in a pooled cash account,
3.59%-6.50%, 06/01/22-12/01/45, total market value $368,220)
 
$
361,000
   
361,000
 
Nomura Securities International, Inc. Joint Repurchase Agreement, 
0.34%, 01/04/16, dated 12/31/15, repurchase value of $755,029
(collateralized by: U.S. Government agency mortgages in a pooled cash
account, 2.345%-6.50%, 10/01/18-12/20/45, total market value
$770,100)
   
755,000
   
755,000
 
SunTrust Robinson Humphrey, Inc. Joint Repurchase Agreement,
0.45%, 01/04/16, dated 12/31/15, repurchase value of $216,011
(collateralized by: U.S. Government agency mortgages in a pooled cash
account, 2.27%-5.50%, 01/01/21-08/01/36, total market value
$220,320)
   
216,000
   
216,000
 
 
TOTAL SHORT-TERM INVESTMENTS – (Identified cost $1,332,000)
 
   
1,332,000
 
 
          Total Investments – (100.01%) – (Identified cost $41,967,763) – (a)
   
67,549,709
 
          Liabilities Less Other Assets – (0.01%)
   
(8,558)
 
          Net Assets – (100.00%)
 
$
67,541,151
 
 
ADR: American Depositary Receipt
 
 
*
Non-Income producing security.
 
 
(a)
Aggregate cost for federal income tax purposes is $41,973,918. At December 31, 2015 unrealized appreciation (depreciation) of securities for federal income tax purposes is as follows:
         
 
          Unrealized appreciation
 
$
26,901,954
 
          Unrealized depreciation
   
(1,326,163)
 
          Net unrealized appreciation
 
$
25,575,791
 
See Notes to Financial Statements
 
7

 
DAVIS FINANCIAL PORTFOLIO
Statement of Assets and Liabilities
 
At December 31, 2015

ASSETS:
         
Investments in securities at value* (see accompanying Schedule of Investments)
 
$
67,549,709
Cash
   
1,808
Receivables:
     
 
Capital stock sold
   
27,795
 
Dividends and interest
   
37,886
Prepaid expenses
   
1,795
   
Total assets
   
67,618,993
 
LIABILITIES:
     
Payables:
     
 
Capital stock redeemed
   
16,727
Accrued audit fees
   
13,090
Accrued custodian fees
   
7,095
Accrued investment advisory fee
   
32,758
Other accrued expenses
   
8,172
 
Total liabilities
   
77,842
 
NET ASSETS
 
$
67,541,151
 
SHARES OUTSTANDING
   
5,075,538
 
NET ASSET VALUE, offering, and redemption price per share (Net assets ÷ Shares outstanding)
 
$
13.31
 
NET ASSETS CONSIST OF:
     
Par value of shares of capital stock
 
$
5,076
Additional paid-in capital
   
41,616,209
Overdistributed net investment income
   
(16,170)
Accumulated net realized gains from investments
   
354,090
Net unrealized appreciation on investments and foreign currency transactions
   
25,581,946
 
Net Assets
 
$
67,541,151
         
*Including:
     
 
Cost of Investments
 
$
41,967,763
 
 
See Notes to Financial Statements
 
8

 
DAVIS FINANCIAL PORTFOLIO
Statement of Operations
 
For the year ended December 31, 2015

INVESTMENT INCOME:
              
Income:
     
Dividends*
 
$
1,084,803
Interest
   
1,758
   
Total income
     
1,086,561
 
Expenses:
     
Investment advisory fees (Note 3)
 
$
397,980
     
Custodian fees
   
28,278
     
Transfer agent fees
   
11,194
     
Audit fees
   
19,320
     
Legal fees
   
1,662
     
Accounting fees (Note 3)
   
2,004
     
Reports to shareholders
   
4,073
     
Directors' fees and expenses
   
18,911
     
Registration and filing fees
   
46
     
Miscellaneous
   
10,991
     
 
Total expenses
     
494,459
Net investment income
   
592,102
 
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
           
Net realized gain (loss) from:
     
    
Investment transactions
   
7,991,339
 
Foreign currency transactions
   
(6,259)
Net realized gain
   
7,985,080
Net decrease in unrealized appreciation
   
(7,310,026)
 
Net realized and unrealized gain on investments and
foreign currency transactions
     
675,054
Net increase in net assets resulting from operations
 
$
1,267,156
                 
*Net of foreign taxes withheld as follows
 
$
4,815

See Notes to Financial Statements
 
9

 
DAVIS FINANCIAL PORTFOLIO
Statements of Changes in Net Assets

   
Year ended December 31,
   
2015
   
2014
 
OPERATIONS:
           
Net investment income
 
$
592,102
 
$
736,378
Net realized gain from investments and foreign currency transactions
   
7,985,080
   
8,865,413
Net decrease in unrealized appreciation on investments and foreign currency
transactions
   
(7,310,026)
   
(436,144)
 
Net increase in net assets resulting from operations
   
1,267,156
   
9,165,647
 
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
           
Net investment income
   
(605,773)
   
(909,661)
 
Realized gains from investment transactions
   
(8,237,628)
   
(8,532,944)
 
CAPITAL SHARE TRANSACTIONS:
           
Net decrease in net assets resulting from capital share transactions (Note 4)
   
(2,742,090)
   
(2,744,465)
 
Total decrease in net assets
   
(10,318,335)
   
(3,021,423)
 
NET ASSETS:
           
Beginning of year
   
77,859,486
   
80,880,909
End of year*
 
$
67,541,151
 
$
77,859,486
 
*Including overdistributed net investment income of
 
$
(16,170)
 
$
(11,934)

See Notes to Financial Statements
 
10

 
DAVIS FINANCIAL PORTFOLIO
Notes to Financial Statements
 
December 31, 2015

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Fund is a separate series of Davis Variable Account Fund, Inc. (a Maryland corporation), which is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. Only insurance companies, for the purpose of funding variable annuity or variable life insurance contracts, may purchase shares of the Fund. The Fund concentrates its investments in the financial sector, and it may be subject to greater risks than a fund that does not concentrate its investments in a particular sector. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.

Security Valuation - The Fund calculates the net asset value of its shares as of the close of the New York Stock Exchange ("Exchange"), normally 4:00 P.M. Eastern time, on each day the Exchange is open for business. Securities listed on the Exchange (and other national exchanges including NASDAQ) are valued at the last reported sales price on the day of valuation. Listed securities for which no sale was reported on that date are valued at the average of closing bid and asked prices. Securities traded on foreign exchanges are valued based upon the last sales price on the principal exchange on which the security is traded prior to the time when the Fund's assets are valued. Securities (including restricted securities) for which market quotations are not readily available or securities whose values have been materially affected by what Davis Selected Advisers, L.P. ("Davis Advisors" or "Adviser"), the Fund's investment adviser, identifies as a significant event occurring before the Fund's assets are valued, but after the close of their respective exchanges will be fair valued using a fair valuation methodology applicable to the security type or the significant event as previously approved by the Fund's Pricing Committee and Board of Directors. The Pricing Committee considers all facts it deems relevant that are reasonably available, through either public information or information available to the Adviser's portfolio management team, when determining the fair value of a security. To assess the appropriateness of security valuations, the Adviser may consider (i) comparing prior day prices and/or prices of comparable securities; (ii) comparing sale prices to the prior or current day prices and challenge those prices exceeding certain tolerance levels with the third-party pricing service or broker source; (iii) new rounds of financing; (iv) the performance of the market or the issuer's industry; (v) the liquidity of the security; (vi) the size of the holding in a fund; and/or (vii) any other appropriate information. The determination of a security's fair value price often involves the consideration of a number of subjective factors and is therefore subject to the unavoidable risk that the value assigned to a security may be higher or lower than the security's value would be if a reliable market quotation of the security was readily available. Fair value determinations are subject to review, approval, and ratification by the Fund's Board of Directors at its next regularly scheduled meeting covering the period in which the fair valuation was determined.

Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value.

The Fund's valuation procedures are reviewed and subject to approval by the Board of Directors. There have been no significant changes to the fair valuation procedures during the period.

Fair Value Measurements - Fair value is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal market for the investment. Various inputs are used to determine the fair value of the Fund's investments. These inputs are summarized in the three broad levels listed below.

Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment
                 speeds, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Fund's own assumptions in determining the fair value of
                 investments)

The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities nor can it be assured that the Fund can obtain the fair value assigned to a security if it were to sell the security.
 
11

 
DAVIS FINANCIAL PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2015

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)

Fair Value Measurements - (Continued)

The following is a summary of the inputs used as of December 31, 2015 in valuing the Fund's investments carried at value:

 
Investments in Securities at Value
 
Valuation Inputs
     
Level 2:
 
Level 3:
   
     
Other Significant
 
Significant
   
 
Level 1:
 
Observable
 
Unobservable
   
 
Quoted Prices
   
Inputs
 
Inputs
 
Total
Equity securities:
                     
Financials
$
63,939,317
 
$
 
$
 
$
63,939,317
Information Technology
 
2,278,392
   
   
   
2,278,392
Short-term securities
 
   
1,332,000
   
   
1,332,000
Total Investments
$
66,217,709
 
$
1,332,000
 
$
 
$
67,549,709
                       
Level 2 to Level 1 Transfers*:
                     
         Financials
$
2,574,291
                 

*Application of fair value procedures for securities traded on foreign exchanges triggered the transfers of investments between Level 1 and Level 2 of the fair value hierarchy during the year ended December 31, 2015.

Master Repurchase Agreements - The Fund, along with other affiliated funds, may transfer uninvested cash balances into one or more master repurchase agreement accounts. These balances are invested in one or more repurchase agreements, secured by U.S. Government securities. A custodian bank holds securities pledged as collateral for repurchase agreements until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal; however, in the event of default by the other party to the agreement, retention of the collateral may be subject to legal proceedings.

Currency Translation - The market values of all assets and liabilities denominated in foreign currencies are recorded in the financial statements after translation to the U.S. Dollar based upon the mean between the bid and offered quotations of the currencies against U.S. Dollars on the date of valuation. The cost basis of such assets and liabilities is determined based upon historical exchange rates. Income and expenses are translated at average exchange rates in effect as accrued or incurred.

Foreign Currency - The Fund may enter into forward purchases or sales of foreign currencies to hedge certain foreign currency denominated assets and liabilities against declines in market value relative to the U.S. Dollar. Forward currency contracts are marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the forward currency contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the forward currency contract at the time it was opened and value at the time it was closed. Investments in forward currency contracts may expose the Fund to risks resulting from unanticipated movements in foreign currency exchange rates or failure of the counter-party to the agreement to perform in accordance with the terms of the contract.

Reported net realized foreign exchange gains or losses arise from the sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on security transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. Dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate. The Fund includes foreign currency gains and losses realized on the sales of investments together with market gains and losses on such investments in the Statement of Operations.
 
