N-CSR 1 dvaf_1217_ncsr.htm CERTIFIED SHAREHOLDER REPORT

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, 2017
Date of reporting period: December 31, 2017


____________________








ITEM 1.  REPORT TO STOCKHOLDERS
 
 
 
 
DAVIS VALUE PORTFOLIO
Table of Contents


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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, D.C., 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, 2017 (the "period"). The Fund delivered a total return of 22.63%, versus a 21.83% return for the S&P 500®. The sectors1 within the S&P 500® that reported the strongest performance were Information Technology (up 39%), Materials (up 24%), and Financials (up 23%). Only two sectors within the S&P 500® reported negative performance, Telecommunication Services and Energy (both down 1%). The third-weakest, but still positive, performing sector was Real Estate (up 11%).

Contributors to Performance
The Fund's holdings in the Consumer Discretionary sector made the most significant contribution to performance2 when compared to the S&P 500®, primarily as a result of strong stock selection. The Fund's Consumer Discretionary holdings were up 39%, compared to up 23% for the S&P 500®. Amazon3 (up 56%), the Fund's second-largest holding, was the Fund's top contributor for the period.

The Fund continued to hold a large position in Financials. These holdings were the most important contributor to the Fund's performance on an absolute basis. Individual securities which helped performance included American Express (up 36%), JPMorgan Chase (up 27%), Berkshire Hathaway (up 22%), Capital One Financial (up 16%), and Wells Fargo (up 13%). Each of these holdings was among the Fund's top ten holdings. In fact, at the end of the period, six of the top ten holdings were Financials securities.

When compared to the S&P 500®, the Fund benefited significantly from being underweight in Consumer Staples (2%, compared to 9%) and Telecommunication Services (0%, compared to 2%).

Other key contributors to performance came from the Fund's Information Technology holdings, and included Alphabet (up 34%), the Fund's largest holding, Facebook (up 53%), and Texas Instruments (up 47%). Aetna (up 47%), a Health Care holding, was another top contributor during the period.

Detractors from Performance
The Fund's holdings in the Energy sector were the most significant detractor from performance. The Fund suffered from being overweight (10%, versus 6% for the S&P 500®) in one of the weakest performing sectors of the period and also as a result of poor stock selection. The Fund's Energy holdings were down 8%, compared to down 1% for the S&P 500®. Two of the Fund's top detractors came from the Energy sector. Apache (down 32%), one of the Fund's top ten holdings, was the largest detractor during the period. EQT (down 12%), which the Fund no longer owns, was another key detractor for the period.

While the Fund's Information Technology holdings were a positive absolute contributor, they detracted when compared to the S&P 500® due to a large underweight position in what was the strongest performing sector (average weighting of 15%, versus 22%). A key detractor, which was also a new holding during the period, was Alibaba (down 7%).

Individual securities which detracted from performance included Johnson Controls (down 5%) from the Industrials sector, Valeant Pharmaceuticals (down 34%) from the Health Care sector, and Liberty TripAdvisor (down 37%) and Delphi Technologies (down 7%), both from the Consumer Discretionary sector. The Fund no longer owns Valeant Pharmaceuticals.

During the period, the Fund had an average weighting of 3% of its net assets in Cash & Equivalents, which weakened performance when compared to the S&P 500®.

The Fund ended the period with 18% of its net assets in foreign securities, which detracted from performance when compared to the S&P 500®.
 
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: common stock risk, depositary receipts risk, emerging market risk, fees and expenses risk, financial services risk, foreign country risk, foreign currency risk, headline risk, large-capitalization companies risk, manager risk, mid- and small-capitalization companies risk, and stock market 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 twelve-month period ended December 31, 2017, unless otherwise noted. Return figures for underlying Fund positions reflect the return of the security from the beginning of the period or the date of first purchase if subsequent thereto through the end of the period 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). Portfolio holding information is as of the end of the twelve-month period, December 31, 2017, unless otherwise noted.
1
The companies included in the Standard & Poor's 500® Index are divided into eleven sectors. One or more industry groups make up a sector. For purposes of measuring concentration, the Fund generally classifies companies at the industry group or industry level. See the SAI for additional information regarding the Fund's concentration policy.
 
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, 2007
 
 
Average Annual Total Return for periods ended December 31, 2017
 
 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
22.63%
14.55%
6.55%
6.21%
0.64%
0.64%
 Standard & Poor's 500® Index
21.83%
15.79%
8.50%
5.64%
    

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, 2017

Portfolio Composition
  
Industry Weightings
(% of Fund's 12/31/17 Net Assets)
  
(% of 12/31/17 Stock Holdings)
           