12

 
DAVIS FINANCIAL PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2015

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)

Federal Income Taxes - It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute substantially all of its taxable income, including any net realized gains on investments not offset by loss carryovers, to shareholders. Therefore, no provision for federal income or excise tax is required. The Adviser has analyzed the Fund's tax positions taken on federal and state income tax returns for all open tax years and has concluded that as of December 31, 2015, no provision for income tax is required in the Fund's financial statements related to these tax positions. The Fund's federal and state (Arizona) income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state department of revenue. The earliest tax year that remains subject to examination by these jurisdictions is 2012.

Securities Transactions and Related Investment Income - Securities transactions are accounted for on the trade date (date the order to buy or sell is executed) with realized gain or loss on the sale of securities being determined based upon identified cost. Dividend income is recorded on the ex-dividend date. Interest income, which includes accretion of discount and amortization of premium, is accrued as earned.

Dividends and Distributions to Shareholders - Dividends and distributions to shareholders are recorded on the ex-dividend date. Net investment income (loss), net realized gains (losses), and net unrealized appreciation (depreciation) on investments may differ for financial statement and tax purposes primarily due to differing treatments of wash sales, foreign currency transactions, Directors' deferred compensation payments, and partnership income. The character of dividends and distributions made during the fiscal year from net investment income and net realized securities gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividends and distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which income or realized gain was recorded by the Fund. The Fund adjusts certain components of capital to reflect permanent differences between financial statement amounts and net income and realized gains/losses determined in accordance with income tax rules. Accordingly, during the year ended December 31, 2015, amounts have been reclassified to reflect a decrease in overdistributed net investment income of $9,435 and a corresponding decrease in accumulated net realized gains from investments and foreign currency transactions. The Fund's net assets have not been affected by this reclassification.

The tax character of distributions paid during the years ended December 31, 2015 and 2014 was as follows:

 
2015
 
2014
Ordinary income
$
828,407
 
$
1,115,882
Long-term capital gain
 
8,014,994
   
8,326,723
Total
$
8,843,401
 
$
9,442,605

As of December 31, 2015, the components of distributable earnings on a tax basis were as follows:

Undistributed long-term capital gain
$
360,245
Net unrealized appreciation on investments
 
25,575,791
Total
$
25,936,036
 
13

 
DAVIS FINANCIAL PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2015

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)

Indemnification - Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, some of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims.

Use of Estimates in Financial Statements - In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.

Directors Fees and Expenses - The Fund set up a Rabbi Trust to provide for the deferred compensation plan for Independent Directors that enables them to elect to defer receipt of all or a portion of annual fees they are entitled to receive. The value of an eligible Director's account is based upon years of service and fees paid to each Director during the years of service. The amount paid to the Director by the Trust under the plan will be determined based upon the performance of the Davis Funds in which the amounts are invested.

NOTE 2 - PURCHASES AND SALES OF SECURITIES

The cost of purchases and proceeds from sales of investment securities (excluding short-term securities) during the year ended December 31, 2015 were $8,354,664 and $18,619,863, respectively.

NOTE 3 - FEES AND OTHER TRANSACTIONS WITH SERVICE PROVIDERS (INCLUDING AFFILIATES)

Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of the Adviser, acts as sub-adviser to the Fund. DSA-NY performs research and portfolio management services for the Fund under a Sub-Advisory Agreement with the Adviser. The Fund pays no fees directly to DSA-NY.

Certain directors and officers of the Fund are also directors and officers of the general partner of the Adviser.

Investment Advisory Fees - Advisory fees are paid monthly to the Adviser at an annual rate of 0.55% of the Fund's average net assets. The Adviser 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 1.00%.

Accounting Fees - State Street Bank and Trust Company ("State Street Bank") is the Fund's primary accounting provider. Fees for accounting services are included in the custodian fees as State Street Bank also serves as the Fund's custodian. The Adviser is also paid for certain accounting services. The fee paid to the Adviser for these services during the year ended December 31, 2015 amounted to $2,004.
 
14

 
DAVIS FINANCIAL PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2015

NOTE 4 - CAPITAL STOCK

At December 31, 2015, there were 500 million shares of capital stock ($0.001 par value per share) authorized. Transactions in capital stock were as follows:

 
Year ended December 31, 2015
   
Sold
   
Reinvestment of Distributions
   
Redeemed
   
Net Decrease
                       
Shares:                          
 
377,808
   
654,582
   
(1,155,693)
   
(123,303)
Value:            
$
5,851,073
 
$
8,843,401
 
$
(17,436,564)
 
$
(2,742,090)
                       
 
 
Year ended December 31, 2014
   
Sold
   
Reinvestment of Distributions
   
Redeemed
   
Net Decrease
                       
Shares:                          
 
157,075
   
623,274
   
(944,834)
   
(164,485)
Value:            
$
2,531,609
 
$
9,442,605
 
$
(14,718,679)
 
$
(2,744,465)
                       

NOTE 5 - BANK BORROWINGS

The Fund may borrow up to 5% of its assets from a bank to purchase portfolio securities, or for temporary and emergency purposes. The purchase of securities with borrowed funds creates leverage in the Fund. The Fund has entered into an agreement, which enables it to participate with certain other funds managed by the Adviser in an unsecured line of credit with a bank, which permits borrowings up to $50 million, collectively. Interest is charged based on its borrowings, at a rate equal to the higher of the Federal Funds Rate or the one month LIBOR Rate, plus 1.25%. The Fund had no borrowings during the year ended December 31, 2015.





FEDERAL INCOME TAX INFORMATION (UNAUDITED)

During the calendar year ended December 31, 2015, the Fund declared and paid long-term capital gain distributions in the amount of $8,014,994.

During the calendar year ended December 31, 2015, $828,407 of dividends paid by the Fund constituted income dividends for federal income tax purposes. The Fund designates $816,062 or 99% as income qualifying for the corporate dividends-received deduction.
 
15

 
DAVIS FINANCIAL PORTFOLIO
Financial Highlights

 
The following financial information represents selected data for each share of capital stock outstanding throughout each period:
 

 
 
Year ended December 31,
     
2015
 
2014
 
2013
 
2012
 
2011
Net Asset Value, Beginning of Period
 
$
14.98
 
$
15.08
 
$
11.55
 
$
9.98
 
$
11.00
 
Income (Loss) from Investment Operations:
                                                 
Net Investment Income
 
0.13
 
0.17
 
0.13
 
0.12
 
0.14
Net Realized and Unrealized Gains (Losses)
 
0.20
 
1.79
 
3.48
 
1.75
 
(1.01)
     
Total from Investment Operations
 
0.33
 
1.96
 
3.61
 
1.87
 
(0.87)
 
Dividends and Distributions:
                                                 
Dividends from Net Investment Income
 
(0.14)
 
(0.20)
 
(0.08)
 
(0.23)
 
(0.15)
Distributions from Realized Gains
 
(1.86)
 
(1.86)
 
 
a
 
Return of Capital
 
 
 
 
(0.07)
 
 
Total Dividends and Distributions
 
(2.00)
 
(2.06)
 
(0.08)
 
(0.30)
 
(0.15)
 
Net Asset Value, End of Period
 
$
13.31
 
$
14.98
 
$
15.08
 
$
11.55
 
$
9.98
 
Total Returnb
 
2.01
%
 
12.85
%
 
31.26
%
 
18.83
%
 
(7.96)
%
 
Ratios/Supplemental Data:
                                                 
Net Assets, End of Period (in thousands)
 
$
67,541
   
$
77,859
   
$
80,881
   
$
67,255
   
$
60,834
 
Ratio of Expenses to Average Net Assets:
                                                 
 
Gross
 
0.68
%
 
0.68
%
 
0.68
%
 
0.69
%
 
0.69
%
 
Netc
 
0.68
%
 
0.68
%
 
0.68
%
 
0.69
%
 
0.69
%
Ratio of Net Investment Income to Average
     Net Assets
 
0.82
%
 
0.96
%
 
0.90
%
 
0.98
%
 
0.99
%
Portfolio Turnover Rated
 
12
%
 
32
%
 
2
%
 
16
%
 
11
%

a
Less than $0.005 per share.
   
b
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.
   
c
The Net Ratio of Expenses to Average Net Assets reflects the impact, if any, of the reduction of expenses paid indirectly and of certain reimbursements from the Adviser.
   
d
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.
 
See Notes to Financial Statements
 
16

 
DAVIS FINANCIAL PORTFOLIO
Report of Independent Registered Public Accounting Firm


The Shareholders and Board of Directors
Davis Variable Account Fund, Inc.:

We have audited the accompanying statement of assets and liabilities of Davis Financial Portfolio (a separate series of Davis Variable Account Fund, Inc.), including the schedule of investments, as of December 31, 2015, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two‑year period then ended, and the financial highlights for each of the years in the five‑year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2015, by correspondence with the custodian or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Davis Financial Portfolio as of December 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two‑year period then ended, and the financial highlights for each of the years in the five‑year period then ended, in conformity with U.S. generally accepted accounting principles.



Denver, Colorado
February 8, 2016
 
17

 
DAVIS FINANCIAL PORTFOLIO
Directors and Officers


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 85756. Each Director serves until their retirement, resignation, death, or removal. Subject to exceptions and exemptions, which may be granted by the Independent Directors, Directors must retire at the close of business on the last day of the calendar year in which the Director attains age seventy-four (74).

Name
(birthdate)
Position(s)
Held With
Fund
Term of
Office and
Length of
Time
Served
Principal Occupation(s)
During Past Five Years
Number of
Portfolios in
Fund
Complex
Overseen by
Director
Other Directorships
Held by Director
           
Independent Directors
           
Marc P. Blum
(09/09/42)
Director
Director since
1986
Chief Executive Officer, World
Total Return Fund, LLLP; of
Counsel to Gordon Feinblatt LLC
(law firm).
13
Director, Rodney Trust
Company (trust and asset
management company).
           
John S. Gates,
Jr.
(08/02/53)
Director
Director since
2007
Chairman and Chief Executive
Officer of PortaeCo LLC (private
investment company).
13
 
Director, Care Capital
Properties (REIT); Director,
DCT Industrial Trust (REIT).
           
Thomas S.
Gayner
(12/16/61)
Director/
Chairman
Director since
2004
President and Chief Investment
Officer, Markel Corp. (diversified
financial holding company).
13
Director, Graham Holdings
Company (educational and
media company); Director,
Colfax Corp. (engineering and
manufacturer of pumps and
fluid handling equipment);
Director, Cable One Inc. (cable
service provider).
           
Samuel H.
Iapalucci
(07/19/52)
Director
Director since
2006
Retired; Executive Vice President
and Chief Financial Officer, CH2M-
HILL Companies, Ltd. (engineering)
until 2008.
13
Director, exp Global Inc.
(engineering).
           