       
Fund
  
S&P 500®
Common Stock (U.S.)
79.46%
  
Diversified Financials
18.52%
  
5.55%
Common Stock (Foreign)
15.01%
  
Information Technology
18.23%
  
23.76%
Preferred Stock (Foreign)
2.58%
  
Retailing
11.63%
  
5.73%
Short-Term Investments
3.14%
  
Banks
11.21%
  
6.59%
Other Assets & Liabilities
(0.19)%
  
Capital Goods
10.83%
  
7.46%
 
100.00%
  
Energy
9.42%
  
6.07%
     
Materials
4.44%
  
3.00%
     
Health Care
3.94%
  
13.84%
     
Media
3.65%
  
2.76%
     
Automobiles & Components
3.45%
  
0.66%
     
Insurance
2.27%
  
2.65%
     
Transportation
1.83%
  
2.21%
     
Consumer Durables & Apparel
0.58%
  
1.18%
     
Other
–
  
18.54%
       
100.00%
  
100.00%





Top 10 Long-Term Holdings
(% of Fund's 12/31/17 Net Assets)
     
Alphabet Inc.*
Software & Services
7.97%
Amazon.com, Inc.
Retailing
7.22%
Wells Fargo & Co.
Banks
5.83%
Berkshire Hathaway Inc., Class A
Diversified Financial Services
5.74%
JPMorgan Chase & Co.
Banks
5.06%
Bank of New York Mellon Corp.
Capital Markets
4.59%
Capital One Financial Corp.
Consumer Finance
4.25%
United Technologies Corp.
Capital Goods
3.70%
Apache Corp.
Energy
3.59%
American Express Co.
Consumer Finance
3.40%
 
 
*Alphabet Inc. holding includes Class A and Class C.
 
4
 
DAVIS VALUE PORTFOLIO
Fund Overview – (Continued)
 
December 31, 2017

New Positions Added (01/01/17-12/31/17)
(Highlighted positions are those greater than 2.00% of the Fund's 12/31/17 net assets)
Security
Industry
Date of 1st
Purchase
% of Fund's
12/31/17
Net Assets
Alibaba Group Holding Ltd., ADR
Software & Services
11/17/17
2.24%
FedEx Corp.
Transportation
03/29/17
1.77%
Ferguson PLC
Capital Goods
10/18/17
1.95%
Naspers Ltd. - N
Media
11/17/17
1.95%













Positions Closed (01/01/17-12/31/17)
(Gains and losses greater than $4,000,000 are highlighted)
Security
Industry
Date of
Final Sale
Realized
Gain (Loss)
CarMax, Inc.
Retailing
11/22/17
$
3,226,747
Costco Wholesale Corp.
Food & Staples Retailing
11/28/17
  
4,261,834
Ecolab Inc.
Materials
11/28/17
  
1,634,194
EQT Corp.
Energy
03/17/17
  
(711,838)
Fairfax Financial Holdings Ltd.
Multi-line Insurance
10/23/17
  
111,790
Monsanto Co.
Materials
05/25/17
  
1,663,183
Praxair, Inc.
Materials
12/18/17
  
1,259,746
UnitedHealth Group Inc.
Health Care Equipment & Services
10/27/17
  
4,076,884
Valeant Pharmaceuticals International, Inc.
Pharmaceuticals, Biotechnology &
      
 
   Life Sciences
04/07/17
  
(5,532,407)
Visa Inc., Class A
Diversified Financial Services
11/21/17
  
4,093,000
Wesco Aircraft Holdings, Inc.
Capital Goods
02/02/17
  
(48,298)
 
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, 2017. 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 be 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
(07/01/17)
  
Ending
Account Value
(12/31/17)
  
Expenses Paid
During Period*
(07/01/17-12/31/17)
           
Actual
$1,000.00
  
$1,121.51
  
$3.37
Hypothetical
$1,000.00
  
$1,022.03
  
$3.21

Hypothetical assumes 5% annual return before expenses.

* Expenses are equal to the Fund's annualized operating expense ratio (0.63%)**, 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, 2017

 
Shares
  
Value
 (Note 1)
COMMON STOCK – (94.47%)
 
   CONSUMER DISCRETIONARY – (16.15%)
   
        Automobiles & Components – (3.35%)
     
Adient PLC
    
74,443
  
$
5,858,664
 
Aptiv PLC
    
25,890
    
2,196,249
 
Delphi Technologies PLC
    
8,630
    
452,816
     
8,507,729
 
        Consumer Durables & Apparel – (0.56%)
 
Hunter Douglas N.V.  (Netherlands)
    
16,389
    
1,423,698
 
        Media – (3.54%)
 
Liberty Global PLC, Series C  *
    
107,220
    
3,628,325
 
Liberty Latin America Ltd., Class C  *
    
20,595
    
409,634
 
Naspers Ltd. - N  (South Africa)
    
17,760
    
4,953,709
     
8,991,668
 
        Retailing – (8.70%)
 
Amazon.com, Inc.  *
    
15,676
    
18,332,612
 
Liberty Expedia Holdings, Inc., Series A  *
    
6,473
    
286,948
 
Liberty Interactive Corp., Liberty Ventures, Series A  *
    
9,709
    
526,616
 
Liberty Interactive Corp., QVC Group, Series A  *
    
31,664
    
773,235
 
Liberty TripAdvisor Holdings Inc., Series A  *
    
8,978
    
84,618
 
Priceline Group Inc.  *
    
1,205
    
2,093,977
     
22,098,006
     
Total Consumer Discretionary
    
41,021,101
 
   ENERGY – (9.14%)
 
Apache Corp.
    
215,760
    
9,109,387
 
Cabot Oil & Gas Corp.
    
142,760
    
4,082,936
 
Encana Corp.  (Canada)
    
541,340
    
7,216,062
 
Occidental Petroleum Corp.
    
38,250
    
2,817,495
 
Total Energy
    
23,225,880
 
   FINANCIALS – (31.07%)
 
        Banks – (10.89%)
 
JPMorgan Chase & Co.
    
120,238
    
12,858,252
 
Wells Fargo & Co.
    
243,814
    
14,792,195
     
27,650,447
 
        Diversified Financials – (17.98%)
   
           Capital Markets – (4.59%)
 
Bank of New York Mellon Corp.
    
216,610
    
11,666,615
 
           Consumer Finance – (7.65%)
 
American Express Co.
    
86,959
    
8,635,898
 
Capital One Financial Corp.
    
108,320
    
10,786,506
   
19,422,404
 
           Diversified Financial Services – (5.74%)
 
Berkshire Hathaway Inc., Class A  *
    
49
    
14,582,400
     
45,671,419
 
        Insurance – (2.20%)
 
           Multi-line Insurance – (0.97%)
 
Loews Corp.
    
49,480
    
2,475,484
 
           Property & Casualty Insurance – (1.23%)
 
Chubb Ltd.
    
12,020
    
1,756,483
 
7
 
DAVIS VALUE PORTFOLIO
Schedule of Investments - (Continued)
 
December 31, 2017

 
Shares
  
Value
 (Note 1)
COMMON STOCK – (CONTINUED)
 
   FINANCIALS – (CONTINUED)
   
        Insurance – (Continued)
   
           Property & Casualty Insurance – (Continued)
   
Markel Corp.  *
    
1,200
  
$
1,366,956
   
3,123,439
     
5,598,923
       
Total Financials
    
78,920,789
 
   HEALTH CARE – (3.83%)
 
        Health Care Equipment & Services – (3.83%)
 
Aetna Inc.
    
35,710
    
6,441,727
 
Express Scripts Holding Co.  *
    
43,910
    
3,277,442
 
Total Health Care
    
9,719,169
 
   INDUSTRIALS – (12.28%)
 
        Capital Goods – (10.51%)
 
Ferguson PLC  (United Kingdom)
    
68,874
    
4,956,382
 
Johnson Controls International PLC
    
176,689
    
6,733,618
 
Orascom Construction Ltd.  (United Arab Emirates)*
    
14,625
    
117,000
 
Safran S.A.  (France)
    
53,280
    
5,492,052
 
United Technologies Corp.
    
73,670
    
9,398,082
     
26,697,134
 
        Transportation – (1.77%)
 
FedEx Corp.
    
18,080
    
4,511,683
 
Total Industrials
    
31,208,817
 
   INFORMATION TECHNOLOGY – (17.69%)
 
        Semiconductors & Semiconductor Equipment – (2.56%)
 
Texas Instruments Inc.
    
62,160
    
6,491,990
 
        Software & Services – (15.13%)
 
Alibaba Group Holding Ltd., ADR  (China)*
    
32,930
    
5,678,120
 
Alphabet Inc., Class A  *
    
7,810
    
8,227,054
 
Alphabet Inc., Class C  *
    
11,493
    
12,026,275
 
CommerceHub, Inc., Series A  *
    
1,618
    
35,580
 
CommerceHub, Inc., Series C  *
    
3,236
    
66,629
 
Facebook Inc., Class A  *
    
38,800
    
6,846,648
 
Fang Holdings Ltd., Class A, ADR  (China)*
    
107,690
    
600,910
 
Microsoft Corp.
    
37,510
    
3,208,606
 
Oracle Corp.
    
37,200
    
1,758,816
     
38,448,638
 
Total Information Technology
    
44,940,628
 
   MATERIALS – (4.31%)
 
Axalta Coating Systems Ltd.  *
    
100,720
    
3,259,299
 
LafargeHolcim Ltd.  (Switzerland)
    
123,036
    
6,944,264
 
OCI N.V.  (Netherlands)*
    
29,250
    
738,061
 
Total Materials
    
10,941,624
   
 
TOTAL COMMON STOCK – (Identified cost $132,544,694)
 
    
239,978,008
 
8
 
DAVIS VALUE PORTFOLIO
Schedule of Investments - (Continued)
 
December 31, 2017

 
Shares/Principal
  
Value
 (Note 1)
PREFERRED STOCK – (2.58%)
 
   CONSUMER DISCRETIONARY – (2.58%)
   
        Retailing – (2.58%)
     
Didi Chuxing Joint Co., Series A  (China)*(a)(b)
    