Robert P. Morgenthau
(03/22/57)
Director
Director since
2002
Principal, Spears Abacus Advisors,
LLC (investment management firm)
since 2011; Chairman, NorthRoad
Capital Management, LLC
(investment management firm)
2002-2011.
13
none
           
Marsha
Williams
(03/28/51)
Director
Director since
1999
Retired; Senior Vice President and
Chief Financial Officer, Orbitz
Worldwide, Inc. (travel-services
provider) 2007-2010.
13
Director, Modine
Manufacturing Company (heat
transfer technology); Director,
Chicago Bridge & Iron
Company, N.V. (industrial
construction and engineering);
Director, Fifth Third Bancorp
(diversified financial services).
 
18

 
DAVIS FINANCIAL PORTFOLIO
Directors and Officers – (Continued)



Name
(birthdate)
Position(s)
Held With
Fund
Term of
Office and
Length of
Time
Served
Principal Occupation(s)
During Past Five Years
Number of
Portfolios in
Fund
Complex
Overseen by
Director
Other Directorships
Held by Director
           
Interested Directors*
           
Andrew A.
Davis
(06/25/63)
Director
Director since
1997
President or Vice President of each
Davis Fund and Selected Fund;
President, Davis Selected Advisers,
L.P., and also serves as an executive
officer of certain companies
affiliated with the Adviser.
16
Director, Selected Funds
(consisting of two portfolios)
since 1998; Trustee of Clipper
Funds Trust (consisting of one
portfolio) since 2014.
           
Christopher C.
Davis
(07/13/65)
Director
Director since
1997
President or Vice President of each
Davis Fund, Selected Fund, and
Clipper Fund; Chairman, Davis
Selected Advisers, L.P., and also
serves as an executive officer of
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).
16
Director, Selected Funds
(consisting of two portfolios)
since 1998; Trustee of Clipper
Funds Trust (consisting of one
portfolio) since 2014; Director,
Graham Holdings Company
(educational and media
company).

*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.

Officers

Andrew A. Davis (born 06/25/63, Davis Funds officer since 1997). See description in the section on Interested Directors.

Christopher C. Davis (born 07/13/65, Davis Funds officer since 1997). See description in the section on Interested Directors.

Kenneth C. Eich (born 08/14/53, Davis Funds officer since 1997). Executive Vice President and Principal Executive Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Chief Operating Officer, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.

Douglas A. Haines (born 03/04/71, 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 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President and Director of Fund Accounting, Davis Selected Advisers, L.P.

Sharra L. Haynes (born 09/25/66, Davis Funds officer since 1997). Vice President and Chief Compliance Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President and Chief Compliance Officer, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.

Ryan M. Charles (born 07/25/78, Davis Funds officer since 2014). Vice President and Secretary of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President, Chief Legal Officer, and Secretary, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
 
19

 
DAVIS FINANCIAL PORTFOLIO


Investment Adviser
Davis Selected Advisers, L.P. (Doing business as "Davis Advisors")
2949 East Elvira Road, Suite 101
Tucson, Arizona 85756
(800) 279-0279
 
Distributor
Davis Distributors, LLC
2949 East Elvira Road, Suite 101
Tucson, Arizona 85756
 
Transfer Agent
Boston Financial Data Services, Inc.
c/o The Davis Funds
P.O. Box 8406
Boston, Massachusetts 02266-8406
 
Custodian
State Street Bank and Trust Co.
One Lincoln Street
Boston, Massachusetts 02111
 
Counsel
Greenberg Traurig, LLP
77 West Wacker Drive, Suite 3100
Chicago, Illinois 60601
 
Independent Registered Public Accounting Firm
KPMG LLP
1225 Seventeenth Street, Suite 800
Denver, Colorado 80202












For more information about Davis Financial Portfolio, including management fee, charges, and expenses, see the current prospectus, which must precede or accompany this report. The Fund's Statement of Additional Information contains additional information about the Fund's Directors and is available without charge, upon request, by calling 1-800-279-0279 and on the Fund's website at www.davisfunds.com. Quarterly Fact Sheets are available on the Fund's website at www.davisfunds.com.

 

 
 
 
 

 
DAVIS REAL ESTATE PORTFOLIO
Table of Contents


Management's Discussion of Fund Performance                                                                                                                                                                  
2
   
Fund Overview                                                                                                                                                                  
4
   
Expense Example                                                                                                                                                                  
7
   
Schedule of Investments                                                                                                                                                                  
8
   
Statement of Assets and Liabilities                                                                                                                                                                  
11
   
Statement of Operations                                                                                                                                                                  
12
   
Statements of Changes in Net Assets                                                                                                                                                                  
13
   
Notes to Financial Statements                                                                                                                                                                  
14
   
Federal Income Tax Information                                                                                                                                                                  
18
   
Financial Highlights                                                                                                                                                                  
19
   
Report of Independent Registered Public Accounting Firm                                                                                                                                                                  
20
   
Directors and Officers                                                                                                                                                                  
21


This Annual Report is authorized for use by existing shareholders. Prospective shareholders must receive a current Davis Real Estate Portfolio prospectus, which contains more information about investment strategies, risks, charges, and expenses. Please read the prospectus carefully before investing or sending money.

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.

Portfolio Proxy Voting Policies and Procedures
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under which the Fund votes proxies relating to securities held by the Fund. A description of the Fund's Portfolio Proxy Voting Policies and Procedures is available (i) without charge, upon request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.

In addition, the Fund is required to file Form N-PX, with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. The Fund's Form N-PX filing is available (i) without charge, upon request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.
Form N-Q
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q is available without charge, upon request, by calling 1-800-279-0279, on the Fund's website at www.davisfunds.com, and on the SEC's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
 

 
DAVIS REAL ESTATE PORTFOLIO
Management's Discussion of Fund Performance


Performance Overview
Davis Real Estate Portfolio underperformed the Wilshire U.S. Real Estate Securities Index ("Wilshire Index") for the twelve-month period ended December 31, 2015. The Fund delivered a total return of 1.65%, versus a 4.81% return for the Wilshire Index. The sub-industries1 within the Wilshire Index that reported the weakest performance were Hotel & Resort REITs (down 24%), Hotels, Resorts & Cruise Lines (down 22%), and Health Care REITs (down 7%). The sub-industries within the Wilshire Index that reported the strongest performance were Specialized REITs (up 35%), Residential REITs (up 17%), and Retail REITs (up 5%).

Detractors from Performance
The Fund's holdings in the Hotel & Resort REITs sub-industry were the most significant detractor from performance2. The Fund's Hotel & Resort REITs holdings were down about 36%, compared to down 24% for the Wilshire Index. Leading detractors were DiamondRock Hospitality3 (down 32%) and Host Hotels & Resorts (down 12%). The Fund no longer owns Host Hotels & Resorts. Although the Hotel & Resort REITs sub-industry was a major detractor from performance, the Fund benefited from a lower average weighting (2%, compared to 8% for the Wilshire Index) in the weakest performing sector.

Returns from holdings in the Consumer Services industry group, which include the Hotels, Resorts & Cruise Lines sub-industry, also hurt performance. The Fund suffered from an overweight position (3%, compared to less than 1% for the Wilshire Index) in a weak performing sub-industry. The Fund's Hotels, Resorts & Cruise Lines holdings were down about 16%, compared to down 22% for the Wilshire Index. Hyatt Hotels (down 18%) was a key detractor.

The Real Estate Operating Companies sub-industry produced the Fund's overall top detractor, Brookdale Senior Living (down 37%). The Fund no longer owns Brookdale Senior Living.

Additional detractors were Corporate Office Properties Trust (down 16%) and Brandywine Realty Trust (down 15%) from the Office REITs sub-industry; and DDR (down 4%) and CBL & Associates Properties (down 25%) from the Retail REITs sub-industry. The Fund no longer owns Corporate Office Properties Trust or Brandywine Realty Trust.

Contributors to Performance
The Fund held a large position in the Residential REITs sub-industry, which made significant contributions to performance. The Fund's Residential REITs holdings were up about 12%, compared to up 17% for the Wilshire Index. Equity Residential (up 27%), AvalonBay Communities (up 16%), and Essex Property Trust (up 19%) were strong performers.

The Specialized REITs sub-industry also helped returns. The Fund's Specialized REITs holdings were up about 24%, compared to up 35% for the Wilshire Index. CyrusOne (up 41%), a data center provider, was the Fund's overall top contributor. However, the Fund suffered from a lower average weighting (8%, compared to 10% for the Wilshire Index) in this strong performing sector.

Another contributor to performance was the Fund's underweighted position (3%, compared to 12% for the Wilshire Index) in the weak performing Health Care REITs sub-industry.

Additional contributors were Simon Property Group (up 18%), the Fund's second-largest holding, and Macerich (up 19%), both from the Retail REITs sub-industry; and Forest City Enterprises (up 3%) from the Real Estate Operating Companies sub-industry.

Davis Real Estate Portfolio's investment objective is total return through a combination of growth and income. There can be no assurance that the Fund will achieve its objective. Davis Real Estate Portfolio's principal risks are: stock market risk, manager risk, common stock risk, large-capitalization companies risk, mid- and small-capitalization companies risk, headline risk, real estate risk, focused portfolio risk, variable current income risk, and fees and expenses risk. See the prospectus for a full description of each risk.
 
Davis Real Estate Portfolio concentrates its investments in the real estate sector, and it may be subject to greater risks than a fund that does not concentrate its investments in a particular sector. The Fund's investment performance, both good and bad, is expected to reflect the economic performance of the real estate sector much more than a fund that does not concentrate its portfolio.
Davis Real Estate Portfolio is allowed to focus its investments in fewer companies, and it may be subject to greater risks than a more diversified portfolio that is not allowed to focus its investments in a few companies. Should the portfolio manager determine that it is prudent to focus the Fund's portfolio in a few companies, the Fund's investment performance, both good and bad, is expected to reflect the economic performance of its more focused portfolio.
Past performance does not guarantee future results, fund prices fluctuate, and the value of an investment may be worth more or less than the purchase price. Data provided in this performance overview is for the period ended December 31, 2015, unless otherwise noted. Return figures for underlying fund positions reflect the return of the security from the beginning of the year or the date of first purchase if subsequent thereto through the end of the year or the date the position is completely liquidated. The actual contribution to the Fund will vary based on a number of factors (e.g. trading activity, weighting).
1    The companies included in the Wilshire U.S. Real Estate Securities Index are divided into ten sub-industries.
2    A company's or sector's contribution to or detraction from the Fund's performance is a product both of its appreciation or depreciation and its weighting within the Fund. For example, a 5% holding that rises 20% has twice as much impact as a 1% holding that rises 50%.
3    This Management Discussion of Fund Performance discusses a number of individual companies. The information provided in this report does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase, sell, or hold any particular security. The Schedule of Investments lists the Fund's holdings of each company discussed.
 
2

 
DAVIS REAL ESTATE PORTFOLIO
Management's Discussion of Fund Performance – (Continued)


Comparison of a $10,000 investment in Davis Real Estate Portfolio versus the
Standard & Poor's 500® Index and the Wilshire U.S. Real Estate Securities Index 
over 10 years for an investment made on December 31, 2005


Average Annual Total Return for periods ended December 31, 2015

 Fund & Benchmark Indices
1-Year
5-Year
10-Year
Since Fund's
Inception
(07/01/99)
Gross Expense
Ratio
Net Expense
Ratio
 Davis Real Estate Portfolio
1.65%
10.29%
4.49%
8.66%
0.85%
0.85%
 Standard & Poor's 500® Index
1.38%
12.57%
7.31%
4.37%
   
 Wilshire U.S. Real Estate Securities
 Index
 
4.81%
 
12.44%
 
7.26%
 
11.12%
   

The Standard & Poor's 500® Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalizations, and represents approximately two-thirds of the total market value of all domestic common stocks.  Investments cannot be made directly in the Index.
The Wilshire U.S. Real Estate Securities Index is a broad measure of the performance of publicly traded real estate securities. It reflects no deduction for fees or expenses. Investments cannot be made directly in the Index.
The performance data for Davis Real Estate Portfolio contained in this report represents past performance, assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Fund performance changes over time and current performance may be higher or lower than stated. The operating expense ratio may vary in future years. For more current information please call Davis Funds Investor Services at 1-800-279-0279.
Fund performance numbers are net of all Fund operating expenses, but do not include any insurance charges imposed by your insurance company's separate account. If performance included the effect of these additional charges, the return would be lower.
 
3

 
DAVIS REAL ESTATE PORTFOLIO
Fund Overview
 
December 31, 2015

Portfolio Composition
 
Industry Weightings
(% of Fund's 12/31/15 Net Assets)
 
(% of 12/31/15 Stock Holdings)
           
         
Wilshire U.S.
         
Real Estate
       
Fund
 
Securities Index
Common Stock (U.S.)
94.62%
 
Retail REITs
27.09%
 
23.89%
Common Stock (Foreign)
1.08%
 
Residential REITs
22.20%
 
19.06%
Preferred Stock
0.16%
 
Office REITs
14.40%
 
15.70%
Short-Term Investments
3.87%
 
Industrial REITs
12.71%
 
4.79%
Other Assets & Liabilities
0.27%
 
Specialized REITs
9.64%
 
14.32%
 
100.00%
 
Diversified REITs
3.52%
 
3.33%
     
Diversified Real Estate Activities
3.38%
 
     
Consumer Services
3.03%
 
0.25%
     
Information Technology
1.12%
 
     
Health Care REITs
1.11%
 
11.71%
     
Real Estate Operating Companies
1.02%
 
0.87%
     
Hotel & Resort REITs
0.78%
 
6.08%
       
100.00%
 
100.00%








Top 10 Long-Term Holdings
(% of Fund's 12/31/15 Net Assets)
     
Boston Properties, Inc.
Office REITs
5.18%
Simon Property Group, Inc.
Retail REITs
4.67%
Vornado Realty Trust
Office REITs
3.95%
Acadia Realty Trust
Retail REITs
3.65%
Kite Realty Group Trust
Retail REITs
3.57%
Alexander & Baldwin Inc.
Diversified Real Estate Activities
3.24%
CyrusOne Inc.
Specialized REITs
3.16%
American Campus Communities, Inc.
Residential REITs
3.03%
American Residential Properties, Inc.
Residential REITs
2.86%
AvalonBay Communities, Inc.
Residential REITs
2.72%
 
4

 
DAVIS REAL ESTATE PORTFOLIO
Fund Overview – (Continued)
 
December 31, 2015

New Positions Added (01/01/15-12/31/15)
(Highlighted positions are those greater than 2.00% of the Fund's 12/31/15 net assets)
Security
Industry
Date of 1st
Purchase
% of Fund's
12/31/15
Net Assets
American Tower Corp.
Specialized REITs
04/16/15
Apartment Investment & Management Co.,
     
   Class A
Residential REITs
01/14/15
1.22%
Brixmor Property Group, Inc.
Retail REITs
02/10/15
2.06%
Brookdale Senior Living Inc.
Real Estate Operating Companies
01/07/15
Camden Property Trust
Residential REITs
01/29/15
Campus Crest Communities Inc., Series A,
     
   8.00%, Cum. Pfd.
Residential REITs
04/01/15
0.11%
CorEnergy Infrastructure Trust, Inc.
Specialized REITs
12/08/15
0.42%
CorEnergy Infrastructure Trust, Inc.,
     
   Series A, 7.375%, Cum. Pfd.
Specialized REITs
12/08/15
0.05%
Crown Castle International Corp.
Specialized REITs
01/13/15
1.65%
CyrusOne Inc.
Specialized REITs
01/07/15
3.16%
DiamondRock Hospitality Co.
Hotel & Resort REITs
02/05/15
0.75%
Equinix Inc.
Office REITs
01/08/15
Equity Residential
Residential REITs
06/29/15
2.48%
HCP, Inc.
Health Care REITs
03/18/15
Hyatt Hotels Corp., Class A
Consumer Services
01/07/15
1.14%
InterXion Holding N.V.
Software & Services
06/04/15
1.08%
QTS Realty Trust Inc., Class A
Specialized REITs
03/09/15
Retail Opportunity Investments Corp.
Retail REITs
01/07/15
1.96%
Rexford Industrial Realty, Inc.
Industrial REITs
09/01/15
0.18%
Starwood Hotels & Resorts Worldwide, Inc.
Consumer Services
07/17/15
0.94%
UDR, Inc.
Residential REITs
01/14/15
1.44%
Welltower Inc.
Health Care REITs
03/18/15
Windstream Holdings Inc.
Telecommunication Services
01/13/15
 
5

 
DAVIS REAL ESTATE PORTFOLIO
Fund Overview – (Continued)
 
December 31, 2015


Positions Closed (01/01/15-12/31/15)
(Gains and losses greater than $80,000 are highlighted)
Security
  Industry
Date of
Final Sale
   
Realized
Gain (Loss)
American Tower Corp.
Specialized REITs
12/04/15
 
$
(12,562)
Brandywine Realty Trust
Office REITs
12/09/15
   
(44,852)
Brookdale Senior Living Inc.
Real Estate Operating Companies
10/14/15
   
(148,675)
Camden Property Trust
Residential REITs
08/25/15
   
(16,774)
Campus Crest Communities, Inc.
Residential REITs
02/17/15
   
9,956
Care Capital Properties, Inc.
Health Care REITs
08/19/15
   
696
Communications Sales & Leasing, Inc.
Specialized REITs
06/05/15
   
(16,345)
CoreSite Realty Corp.
Office REITs
01/09/15
   
124,058
Corporate Office Properties Trust
Office REITs
08/12/15
   
26,275
CubeSmart
Specialized REITs
01/07/15
   
119,645
Equinix Inc.
Office REITs
04/24/15
   
31,943
Forest City Enterprises, Inc., Conv.
         
   Sr. Notes, 5.00%, 10/15/16
Real Estate Operating Companies
12/04/15
   
50,494
General Growth Properties, Inc.
Retail REITs
08/26/15
   
176,388
HCP, Inc.
Health Care REITs
03/18/15
   
4,364
Host Hotels & Resorts Inc.
Hotel & Resort REITs
02/27/15
   
114,922
Las Vegas Sands Corp.
Consumer Services
04/16/15
   
(24,392)
LaSalle Hotel Properties
Hotel & Resort REITs
05/07/15
   
81,038
Paramount Group, Inc.
Office REITs
04/14/15
   
10,278
Public Storage
Specialized REITs
01/16/15
   
68,525
QTS Realty Trust Inc., Class A
Specialized REITs
08/13/15
   
17,521
SBA Communications Corp., Class A
Telecommunication Services
03/13/15
   
63,405
SL Green Realty Corp.
Office REITs
03/20/15
   
59,552
Taubman Centers, Inc.
Retail REITs
02/18/15
   
(9,631)
Urban Edge Properties
Retail REITs
02/10/15
   
18,788
Ventas, Inc.
Health Care REITs
11/06/15
   
63,046
Welltower Inc.
Health Care REITs
11/06/15
   
(44,433)
Weyerhaeuser Co.
Specialized REITs
01/14/15
   
85,836
Windstream Holdings Inc.
Telecommunication Services
06/04/15
   
(16,004)
WP GLIMCHER, Inc.
Retail REITs
02/10/15
   
(1,963)
Wynn Resorts Ltd.
Consumer Services
04/16/15
   
(50,262)
 
6

 
DAVIS REAL ESTATE PORTFOLIO
Expense Example


As a shareholder of the Fund, you incur ongoing costs only, including advisory and administrative fees and other Fund expenses. The Expense Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Expense Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for the Fund is for the six-month period ended December 31, 2015. Please note that the Expense Example is general and does not reflect charges imposed by your insurance company's separate account or account specific costs, which may increase your total costs of investing in the Fund. If these charges or account specific costs were included in the Expense Example, the expenses would have been higher.

Actual Expenses

The information represented in the row entitled "Actual" provides information about actual account values and actual expenses. You may use the information in this row, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The information represented in the row entitled "Hypothetical" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the information in the row entitled "Hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.

 
Beginning
Account Value
(07/01/15)
 
Ending
Account Value
(12/31/15)
 
Expenses Paid
During Period*
(07/01/15-12/31/15)
           
Actual
$1,000.00
 
$1,075.43
 
$4.60
Hypothetical
$1,000.00
 
$1,020.77
 
$4.48

Hypothetical assumes 5% annual return before expenses.

* Expenses are equal to the Fund's annualized operating expense ratio (0.88%)**, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

** The expense ratio reflects the impact, if any, of certain reimbursements from the Adviser. 
 
7

 
DAVIS REAL ESTATE PORTFOLIO
Schedule of Investments
 
December 31, 2015

 
Shares
 
Value
(Note 1)
COMMON STOCK – (95.70%)
 
   CONSUMER DISCRETIONARY – (2.90%)
 
   Consumer Services – (2.90%)
   
Extended Stay America, Inc.
   
9,250
 
$
147,075
 
Hyatt Hotels Corp., Class A  *
   
4,330
   
203,597
 
Starwood Hotels & Resorts Worldwide, Inc.
   
2,440
   
169,043
   
Total Consumer Discretionary
   
519,715
 
   FINANCIALS – (91.72%)
 
   Real Estate – (91.72%)
 
   Real Estate Investment Trusts (REITs) – (87.50%)
 
   Diversified REITs – (3.38%)
 
Cousins Properties, Inc.
   
42,350
   
399,361
 
Liberty Property Trust
   
6,620
   
205,551
   
604,912
 
   Health Care REITs – (1.06%)
 
National Health Investors, Inc.
   