128,944
  
$
6,567,388
     
 
TOTAL PREFERRED STOCK – (Identified cost $3,959,579)
 
    
6,567,388
SHORT-TERM INVESTMENTS – (3.14%)
 
INTL FCStone Financial Inc. Joint Repurchase Agreement, 1.33%,
01/02/18, dated 12/29/17, repurchase value of $1,444,213 (collateralized
by: U.S. Government agency mortgages and obligation in a pooled cash
account, 0.00%-10.00%, 01/25/18-11/01/47, total market value
$1,472,880)
  
$
1,444,000
    
1,444,000
 
Mizuho Securities USA Inc. Joint Repurchase Agreement, 1.36%,
01/02/18, dated 12/29/17, repurchase value of $227,034 (collateralized
by: U.S. Government agency obligations in a pooled cash account,
0.75%-1.625%, 03/31/18-06/30/20, total market value $231,540)
    
227,000
    
227,000
 
Nomura Securities International, Inc. Joint Repurchase Agreement,
1.42%, 01/02/18, dated 12/29/17, repurchase value of $4,563,720
(collateralized by: U.S. Government agency mortgages in a pooled cash
account, 2.50%-5.00%, 09/01/22-09/01/47, total market value
$4,654,260)
    
4,563,000
    
4,563,000
 
SunTrust Robinson Humphrey, Inc. Joint Repurchase Agreement,
1.43%, 01/02/18, dated 12/29/17, repurchase value of $1,733,275
(collateralized by: U.S. Government agency mortgages in a pooled cash
account, 3.431%-4.00%, 11/01/34-12/01/47, total market value
$1,767,660)
    
1,733,000
    
1,733,000
 
 
TOTAL SHORT-TERM INVESTMENTS – (Identified cost $7,967,000)
 
    
7,967,000
 
 
Total Investments – (100.19%) – (Identified cost $144,471,273)
    
254,512,396
 
Liabilities Less Other Assets – (0.19%)
    
(479,981)
 
               Net Assets – (100.00%)
  
$
254,032,415
 
 
ADR: American Depositary Receipt
 
 
*
Non-income producing security.
 
 
(a)
Restricted Security – See Note 7 of the Notes to Financial Statements.
 
 
(b)
The value of this security was determined using significant unobservable inputs. See Note 1 of the Notes to Financial Statements.
 
See Notes to Financial Statements
 
9
 
DAVIS VALUE PORTFOLIO
Statement of Assets and Liabilities
 
At December 31, 2017

ASSETS:
        
Investments in securities, at value* (see accompanying Schedule of Investments)
  
$
254,512,396
Cash
    
878
Receivables:
      
 
Capital stock sold
    
14,355
 
Dividends and interest
    
93,898
Prepaid expenses
    
8,195
   
Total assets
    
254,629,722
 
LIABILITIES:
      
Payables:
      
 
Capital stock redeemed
    
433,827
Accrued investment advisory fee
    
121,767
Other accrued expenses
    
41,713
 
Total liabilities
    
597,307
 
NET ASSETS
  
$
254,032,415
 
SHARES OUTSTANDING
    
24,935,263
 
NET ASSET VALUE, offering, and redemption price per share (Net assets ÷ Shares outstanding)
  
$
10.19
 
NET ASSETS CONSIST OF:
      
Par value of shares of capital stock
  
$
24,935
Additional paid-in capital
    
131,093,910
Undistributed net investment income
    
237,074
Accumulated net realized gains from investments
    
12,635,373
Net unrealized appreciation on investments and foreign currency transactions
    
110,041,123
 
Net Assets
  
$
254,032,415

*Including:
      
 
Cost of investments
  
$
144,471,273

See Notes to Financial Statements
 
10
 
DAVIS VALUE PORTFOLIO
Statement of Operations
 
For the year ended December 31, 2017

INVESTMENT INCOME:
            
Income:
      
Dividends*
  
$
3,353,549
Interest
    
60,720
Net securities lending fees
    
374
   
Total income
      
3,414,643

Expenses:
      
Investment advisory fees (Note 3)
  
$
1,379,364
      
Custodian fees
    
52,981
      
Transfer agent fees
    
14,529
      
Audit fees
    
22,208
      
Legal fees
    
7,227
      
Accounting fees (Note 3)
    
8,996
      
Reports to shareholders
    
14,359
      
Directors' fees and expenses
    
74,773
      
Registration and filing fees
    
220
      
Miscellaneous
    
21,757
      
 
Total expenses
      
1,596,414
Net investment income
    
1,818,229
 
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
            
Net realized gain (loss) from:
      
 
Investment transactions
    
28,025,883
 
Foreign currency transactions
    
(19,116)
Net realized gain
    
28,006,767
Net increase in unrealized appreciation
    
21,400,155
 
Net realized and unrealized gain on investments and
foreign currency transactions
      