3,130
   
190,523
 
   Hotel & Resort REITs – (0.75%)
 
DiamondRock Hospitality Co.
   
13,890
   
134,039
 
   Industrial REITs – (12.19%)
 
DCT Industrial Trust Inc.
   
11,470
   
428,634
 
EastGroup Properties, Inc.
   
7,630
   
424,304
 
First Industrial Realty Trust, Inc.
   
17,680
   
391,259
 
Prologis, Inc.
   
10,160
   
436,067
 
Rexford Industrial Realty, Inc.
   
1,940
   
31,738
 
Terreno Realty Corp.
   
20,850
   
471,627
   
2,183,629
 
   Office REITs – (13.80%)
 
Alexandria Real Estate Equities, Inc.
   
2,760
   
249,393
 
BioMed Realty Trust, Inc.
   
12,520
   
296,599
 
Boston Properties, Inc.
   
7,280
   
928,491
 
Highwoods Properties, Inc.
   
6,680
   
291,248
 
Vornado Realty Trust
   
7,080
   
707,717
   
2,473,448
 
   Residential REITs – (21.16%)
 
American Campus Communities, Inc.
   
13,120
   
542,381
 
American Homes 4 Rent, Class A
   
12,910
   
215,081
 
American Residential Properties, Inc.
   
27,120
   
512,568
 
Apartment Investment & Management Co., Class A
   
5,470
   
218,964
 
AvalonBay Communities, Inc.
   
2,650
   
487,944
 
Education Realty Trust, Inc.
   
8,746
   
331,298
 
Equity Residential
   
5,450
   
444,666
 
Essex Property Trust, Inc.
   
1,520
   
363,903
 
Post Properties, Inc.
   
7,060
   
417,670
 
UDR, Inc.
   
6,870
   
258,106
   
3,792,581
 
   Retail REITs – (25.97%)
 
Acadia Realty Trust
   
19,730
   
654,049
 
Brixmor Property Group, Inc.
   
14,320
   
369,742
 
CBL & Associates Properties, Inc.
   
5,870
   
72,612
 
Cedar Realty Trust Inc.
   
58,270
   
412,552
 
8

 
DAVIS REAL ESTATE PORTFOLIO
Schedule of Investments - (Continued)
 
December 31, 2015
 
 
Shares/Principal
 
Value
(Note 1)
COMMON STOCK – (CONTINUED)
 
   FINANCIALS – (CONTINUED)
 
   Real Estate – (Continued)
 
   Real Estate Investment Trusts (REITs) – (Continued)
 
   Retail REITs – (Continued)
 
DDR Corp.
   
17,830
 
$
300,257
 
Federal Realty Investment Trust
   
2,250
   
328,725
 
Kite Realty Group Trust
   
24,649
   
639,149
 
Macerich Co.
   
4,490
   
362,298
 
Ramco-Gershenson Properties Trust
   
19,700
   
327,217
 
Retail Opportunity Investments Corp.
   
19,590
   
350,661
 
Simon Property Group, Inc.
   
4,300
   
836,092
   
4,653,354
 
   Specialized REITs – (9.19%)
 
CatchMark Timber Trust Inc., Class A
   
36,850
   
416,773
 
CorEnergy Infrastructure Trust, Inc.
   
5,070
   
75,239
 
Crown Castle International Corp.
   
3,420
   
295,659
 
CyrusOne Inc.
   
15,110
   
565,869
 
DuPont Fabros Technology Inc.
   
9,240
   
293,740
   
1,647,280
   
15,679,766
 
   Real Estate Management & Development – (4.22%)
 
   Diversified Real Estate Activities – (3.24%)
 
Alexander & Baldwin Inc.
   
16,450
   
580,849
 
   Real Estate Operating Companies – (0.98%)
 
Forest City Enterprises, Inc., Class A  *
   
8,020
   
175,879
   
756,728
   
Total Financials
   
16,436,494
 
   INFORMATION TECHNOLOGY – (1.08%)
 
   Software & Services – (1.08%)
 
InterXion Holding N.V.  (Netherlands)*
   
6,400
   
192,960
 
Total Information Technology
   
192,960
   
 
TOTAL COMMON STOCK – (Identified cost $15,903,840)
 
   
17,149,169
PREFERRED STOCK – (0.16%)
 
   FINANCIALS – (0.16%)
 
   Real Estate – (0.16%)
 
   Real Estate Investment Trusts (REITs) – (0.16%)
 
   Residential REITs – (0.11%)
 
Campus Crest Communities Inc., Series A, 8.00%, Cum. Pfd.
   
750
   
20,175
 
   Specialized REITs – (0.05%)
 
CorEnergy Infrastructure Trust, Inc., Series A, 7.375%, Cum. Pfd.
   
480
   
8,741
 
Total Financials
   
28,916
 
 
TOTAL PREFERRED STOCK – (Identified cost $23,955)
 
   
28,916
SHORT-TERM INVESTMENTS – (3.87%)
 
Mizuho Securities USA Inc. Joint Repurchase Agreement, 0.27%,
01/04/16, dated 12/31/15, repurchase value of $189,006 (collateralized
by: U.S. Government agency mortgages in a pooled cash account,
3.59%-6.50%, 06/01/22-12/01/45, total market value $192,780)
 
$
189,000
   
189,000
 
9

 
DAVIS REAL ESTATE PORTFOLIO
Schedule of Investments - (Continued)
 
December 31, 2015

 
Principal
 
Value
(Note 1)
SHORT-TERM INVESTMENTS – (CONTINUED)
   
Nomura Securities International, Inc. Joint Repurchase Agreement,
0.34%, 01/04/16, dated 12/31/15, repurchase value of $393,015
(collateralized by: U.S. Government agency mortgages in a pooled cash
account, 2.345%-6.00%, 03/01/19-10/20/65, total market value
$400,860)
 
$
393,000
 
$
393,000
 
SunTrust Robinson Humphrey, Inc. Joint Repurchase Agreement,
0.45%, 01/04/16, dated 12/31/15, repurchase value of $112,006
(collateralized by: U.S. Government agency mortgages in a pooled cash
account, 2.466%-4.50%, 04/01/25-10/01/44, total market value
$114,240)
   
112,000
   
112,000
   
 
TOTAL SHORT-TERM INVESTMENTS – (Identified cost $694,000)
 
   
694,000
 
 
          Total Investments – (99.73%) – (Identified cost $16,621,795) – (a)
   
17,872,085
 
          Other Assets Less Liabilities – (0.27%)
   
48,634
 
          Net Assets – (100.00%)
 
$
17,920,719
 
 
*
Non-Income producing security.
 
 
(a)
Aggregate cost for federal income tax purposes is $16,730,334. At December 31, 2015 unrealized appreciation (depreciation) of securities for federal income tax purposes is as follows:
 
 
          Unrealized appreciation
 
$
1,522,493
 
          Unrealized depreciation
   
(380,742)
 
          Net unrealized appreciation
 
$
1,141,751
 
See Notes to Financial Statements
 
10

 
DAVIS REAL ESTATE PORTFOLIO
Statement of Assets and Liabilities
 
At December 31, 2015

ASSETS:
         
Investments in securities at value* (see accompanying Schedule of Investments)
 
$
17,872,085
Cash
   
1,005
Receivables:
     
 
Dividends and interest
   
85,862
Prepaid expenses
   
551
    
Total assets
   
17,959,503
 
LIABILITIES:
     
Payables:
     
 
Capital stock redeemed
   
3,360
Accrued audit fees
   
13,090
Accrued custodian fees
   
4,500
Accrued investment advisory fee
   
10,429
Other accrued expenses
   
7,405
 
Total liabilities
   
38,784
 
NET ASSETS
 
$
17,920,719
 
SHARES OUTSTANDING
   
1,346,706
 
NET ASSET VALUE, offering, and redemption price per share (Net assets ÷ Shares outstanding)
 
$
13.31
 
NET ASSETS CONSIST OF:
     
Par value of shares of capital stock
 
$
1,347
Additional paid-in capital
   
17,701,925
Undistributed net investment income
   
203,816
Accumulated net realized losses from investments
   
(1,236,659)
Net unrealized appreciation on investments
   
1,250,290
 
Net Assets
 
$
17,920,719
         
*Including:
     
 
Cost of Investments
 
$
16,621,795

 
See Notes to Financial Statements
 
11

 
DAVIS REAL ESTATE PORTFOLIO
Statement of Operations
 
For the year ended December 31, 2015

INVESTMENT INCOME:
              
Income:
     
Dividends
 
$
400,961
Interest
   
4,684
   
Total income
     
405,645
 
Expenses:
     
Investment advisory fees (Note 3)
 
$
119,206
     
Custodian fees
   
20,637
     
Transfer agent fees
   
6,264
     
Audit fees
   
19,320
     
Legal fees
   
499
     
Accounting fees (Note 3)
   
2,004
     
Reports to shareholders
   
24
     
Directors' fees and expenses
   
7,869
     
Registration and filing fees
   
16
     
Miscellaneous
   
9,220
     
 
Total expenses
     
185,059
Net investment income
   
220,586
 
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS:
           
Net realized gain from:
     
 
Investment transactions
   
1,684,455
Net realized gain
   
1,684,455
Net decrease in unrealized appreciation
   
(1,628,479)
 
Net realized and unrealized gain on investments
     
55,976
Net increase in net assets resulting from operations
 
$
276,562

 
See Notes to Financial Statements
 
12

 
DAVIS REAL ESTATE PORTFOLIO
Statements of Changes in Net Assets

   
Year ended December 31,
   
2015
    
2014
 
OPERATIONS:
           
Net investment income
 
$
220,586
 
$
328,476
Net realized gain from investments and foreign currency transactions
   
1,684,455
   
2,117,203
Net change in unrealized appreciation (depreciation) on investments and
foreign currency transactions
   
(1,628,479)
   
3,448,142
 
Net increase in net assets resulting from operations
   
276,562
   
5,893,821
 
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
           
Net investment income
   
(329,211)
   
(294,901)
 
CAPITAL SHARE TRANSACTIONS:
           
Net decrease in net assets resulting from capital share transactions (Note 4)
   
(8,163,433)
   
(1,473,137)
 
 
Total increase (decrease) in net assets
   
(8,216,082)
   
4,125,783
 
NET ASSETS:
           
Beginning of year
   
26,136,801
   
22,011,018
End of year*
 
$
17,920,719
 
$
26,136,801
 
*Including undistributed net investment income of
 
$
203,816
 
$
312,441


See Notes to Financial Statements
 
13

 
DAVIS REAL ESTATE PORTFOLIO
 
Notes to Financial Statements
 
December 31, 2015

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Fund is a separate series of Davis Variable Account Fund, Inc. (a Maryland corporation), which is registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management investment company. Only insurance companies, for the purpose of funding variable annuity or variable life insurance contracts, may purchase shares of the Fund. The Fund concentrates its investments in the real estate sector, and it may be subject to greater risks than a fund that does not concentrate its investments in a particular sector. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.