49,406,922
Net increase in net assets resulting from operations
  
$
51,225,151
 
*Net of foreign taxes withheld of
  
$
18,895

See Notes to Financial Statements

11

DAVIS VALUE PORTFOLIO
Statements of Changes in Net Assets


   
Year ended December 31,
   
2017
  
2016
 
OPERATIONS:
            
Net investment income
  
$
1,818,229
  
$
2,253,875
Net realized gain from investments and foreign currency transactions
    
28,006,767
    
38,173,563
Net increase (decrease) in unrealized appreciation on investments and foreign
currency transactions
    
21,400,155
    
(10,137,576)
 
Net increase in net assets resulting from operations
    
51,225,151
    
30,289,862
 
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
            
Net investment income
    
(1,827,900)
    
(2,999,577)
 
Realized gains from investment transactions
    
(20,335,386)
    
(35,925,163)
 
CAPITAL SHARE TRANSACTIONS:
            
Net decrease in net assets resulting from capital share transactions (Note 4)
    
(24,372,813)
    
(63,768,076)
 
 
Total increase (decrease) in net assets
    
4,689,052
    
(72,402,954)
 
NET ASSETS:
            
Beginning of year
    
249,343,363
    
321,746,317
End of year*
  
$
254,032,415
  
$
249,343,363
 
*Including undistributed net investment income of
  
$
237,074
  
$
246,916
               
See Notes to Financial Statements
 
12
 
DAVIS VALUE PORTFOLIO
Notes to Financial Statements
 
December 31, 2017

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Fund is a separate series of Davis Variable Account Fund, Inc. (a Maryland corporation), is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Fund follows the reporting guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 946, Financial Services – Investment Companies. 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 last quoted bid price. 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.
 
13
 
DAVIS VALUE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2017

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, 2017 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
$
41,021,101
  
$
–
  
$
6,567,388
  
$
47,588,489
Energy
  
23,225,880
    
–
    
–
    
23,225,880
Financials
  
78,920,789
    
–
    
–
    
78,920,789
Health Care
  
9,719,169
    
–
    
–
    
9,719,169
Industrials
  
31,208,817
    
–
    
–
    
31,208,817
Information Technology
  
44,940,628
    
–
    
–
    
44,940,628
Materials
  
10,941,624
    
–
    
–
    
10,941,624
Short-term securities
  
–
    
7,967,000
    
–
    
7,967,000
Total Investments
$
239,978,008
  
$
7,967,000
  
$
6,567,388
  
$
254,512,396

There were no transfers of investments between Level 1 and Level 2 of the fair value hierarchy during the year ended December 31, 2017.

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, 2017:

Investment Securities:
      
Beginning balance
  
$
4,929,155
Net increase in unrealized appreciation
    
1,638,233
Ending balance
  
$
6,567,388
       
Net increase in unrealized appreciation during the period on Level 3 securities
still held at December 31, 2017 and included in the change in net assets for
the year
  
$
1,638,233

There were no transfers of investments into or out of Level 3 of the fair value hierarchy during the period. 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) 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
               
Impact to
 
Fair Value at
  
Valuation
  
Unobservable
    
Valuation from
Investments at Value
December 31, 2017
  
Technique
  
Input
  
Amount
an Increase in Input
Preferred Stock
$
6,567,388
  
Market Approach
  
Transaction Price
  
$
50.9321
Increase

The significant unobservable input listed in the above table 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. The "Impact to Valuation" represents the change in fair value measurement resulting from an increase in the corresponding input. A decrease in the input would have the opposite effect.
 
14
 
DAVIS VALUE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2017
 
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. There were no forward contracts entered into by the Fund.

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 analyzed the Fund's tax positions taken on federal and state income tax returns for all open tax years and concluded that as of December 31, 2017, 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 2014.

At December 31, 2017, the unrealized appreciation (depreciation) and aggregate cost of securities for federal income tax purposes were as follows:

Unrealized appreciation
$
111,180,138
Unrealized depreciation
  
(2,683,899)
   Net unrealized appreciation
$
108,496,239
     
Aggregate cost
$
146,016,157
 
15
 
DAVIS VALUE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2017

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

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, corporate actions, 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, 2017, amounts have been reclassified to reflect a decrease in undistributed net investment income of $171 and a corresponding increase 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, 2017 and 2016 was as follows:

 
2017
  
2016
Ordinary income
$
1,827,900
  
$
6,371,194
Long-term capital gain
  
20,335,386
    
32,553,546
Total
$
22,163,286
  
$
38,924,740

As of December 31, 2017, the components of distributable earnings on a tax basis were as follows:

Undistributed net investment income
$
348,728
Undistributed long-term capital gain
  
14,180,245
Net unrealized appreciation on investments
  
108,496,239
Total
$
123,025,212

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.
 
16
 
DAVIS VALUE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2017

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, 2017 were $30,210,823 and $70,449,792, 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.

All officers of the Fund (including Interested Directors) hold positions as executive officers with the Adviser or its affiliates.

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, 2017 amounted to $8,996.