Security Valuation - The Fund calculates the net asset value of its shares as of the close of the New York Stock Exchange ("Exchange"), normally 4:00 P.M. Eastern time, on each day the Exchange is open for business. Securities listed on the Exchange (and other national exchanges including NASDAQ) are valued at the last reported sales price on the day of valuation. Listed securities for which no sale was reported on that date are valued at the average of closing bid and asked prices. Securities traded on foreign exchanges are valued based upon the last sales price on the principal exchange on which the security is traded prior to the time when the Fund's assets are valued. Securities (including restricted securities) for which market quotations are not readily available or securities whose values have been materially affected by what Davis Selected Advisers, L.P. ("Davis Advisors" or "Adviser"), the Fund's investment adviser, identifies as a significant event occurring before the Fund's assets are valued, but after the close of their respective exchanges will be fair valued using a fair valuation methodology applicable to the security type or the significant event as previously approved by the Fund's Pricing Committee and Board of Directors. The Pricing Committee considers all facts it deems relevant that are reasonably available, through either public information or information available to the Adviser's portfolio management team, when determining the fair value of a security. To assess the appropriateness of security valuations, the Adviser may consider (i) comparing prior day prices and/or prices of comparable securities; (ii) comparing sale prices to the prior or current day prices and challenge those prices exceeding certain tolerance levels with the third-party pricing service or broker source; (iii) new rounds of financing; (iv) the performance of the market or the issuer's industry; (v) the liquidity of the security; (vi) the size of the holding in a fund; and/or (vii) any other appropriate information. The determination of a security's fair value price often involves the consideration of a number of subjective factors and is therefore subject to the unavoidable risk that the value assigned to a security may be higher or lower than the security's value would be if a reliable market quotation of the security was readily available. Fair value determinations are subject to review, approval, and ratification by the Fund's Board of Directors at its next regularly scheduled meeting covering the period in which the fair valuation was determined.

Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value.

The Fund's valuation procedures are reviewed and subject to approval by the Board of Directors. There have been no significant changes to the fair valuation procedures during the period.

Fair Value Measurements - Fair value is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal market for the investment. Various inputs are used to determine the fair value of the Fund's investments. These inputs are summarized in the three broad levels listed below.

Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment
                 speeds, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Fund's own assumptions in determining the fair value of
                 investments)

The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities nor can it be assured that the Fund can obtain the fair value assigned to a security if it were to sell the security.
 
14

 
DAVIS REAL ESTATE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2015

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)

Fair Value Measurements - (Continued)

The following is a summary of the inputs used as of December 31, 2015 in valuing the Fund's investments carried at value:

 
Investments in Securities at Value
 
Valuation Inputs
     
Level 2:
 
Level 3:
   
     
Other Significant
 
Significant
   
 
Level 1:
 
Observable
 
Unobservable
   
 
Quoted Prices
 
Inputs
 
Inputs
 
Total
Equity securities:
                     
Consumer Discretionary
$
519,715
 
$
 
$
 
$
519,715
Financials
 
16,465,410
   
   
   
16,465,410
Information Technology
 
192,960
   
   
   
192,960
Short-term securities
 
   
694,000
   
   
694,000
Total Investments
$
17,178,085
 
$
694,000
 
$
 
$
17,872,085

There were no transfers of investments between Level 1 and Level 2 of the fair value hierarchy during the year ended December 31, 2015.

Master Repurchase Agreements - The Fund, along with other affiliated funds, may transfer uninvested cash balances into one or more master repurchase agreement accounts. These balances are invested in one or more repurchase agreements, secured by U.S. Government securities. A custodian bank holds securities pledged as collateral for repurchase agreements until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal; however, in the event of default by the other party to the agreement, retention of the collateral may be subject to legal proceedings.

Currency Translation - The market values of all assets and liabilities denominated in foreign currencies are recorded in the financial statements after translation to the U.S. Dollar based upon the mean between the bid and offered quotations of the currencies against U.S. Dollars on the date of valuation. The cost basis of such assets and liabilities is determined based upon historical exchange rates. Income and expenses are translated at average exchange rates in effect as accrued or incurred.

Foreign Currency - The Fund may enter into forward purchases or sales of foreign currencies to hedge certain foreign currency denominated assets and liabilities against declines in market value relative to the U.S. Dollar. Forward currency contracts are marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the forward currency contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the forward currency contract at the time it was opened and value at the time it was closed. Investments in forward currency contracts may expose the Fund to risks resulting from unanticipated movements in foreign currency exchange rates or failure of the counter-party to the agreement to perform in accordance with the terms of the contract.

Reported net realized foreign exchange gains or losses arise from the sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on security transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. Dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate. The Fund includes foreign currency gains and losses realized on the sales of investments together with market gains and losses on such investments in the Statement of Operations.
 
15

 
DAVIS REAL ESTATE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2015

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)

Federal Income Taxes - It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute substantially all of its taxable income, including any net realized gains on investments not offset by loss carryovers, to shareholders. Therefore, no provision for federal income or excise tax is required. The Adviser has analyzed the Fund's tax positions taken on federal and state income tax returns for all open tax years and has concluded that as of December 31, 2015, no provision for income tax is required in the Fund's financial statements related to these tax positions. The Fund's federal and state (Arizona) income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state department of revenue. The earliest tax year that remains subject to examination by these jurisdictions is 2012. At December 31, 2015, the Fund had available for federal income tax purposes unused capital loss carryforwards as follows:

 
Capital Loss
Carryforwards
Expiring
   
12/31/2017
$
1,128,000
     
Utilized in 2015
$
1,778,000

Securities Transactions and Related Investment Income - Securities transactions are accounted for on the trade date (date the order to buy or sell is executed) with realized gain or loss on the sale of securities being determined based upon identified cost. Dividend income is recorded on the ex-dividend date. Dividend income from REIT securities may include return of capital. Upon notification from the issuer, the amount of the return of capital is reclassified to adjust dividend income, reduce the cost basis, and/or adjust realized gain/loss. Interest income, which includes accretion of discount and amortization of premium, is accrued as earned.

Dividends and Distributions to Shareholders - Dividends and distributions to shareholders are recorded on the ex-dividend date. Net investment income (loss), net realized gains (losses), and net unrealized appreciation (depreciation) on investments may differ for financial statement and tax purposes primarily due to differing treatments of wash sales, Directors' deferred compensation payments, and foreign currency transactions. The character of dividends and distributions made during the fiscal year from net investment income and net realized securities gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividends and distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which income or realized gain was recorded by the Fund. The Fund adjusts certain components of capital to reflect permanent differences between financial statement amounts and net income and realized gains/losses determined in accordance with income tax rules.

The tax character of distributions paid during the years ended December 31, 2015 and 2014 was as follows:

 
2015
 
2014
Ordinary income
$
329,211
 
$
294,901

As of December 31, 2015, the components of distributable earnings (accumulated losses) on a tax basis were as follows:

Undistributed net investment income
$
 209,269    
Accumulated net realized losses from investments
 
(1,128,122)    
Net unrealized appreciation on investments
 
1,141,751    
Total
$
222,898    
 
16

 
DAVIS REAL ESTATE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2015

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)

Indemnification - Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, some of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims.

Use of Estimates in Financial Statements - In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.

Directors Fees and Expenses - The Fund set up a Rabbi Trust to provide for the deferred compensation plan for Independent Directors that enables them to elect to defer receipt of all or a portion of annual fees they are entitled to receive. The value of an eligible Director's account is based upon years of service and fees paid to each Director during the years of service. The amount paid to the Director by the Trust under the plan will be determined based upon the performance of the Davis Funds in which the amounts are invested.

NOTE 2 - PURCHASES AND SALES OF SECURITIES

The cost of purchases and proceeds from sales of investment securities (excluding short-term securities) during the year ended December 31, 2015 were $19,614,209 and $26,047,005, respectively.

NOTE 3 - FEES AND OTHER TRANSACTIONS WITH SERVICE PROVIDERS (INCLUDING AFFILIATES)

Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of the Adviser, acts as sub-adviser to the Fund. DSA-NY performs research and portfolio management services for the Fund under a Sub-Advisory Agreement with the Adviser. The Fund pays no fees directly to DSA-NY.

Certain directors and officers of the Fund are also directors and officers of the general partner of the Adviser.

Investment Advisory Fees - Advisory fees are paid monthly to the Adviser at an annual rate of 0.55% of the Fund's average net assets. The Adviser 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 1.00%.

Accounting Fees - State Street Bank and Trust Company ("State Street Bank") is the Fund's primary accounting provider. Fees for accounting services are included in the custodian fees as State Street Bank also serves as the Fund's custodian. The Adviser is also paid for certain accounting services. The fee paid to the Adviser for these services during the year ended December 31, 2015 amounted to $2,004.
 
17

 
DAVIS REAL ESTATE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2015

NOTE 4 - CAPITAL STOCK

At December 31, 2015, there were 500 million shares of capital stock ($0.001 par value per share) authorized. Transactions in capital stock were as follows:

 
Year ended December 31, 2015
   
Sold
   
Reinvestment of Distributions
   
Redeemed
   
Net Decrease
                       
Shares:                          
 
189,766
   
25,059
   
(832,198)
   
(617,373)
Value:            
$
2,571,044
 
$
329,211
 
$
(11,063,688)
 
$
(8,163,433)
                       
   
 
Year ended December 31, 2014
   
Sold
   
Reinvestment of Distributions
   
Redeemed
   
Net Decrease
                       
Shares:                          
 
374,250
   
24,154
   
(518,708)
   
(120,304)
Value:            
$
4,421,152
 
$
294,901
 
$
(6,189,190)
 
$
(1,473,137)
                       

NOTE 5 - BANK BORROWINGS

The Fund may borrow up to 5% of its assets from a bank to purchase portfolio securities, or for temporary and emergency purposes. The purchase of securities with borrowed funds creates leverage in the Fund. The Fund has entered into an agreement, which enables it to participate with certain other funds managed by the Adviser in an unsecured line of credit with a bank, which permits borrowings up to $50 million, collectively. Interest is charged based on its borrowings, at a rate equal to the higher of the Federal Funds Rate or the one month LIBOR Rate, plus 1.25%. The Fund had no borrowings during the year ended December 31, 2015.




 
FEDERAL INCOME TAX INFORMATION (UNAUDITED)

During the calendar year ended December 31, 2015, $329,211 of dividends paid by the Fund constituted income dividends for federal income tax purposes. The Fund designates $11,739 or 4% as income qualifying for the corporate dividends-received deduction.
 
18

 
DAVIS REAL ESTATE PORTFOLIO
Financial Highlights


The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 
Year ended  December 31,
     
2015
  
2014
  
2013
  
2012
  
2011
Net Asset Value, Beginning of Period
 
$
13.31
 
$
10.56
 
$
10.83
 
$
9.34
 
$
8.69
 
Income (Loss) from Investment Operations:
                                                 
Net Investment Income
 
0.14a
 
0.17
 
0.19
 
0.16
 
0.14
Net Realized and Unrealized Gains (Losses)
 
0.08
 
2.73
 
(0.33)
 
1.44
 
0.63
    
Total from Investment Operations
 
0.22
 
2.90
 
(0.14)
 
1.60
 
0.77
 
Dividends and Distributions:
                                                 
Dividends from Net Investment Income
 
(0.22)
 
(0.15)
 
(0.13)
 
(0.11)
 
(0.12)
 
Total Dividends and Distributions
 
(0.22)
 
(0.15)
 
(0.13)
 
(0.11)
 
(0.12)
 
Net Asset Value, End of Period
 
$
13.31
 
$
13.31
 
$
10.56
 
$
10.83
 
$
9.34
 
Total Returnb
 
1.65
%
 
27.54
%
 
(1.32)
%
 
17.15
%
 
8.89
%
 
Ratios/Supplemental Data:
                                                 
Net Assets, End of Period (in thousands)
 
$
17,921
   
$
26,137
   
$
22,011
   
$
28,068
   
$
24,226
 
Ratio of Expenses to Average Net Assets:
                                                 
 
Gross
 
0.85
%
 
0.81
%
 
0.81
%
 
0.77
%
 
0.81
%
 
Netc
 
0.85
%
 
0.81
%
 
0.81
%
 
0.77
%
 
0.81
%
Ratio of Net Investment Income to Average
    Net Assets
 
1.02
%
 
1.34
%
 
1.52
%
 
1.55
%
 
1.50
%
Portfolio Turnover Rated
 
95
%
 
54
%
 
73
%
 
51
%
 
75
%


a
Per share calculations were based on average shares outstanding for the period.
   
b
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.
   
c
The Net Ratio of Expenses to Average Net Assets reflects the impact, if any, of the reduction of expenses paid indirectly and of certain reimbursements from the Adviser.
   
d
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.
 
See Notes to Financial Statements
 
19

 
DAVIS REAL ESTATE PORTFOLIO
Report of Independent Registered Public Accounting Firm


The Shareholders and Board of Directors
Davis Variable Account Fund, Inc.:

We have audited the accompanying statement of assets and liabilities of Davis Real Estate Portfolio (a separate series of Davis Variable Account Fund, Inc.), including the schedule of investments, as of December 31, 2015, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two‑year period then ended, and the financial highlights for each of the years in the five‑year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2015, by correspondence with the custodian or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Davis Real Estate Portfolio as of December 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two‑year period then ended, and the financial highlights for each of the years in the five‑year period then ended, in conformity with U.S. generally accepted accounting principles.



Denver, Colorado
February 8, 2016
 
20

 
DAVIS REAL ESTATE PORTFOLIO
Directors and Officers


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 85756. Each Director serves until their retirement, resignation, death, or removal. Subject to exceptions and exemptions, which may be granted by the Independent Directors, Directors must retire at the close of business on the last day of the calendar year in which the Director attains age seventy-four (74).

Name
(birthdate)
Position(s)
Held With
Fund
Term of
Office and
Length of
Time
Served
Principal Occupation(s)
During Past Five Years
Number of
Portfolios in
Fund
Complex
Overseen by
Director
Other Directorships
Held by Director
           
Independent Directors
           
Marc P.
Blum
(09/09/42)
Director
Director since
1986
Chief Executive Officer, World
Total Return Fund, LLLP; of
Counsel to Gordon Feinblatt LLC
(law firm).
13
Director, Rodney Trust
Company (trust and asset
management company).
           
John S. Gates,
Jr.
(08/02/53)
Director
Director since
2007
Chairman and Chief Executive
Officer of PortaeCo LLC (private
investment company).
13
 
Director, Care Capital
Properties (REIT); Director,
DCT Industrial Trust (REIT).
           
Thomas S.
Gayner
(12/16/61)
Director/
Chairman
Director since
2004
President and Chief Investment
Officer, Markel Corp. (diversified
financial holding company).
13
Director, Graham Holdings
Company (educational and
media company); Director,
Colfax Corp. (engineering and
manufacturer of pumps and
fluid handling equipment);
Director, Cable One Inc. (cable
service provider).
           
Samuel H.
Iapalucci
(07/19/52)
Director
Director since
2006
Retired; Executive Vice President
and Chief Financial Officer, CH2M-
HILL Companies, Ltd. (engineering)
until 2008.
13
Director, exp Global Inc.
(engineering).
           
Robert P. Morgenthau
(03/22/57)
Director
Director since
2002
Principal, Spears Abacus Advisors,
LLC (investment management firm)
since 2011; Chairman, NorthRoad
Capital Management, LLC
(investment management firm)
2002-2011.
13
none
           
Marsha
Williams
(03/28/51)
Director
Director since
1999
Retired; Senior Vice President and
Chief Financial Officer, Orbitz
Worldwide, Inc. (travel-services
provider) 2007-2010.
13
Director, Modine
Manufacturing Company (heat
transfer technology); Director,
Chicago Bridge & Iron
Company, N.V. (industrial
construction and engineering);
Director, Fifth Third Bancorp
(diversified financial services).
 
21

 
DAVIS REAL ESTATE PORTFOLIO
Directors and Officers – (Continued)


Name
(birthdate)
Position(s)
Held With
Fund
Term of
Office and
Length of
Time
Served
Principal Occupation(s)
During Past Five Years
Number of
Portfolios in
Fund
Complex
Overseen by
Director
Other Directorships
Held by Director
           
Interested Directors*
           
Andrew A.
Davis
(06/25/63)
Director
Director since
1997
President or Vice President of each
Davis Fund and Selected Fund;
President, Davis Selected Advisers,
L.P., and also serves as an executive
officer of certain companies
affiliated with the Adviser.
16
Director, Selected Funds
(consisting of two portfolios)
since 1998; Trustee of Clipper
Funds Trust (consisting of one
portfolio) since 2014.
           
Christopher C.
Davis
(07/13/65)
Director
Director since
1997
President or Vice President of each
Davis Fund, Selected Fund, and
Clipper Fund; Chairman, Davis
Selected Advisers, L.P., and also
serves as an executive officer of
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).
16
Director, Selected Funds
(consisting of two portfolios)
since 1998; Trustee of Clipper
Funds Trust (consisting of one
portfolio) since 2014; Director,
Graham Holdings Company
(educational and media
company).

*    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.

Officers

Andrew A. Davis (born 06/25/63, Davis Funds officer since 1997). See description in the section on Interested Directors.

Christopher C. Davis (born 07/13/65, Davis Funds officer since 1997). See description in the section on Interested Directors.

Kenneth C. Eich (born 08/14/53, Davis Funds officer since 1997). Executive Vice President and Principal Executive Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Chief Operating Officer, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.

Douglas A. Haines (born 03/04/71, 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 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President and Director of Fund Accounting, Davis Selected Advisers, L.P.

Sharra L. Haynes (born 09/25/66, Davis Funds officer since 1997). Vice President and Chief Compliance Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President and Chief Compliance Officer, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.

Ryan M. Charles (born 07/25/78, Davis Funds officer since 2014). Vice President and Secretary of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President, Chief Legal Officer, and Secretary, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
 
22

 
DAVIS REAL ESTATE PORTFOLIO


Investment Adviser
Davis Selected Advisers, L.P. (Doing business as "Davis Advisors")
2949 East Elvira Road, Suite 101
Tucson, Arizona 85756
(800) 279-0279
 
Distributor
Davis Distributors, LLC
2949 East Elvira Road, Suite 101
Tucson, Arizona 85756
 
Transfer Agent
Boston Financial Data Services, Inc.
c/o The Davis Funds
P.O. Box 8406
Boston, Massachusetts 02266-8406
 
Custodian
State Street Bank and Trust Co.
One Lincoln Street
Boston, Massachusetts 02111
 
Counsel
Greenberg Traurig, LLP
77 West Wacker Drive, Suite 3100
Chicago, Illinois 60601
 
Independent Registered Public Accounting Firm
KPMG LLP
1225 Seventeenth Street, Suite 800
Denver, Colorado 80202








 

For more information about Davis Real Estate Portfolio, including management fee, charges, and expenses, see the current prospectus, which must precede or accompany this report. The Fund's Statement of Additional Information contains additional information about the Fund's Directors and is available without charge, upon request, by calling 1-800-279-0279 and on the Fund's website at www.davisfunds.com. Quarterly Fact Sheets are available on the Fund's website at www.davisfunds.com.

 

 
ITEM 2.  CODE OF ETHICS

The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

A copy of the code of ethics is filed as an exhibit to this form N-CSR.

No waivers were granted to this code of ethics during the period covered by this report.

ITEM 3.  AUDIT COMMITTEE FINANCIAL EXPERT

The registrant's board of directors has determined that independent trustee Marsha Williams qualifies as the "audit committee financial expert", as defined in Item 3 of form N-CSR.

ITEM 4.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

(a) 
Audit Fees.  The aggregate Audit Fees billed by KPMP LLP ("KPMG") for professional    services rendered for the audits of the audits of the financial statements, or services that are normally provided in connection with statutory and regulatory filings or engagements for the fiscal year ends December 31, 2015 and December 31, 2014 were $60,480 and $60,480, respectively.
   
(b) 
Audit-Related Fees.  The aggregate Audit-Related Fees billed by KPMG for services rendered for assurance and related services that are not reasonably related to the performance of the audit or review of the fund financial statements, but not reported as Audit Fees fore fiscal year ends December 31, 2015 and December 31, 2014 were $0 and $0, respectively.
   
(c) 
Tax Fees.  The aggregate Tax Fees billed by KPMG for professional services rendered for tax compliance, tax advice and tax planning for the fiscal year ends December 31, 2015 and December 31, 2014 were $24,255 and $20,845, respectively.
 
Fees included in the Tax Fee category comprise all services performed by professional staff in the independent accountant's tax division except those services related to the audit.  These services include preparation of tax returns, tax advice related to mergers and a review of the fund income and capital gain distributions.
   
(d) 
All Other Fees.  The aggregate Other Fees billed by KPMG for all other non-audit services rendered to the fund for the fiscal year ends December 31, 2015 and December 31, 2014 were $0 and $0, respectively.
   
(e)(1) 
Audit Committee Pre-Approval Policies and Procedures.
 
The fund Audit Committee must pre-approve all audit and non-audit services provided by the independent accountant relating to the operations or financial reporting of the funds.  Prior to the commencement of any audit or non-audit services to a fund, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law.
 
The fund Audit Committee has adopted a policy whereby audit and non-audit services performed by the fund independent accountant require pre-approval in advance at regularly scheduled Audit Committee meetings.  If such a service is required between regularly scheduled Audit Committee meetings, pre-approval may be authorized by the Audit Committee Chairperson with ratification at the next scheduled audit committee meeting.
   