NOTE 4 - CAPITAL STOCK

At December 31, 2017, 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, 2017
   
Sold
    
Reinvestment of
Distributions
    
Redeemed
    
Net Decrease
                       
Shares:
  
497,879
    
2,172,871
    
(5,150,910)
    
(2,480,160)
Value:
$
4,991,218
  
$
22,163,286
  
$
(51,527,317)
  
$
(24,372,813)
                       
 
 
Year ended December 31, 2016
   
Sold
    
Reinvestment of
Distributions
    
Redeemed
    
Net Decrease
                       
Shares:
  
1,289,497
    
4,249,426
    
(11,578,576)
    
(6,039,653)
Value:
$
11,917,809
  
$
38,924,739
  
$
(114,610,624)
  
$
(63,768,076)
                       
 
17
 
DAVIS VALUE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2017

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 of 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, 2017.

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, 2017, 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 $6,567,388 or 2.58% of the Fund's net assets as of December 31, 2017. Information regarding restricted securities is as follows:

Security
  
Initial
Acquisition
Date
  
 
Shares
  
Cost per Share
  
Valuation per
Share as of
December 31, 2017
Didi Chuxing Joint Co., Series A, Pfd.
  
07/27/15
  
128,944
  
$
30.7077
  
$
50.9321
 
 
FEDERAL INCOME TAX INFORMATION (UNAUDITED)

During the calendar year ended December 31, 2017, the Fund declared and paid long-term capital gain distributions in the amount of $20,335,386.

During the calendar year ended December 31, 2017, $1,827,900 of dividends paid by the Fund constituted income dividends for federal income tax purposes. The Fund designates $1,658,900 or 91% 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,
     
2017
  
2016
  
2015
  
2014
  
2013
 
Net Asset Value, Beginning of Period
  
$
9.10
  
$
9.62
  
$
11.32
  
$
13.48
  
$
10.93
 
Income from Investment Operations:
                                                  
Net Investment Income
  
0.07a
  
0.07a
  
0.10
  
0.12
  
0.12
Net Realized and Unrealized Gains
  
1.99
  
1.09
  
0.10
  
0.73
  
3.53
 
Total from Investment Operations
  
2.06
  
1.16
  
0.20
  
0.85
  
3.65
 
Dividends and Distributions:
                                                  
Dividends from Net Investment Income
  
(0.08)
  
(0.13)
  
(0.09)
  
(0.13)
  
(0.12)
Distributions from Realized Gains
  
(0.89)
  
(1.55)
  
(1.81)
  
(2.88)
  
(0.98)
 
 
Total Dividends and Distributions
  
(0.97)
  
(1.68)
  
(1.90)
  
(3.01)
  
(1.10)
Net Asset Value, End of Period
  
$
10.19
  
$
9.10
  
$
9.62
  
$
11.32
  
$
13.48
 
Total Returnb
  
22.63
%
  
11.88
%
  
1.60
%
  
6.06
%
  
33.43
%
 
Ratios/Supplemental Data:
                                                  
Net Assets, End of Period (in thousands)
  
$
254,032
    
$
249,343
    
$
321,746
    
$
365,125
    
$
396,251
  
Ratio of Expenses to Average Net Assets:
                                                  
 
Gross
  
0.64
%
  
0.62
%
  
0.62
%
  
0.62
%
  
0.62
%
 
Netc
  
0.64
%
  
0.62
%
  
0.62
%
  
0.62
%
  
0.62
%
Ratio of Net Investment Income to Average
      Net Assets
  
0.72
%
  
0.78
%
  
0.86
%
  
0.82
%
  
0.84
%
Portfolio Turnover Rated
  
12
%
  
18
%
  
27
%
  
26
%
  
10
%

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 certain reimbursements.
   
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 VALUE PORTFOLIO
Report of Independent Registered Public Accounting Firm


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

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Davis Value Portfolio (a separate series of Davis Variable Account Fund, Inc.) (the "Fund"), including the schedule of investments, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the "financial statements") and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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.

Basis for Opinion

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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.


KPMG LLP


We have served as the auditor of one or more Davis Funds investment companies since 1998.

Denver, Colorado
February 7, 2018
 
20
 
DAVIS VALUE PORTFOLIO
Directors and Officers


For the purpose 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-eight (78).

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
Overseen
Other Directorships
           
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); Trustee,
DCT Industrial Trust (REIT);
Director, Miami Corp.
(diversified investment
company).
           