(2) 
No services included in (b) – (d) above were approved pursuant to paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X.
 
(f) 
Not applicable
   
(g) 
The Funds' independent accountant did not provide any services to the investment advisor or any affiliate for the fiscal years ended December 31, 2015 and December 31, 2014.  The fund has not paid any fees for non-audit not previously disclosed in items 4 (b) – (d).
   
(h) 
The registrant's audit committee of the board of trustees has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence.  No such services were rendered.

ITEM 5.  AUDIT COMMITTEE OF LISTED REGISTRANTS

Not Applicable

ITEM 6.  SCHEDULE OF INVESTMENTS

Not Applicable.  The complete Schedule of Investments is included in Item 1 of this for N-CSR

ITEM 7.  DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Not Applicable

ITEM 8.  PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Not Applicable

ITEM 9.  PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANIES AND AFFILIATED PURCHASERS

Not Applicable

ITEM 10.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There have been no changes to the procedure by which shareholders may recommend nominees to the registrant's Board of Trustees.

ITEM 11.  CONTROLS AND PROCUDURES

(a) 
The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3 (c) under the Investment Company Act of 1940, as amended) are effective as of a date within 90 days of the filing date of this report.
   
(b) 
There have been no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls.

ITEM 12.  EXHIBITS

(a)(1) 
The registrant's code of ethics pursuant to Item 2 of Form N-CSR is filed as an exhibit to this form N-CSR.
   
(a)(2) 
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are attached.
   
(a)(3) 
Not applicable
   
(b) 
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DAVIS VARIABLE ACCOUNT FUND, INC.

By
/s/ Kenneth C. Eich
 
Kenneth C. Eich
 
Principal Executive Officer
   
Date:  February 8, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By
/s/ Kenneth C. Eich
 
Kenneth C. Eich
 
Principal Executive Officer
   
Date:  February 8, 2016

By
/s/ Douglas A. Haines
 
Douglas A. Haines
 
Principal Financial Officer
   
Date:  February 8, 2016
 

EX-99.CERT 2 cert302.htm SECTION 302 CERTIFICATION

DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85756
(520) 434-3778


RULE 30A-2(A) CERTIFICATION

I, Kenneth C. Eich , certify that:

1.
I have reviewed this report on Form N-CSR of Davis Variable Account Fund, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.





/s/ Kenneth C. Eich
 
Kenneth C. Eich
Principal Executive Officer
 
Date: February 8, 2016
 

 
DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85756
(520) 434-3771


RULE 30A-2(A) CERTIFICATION

I, Douglas A. Haines, certify that:

1.
I have reviewed this report on Form N-CSR of Davis Variable Account Fund, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.
The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.





/s/ Douglas A. Haines
 
Douglas A. Haines
Principal Financial Officer
 
Date: February 8, 2016
 

EX-99.906 CERT 3 cert906.htm SECTION 906 CERTIFICATION

DAVIS VARIABLE ACCOUNT FUND, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85756
(520) 434-3778

CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


KENNETH C. EICH, Principal Executive Officer, and DOUGLAS A. HAINES, Principal Financial Officer of Davis Variable Account Fund, Inc. (the "Registrant"), each certify to the best of his or her knowledge that:
 
(1) The Registrant's periodic report on Form N-CSR for the period ended December 31, 2015 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
(2) The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


Principal Executive Officer
Principal Financial Officer
   
DAVIS VARIABLE ACCOUNT FUND, INC.
DAVIS VARIABLE ACCOUNT FUND, INC.
   
   
/s/ Kenneth C. Eich
/s/ Douglas A. Haines
Kenneth C. Eich
Douglas A. Haines
Principal Executive Officer
Principal Financial Officer
Date: February 8, 2016
Date: February 8, 2016


A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to DAVIS VARIABLE ACCOUNT FUND, INC. and will be retained by DAVIS VARIABLE ACCOUNT FUND, INC. and furnished to the Securities and Exchange Commission (the "Commission") or its staff upon request.
 
This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission.


EX-99.CODE ETH 4 code_ethics.htm CODE OF ETHICS

SARBANES-OXLEY
CODE OF ETHICS
Davis Funds
Selected Funds
Clipper Fund
("Funds")
December 2007
 
I.            Covered Officers/Purpose of the Code
 
This Sarbanes-Oxley Code of Ethics ("Code") applies to each Fund's Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, and Controller, or persons performing similar functions elected by the Funds (the "Covered Officers") for the purposes of promoting:
 
       honest and ethical conduct, including the ethical handling of actual or apparent conflicts of  interest between personal and professional relationships;
       full, fair, accurate, timely and understandable disclosure in reports and documents that a  registrant files with, or submits to, the Securities and Exchange Commission ("SEC") and in  other public communications made by the Funds;
       compliance with applicable laws and governmental rules and regulations;
       the prompt internal reporting of violations of the Code to an appropriate person or persons  identified in the Code; and
       accountability for adherence to the Code.
 
Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest.
 
II.            Covered Officers Should Handle Ethically Actual and Apparent Conflicts of
             Interest
 
Overview. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of the officer's family, receives improper personal benefits as a result of a position with the Funds.
 
Certain conflicts of interest arise out of the relationships between Covered Officers and the Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Funds because of their status as "affiliated persons" of the Funds. The Funds' and the investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, replace these
 programs and procedures, and such conflicts fall outside of the parameters of this Code (see Section VI below).
 
Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from the contractual relationships between the Funds and the investment adviser (or advisory affiliates) of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties, be involved in establishing policies and implementing decisions that will have different effects on the adviser and the Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Funds and the adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by each Fund's Board of Directors (each a "Board" and collectively the "Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes.
 
Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Funds.
 
             Each Covered Officer must:
 
(a)      not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Funds whereby the Covered Officer would benefit personally to the detriment of the Funds;
 
(b)      not cause the Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the Funds;
 
(c)      not use material non-public knowledge of portfolio transactions made or contemplated for the Funds to trade personally or cause others to trade personally in contemplation of the market effect of such transactions.
 
There are some conflict of interest situations that should always be discussed by Covered Officers with the Funds' Chief Legal Officer, if material. Examples of these conflict of interest situations include:
 
     service as a director on the board of any public or private company;
 
     the receipt of any gift, gratuity, favor award or other item or benefit having a market value in  excess of $100 per person, per year, from or on behalf of any person or entity that does, or seeks to  do, business with or on behalf of the Funds. Business-related entertainment such as meals, tickets to the theater or a sporting event which are infrequent and of a non-lavish nature are excepted from this prohibition;
 
     any ownership interest in, or any consulting or employment relationship with, any of the Funds'  service providers, other than its investment adviser, principal underwriter or any of their affiliates;  and
 
     a direct or indirect financial interest in commissions, transaction charges or spreads paid by the  Funds for effecting portfolio transactions or for selling or redeeming shares other than an interest  arising from the Covered Officer's employment, such as compensation or equity ownership.
 
III.            Disclosure and Compliance
 
(a)      Each Covered Officer should become familiar with the disclosure requirements generally applicable to the Funds.
 
(b)      Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, whether within or outside the Funds, including to the Funds' directors and auditors, and to governmental regulators and self-regulatory organizations.
 
(c)      Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds.
 
(d)      It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations.
 
Notwithstanding (a) through (d) above, (i) each Covered Officer is entitled to rely upon procedures adopted by the Funds and their affiliates (including their investment adviser, sub-advisers, principal underwriter, transfer agent and custodian) that are intended to ensure accurate and timely filing of documents with the SEC or communications with the public, and (ii) Covered Officers do not have a duty to ensure the Funds' compliance in areas outside of their span of control (for example, the Principal Financial Officer shall not have any duties with respect to compliance issues delegated to the adviser's Legal Department, Compliance Department, Marketing Department, etc.).
 

IV.            Reporting and Accountability
 
             Each Covered Officer must:
 
(a)      upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he or she has received, read, and understands the Code;
 
(b)      annually thereafter affirm to the Boards that he or she has complied with the requirements of the Code;
 
(c)      report at least annually all affiliations or other relationships related to conflicts of interest that are included and described in the Funds' Directors and Officers Questionnaires.
 
(d)      not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and
 
(e)      notify the Funds' Chief Legal Officer promptly if he or she knows of any violation of this Code. Failure to do so is itself a violation of the Code.
 
V.            Enforcement of Code
 
The Funds' Chief Legal Officer is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. The Chief Legal Officer is authorized to consult, as appropriate, with the Chairperson of the Audit Committee, counsel to the Funds and independent legal counsel to the independent directors (as defined in Rule 0-1(a)(6) of the Investment Company Act). However, any approvals or waivers sought by any Covered Officer will be considered by the Audit Committee of the affected Fund (the "Committee").
 
             The Funds will follow these procedures in investigating and enforcing this Code:
 
(a)      the Chief Legal Officer will take all appropriate action to investigate any reported potential violations;
 
(b)      if, after such investigation, the Chief Legal Officer believes that no material violation has occurred, the Chief Legal Officer is not required to take any further action;
 
(c)      any matter that the Chief Legal Officer believes is a material violation will be reported to the Committee;
 
(d)      if the Committee concurs that a material violation has occurred, it will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; monetary sanctions based on making a Fund whole for damage suffered or to deter further actions; or a recommendation to suspend or dismiss the Covered Officer;
 
(e)      the Committee will be responsible for granting waivers, as appropriate;

(f)       all waivers shall be accompanied by a written memorandum, including to whom the waiver was granted, the details of the waiver, the nature and scope of the waiver, reasoning for the waiver and the date of the waiver; and
 
(g)      any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules.
 
VI.            Other Policies and Procedures
 
This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds' and their investment adviser's and principal underwriter's Code of Ethics under Rule 17j-1 under the Investment Company Act and the adviser's more detailed policies and procedures are separate requirements applying to the Covered Officers and others, and are not part of this Code.
 
VII.            Amendments
 

(a)      This Code was initially adopted by a majority of both Boards (including a majority of the Independent Directors voting separately).

(b)      Any material amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of both Boards, including a majority of Independent Directors voting separately.
 
(c)      A copy of each version of the Code and all waivers under the Code shall be maintained for at least six (6) years following the end of the fiscal year in which the amendment or waiver occurred.
 
VIII.            Confidentiality
 
All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the appropriate Board and its independent counsel.
 
VIII.            Filing
 
Each Fund shall file a copy of this Code as an exhibit to its annual report on Form N-CSR, and shall similarly file and report all material, substantive amendments to this Code.
 

Exhibit A
 
Persons Covered by this Code of Ethics as of July 30, 2004
 
Principal Executive Officer – Kenneth Eich
 
Principal Financial Officer – Douglas Haines
 
Principal Accounting Officer – Douglas Haines
 

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