Thomas S.
Gayner
(12/16/61)
Director/
Chairman
Director since
2004/Chairman
since 2009
Co-CEO and Director, 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
none
           
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 C.
Williams
(03/28/51)
Director
Director since
1999
Retired; Senior Vice President and
Chief Financial Officer, Orbitz
Worldwide, Inc. (travel-service
provider) 2007-2010.
13
Lead Independent Director,
Modine Manufacturing
Company (heat transfer
technology); Director, Chicago
Bridge & Iron Company, N.V.
(industrial construction and
engineering);
Chairman/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
Overseen
Other Directorships
           
Interested Directors*
           
Andrew A.
Davis
(06/25/63)
Director
Director since
1997
President or Vice President of each
Davis Fund, Selected Fund, and
Clipper 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, 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, Clipper
Fund, and Davis Fundamental ETF;
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.
16
Director, Selected Funds
(consisting of two portfolios)
since 1998; Trustee, 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 the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Trustee/Chairman, Executive Vice President, and Principal Executive Officer of Davis Fundamental ETF Trust (consisting of three portfolios); 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 the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), Clipper Funds Trust (consisting of one portfolio), and Davis Fundamental ETF Trust (consisting of three portfolios); Vice President and Director of Fund Accounting, Davis Selected Advisers, L.P.

Randi J. Roessler (born 06/26/81, Davis Funds officer since 2018). Vice President and Chief Compliance Officer of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), Clipper Funds Trust (consisting of one portfolio), and Davis Fundamental ETF Trust (consisting of three portfolios); 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 the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), Clipper Funds Trust (consisting of one portfolio), and Davis Fundamental ETF Trust (consisting of three portfolios); 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
DST Asset Manager Solutions, 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


2
   
4
   
5
   
6
   
8
   
9
   
10
   
11
   
16
   
17
   
18
   
18
   
19


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, D.C., 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 underperformed the Standard & Poor's 500® Index ("S&P 500®") for the twelve-month period ended December 31, 2017 (the "period"). The Fund delivered a total return of 21.42%, versus a 21.83% return for the S&P 500®. The Financials sector1 holdings for the Fund and for the S&P 500® were each up 23%. Only two sectors within the S&P 500® reported negative performance, Telecommunication Services and Energy (both down 1%). The third-weakest, but still positive, performing sector was Real Estate (up 11%). The sectors within the S&P 500® that reported the strongest performance were Information Technology (up 39%), Materials (up 24%), and Financials (up 23%).

Detractors from Performance
For the period, only one security in the Fund reported negative performance2. American International Group3 (down 7%), from the Insurance industry, was the top overall detractor from performance for the period. The Fund's Insurance holdings underperformed those of the S&P 500® (up 13%, compared to up 16%). The following Insurance holdings had positive returns, but were still among the weaker performing securities during the period: Swiss Re (up 2%), Alleghany (up 6%), and Everest Re Group (up 4%).

The Fund is allowed to invest a portion of its net assets in non-Financials securities. During the period, the Fund suffered from its underweight position in Information Technology sector securities when compared with the S&P 500® (4%, as compared to 22%). The Fund's returns on its Information Technology securities underperformed those of the S&P 500® (up 28%, compared to up 39%). Cielo (up 3%) was a weak performing holding during the period.

Goldman Sachs (up 8%) from Capital Markets and U.S. Bancorp (up 7%), a top ten holding, from the Banks industry, were among the weakest performers.

During the period, the Fund had an average weight of 5% of its net assets in Cash & Equivalents, which, given the strong market during the period, was a key detractor when compared to the S&P 500®.

Contributors to Performance
The Fund's Capital Markets holdings were the most important contributor to performance during the period. The Fund had an average weighting of 24% of assets invested in Capital Markets. Bank of New York Mellon (up 16%) and Julius Baer Group (up 41%) were strong performers.

The Fund's return on Bank holdings was in-line with those of the S&P 500® (both up 23%) and was a top contributor. Individual securities which were key contributors to performance included JPMorgan Chase (up 27%) and DBS Group Holdings (up 60%).

Holdings from Diversified Financial Services were important to performance. Visa (up 47%) and Berkshire Hathaway (up 22%), the Fund's largest position, were top contributors.

Two top contributors were from the Consumer Finance industry. American Express (up 36%) was the overall top contributor and Capital One Financial (up 16%) was also an important contributor to performance.

While the Insurance industry and the Information Technology sector were detractors relative to the S&P 500®, individual securities helped absolute performance. Markel (up 26%), the Fund's fourth largest holding, from the Insurance industry, and Alphabet (up 34%) from the Information Technology sector were strong performing securities.

The Fund ended the period with 10% of its net assets in foreign securities, which as a whole outperformed its domestic holdings (up 42%, compared to up 22%).
 
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: common stock risk, credit risk, depositary receipts risk, emerging market risk, fees and expenses risk, financial services risk, focused portfolio risk, foreign country risk, foreign currency risk, headline risk, interest rate sensitivity risk, large-capitalization companies risk, manager risk, mid- and small-capitalization companies risk, and stock market 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.
Davis Financial 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 twelve-month period ended December 31, 2017, unless otherwise noted. Return figures for underlying Fund positions reflect the return of the security from the beginning of the period or the date of first purchase if subsequent thereto through the end of the period 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). Portfolio holding information is as of the end of the twelve-month period, December 31, 2017, unless otherwise noted.
1
The companies included in the Standard & Poor's 500® Index are divided into eleven sectors. One or more industry groups make up a sector. For purposes of measuring concentration, the Fund generally classifies companies at the industry level. See the SAI for additional information regarding the Fund's concentration policy.
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, 2007

Average Annual Total Return for periods ended December 31, 2017
 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
21.42%
15.95%
6.79%
6.26%
0.72%
0.72%
 Standard & Poor's 500® Index
21.83%
15.79%
8.50%
5.64%
    

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, 2017

Portfolio Composition
  
Industry Weightings
(% of Fund's 12/31/17 Net Assets)
  
(% of 12/31/17 Stock Holdings)
             
       
Fund
  
S&P 500®
Common Stock (U.S.)
86.08%
  
Diversified Financials
49.07%
  
5.55%
Common Stock (Foreign)
9.65%
  
Insurance
25.63%
  
2.65%
Short-Term Investments
4.36%
  
Banks
21.37%
  
6.59%
Other Assets & Liabilities
(0.09)%
  
Information Technology
3.89%
  
23.76%
 
100.00%
  
Capital Goods
0.04%
  
7.46%
     
Health Care
–
  
13.84%
     
Energy
–
  
6.07%
     
Retailing
–
  
5.73%
     
Food, Beverage & Tobacco
–
  
4.57%
     
Materials
–
  
3.00%
     
Other
–
  
20.78%
       
100.00%
  
100.00%






Top 10 Long-Term Holdings
(% of Fund's 12/31/17 Net Assets)
     
Berkshire Hathaway Inc., Class A
Diversified Financial Services
7.11%
Capital One Financial Corp.
Consumer Finance
7.01%
American Express Co.
Consumer Finance
6.81%
Markel Corp.
Property & Casualty Insurance
5.90%
JPMorgan Chase & Co.
Banks
5.32%
Wells Fargo & Co.
Banks
5.03%
Bank of New York Mellon Corp.
Capital Markets
4.85%
Visa Inc., Class A
Diversified Financial Services
4.64%
U.S. Bancorp
Banks
4.30%
Loews Corp.
Multi-line Insurance
4.06%






New Positions Added (01/01/17-12/31/17)
(Highlighted positions are those greater than 3.00% of the Fund's 12/31/17 net assets)
Security
Industry
Date of 1st
Purchase
% of Fund's
12/31/17
Net Assets
Alleghany Corp.
Reinsurance
05/17/17
2.84%
KKR & Co. L.P.
Capital Markets
01/18/17
3.12%
Swiss Re AG
Reinsurance
10/06/17
2.00%

Positions Closed (01/01/17-12/31/17)
(Gains and losses greater than $750,000 are highlighted)
Security
  Industry
Date of
Final Sale
    
Realized
Gain (Loss)
Moody's Corp.
Capital Markets
10/10/17
  
$
676,220
S&P Global Inc.
Capital Markets
10/12/17
    
750,485
Standard Chartered PLC
Banks
01/25/17
    
(576,430)
 
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, 2017. 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 be 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
(07/01/17)
  
Ending
Account Value
(12/31/17)
  
Expenses Paid
During Period*
(07/01/17-12/31/17)
           
Actual
$1,000.00
  
$1,114.86
  
$3.89
Hypothetical
$1,000.00
  
$1,021.53
  
$3.72

Hypothetical assumes 5% annual return before expenses.

* Expenses are equal to the Fund's annualized operating expense ratio (0.73%)**, 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, 2017

 
Shares/Units
  
Value
 (Note 1)
COMMON STOCK – (95.73%)
 
   FINANCIALS – (91.97%)
   
        Banks – (20.46%)
   
DBS Group Holdings Ltd.  (Singapore)
    
108,251
  
$
2,011,318
 
ICICI Bank Ltd., ADR  (India)
    
33,891
    
329,759
 
JPMorgan Chase & Co.
    
37,480
    
4,008,111
 
PNC Financial Services Group, Inc.
    
14,140
    
2,040,261
 
U.S. Bancorp
    
60,540
    
3,243,733
 
Wells Fargo & Co.
    
62,470
    
3,790,055
     
15,423,237
 
        Diversified Financials – (46.97%)
   
           Capital Markets – (21.40%)
 
Bank of New York Mellon Corp.
    
67,840
    
3,653,862
 
Brookfield Asset Management Inc., Class A  (Canada)
    
32,740
    
1,425,500
 
Charles Schwab Corp.
    
37,680
    
1,935,622
 
Goldman Sachs Group, Inc.
    
11,760
    
2,995,978
 
Julius Baer Group Ltd.  (Switzerland)
    
25,304
    
1,547,661
 
KKR & Co. L.P.
    
111,720
    
2,352,823
 
State Street Corp.
    
22,740
    
2,219,651
   
16,131,097
 
           Consumer Finance – (13.82%)
 
American Express Co.
    
51,680
    
5,132,341
 
Capital One Financial Corp.
    
53,100
    
5,287,698
   
10,420,039
 
           Diversified Financial Services – (11.75%)
 
Berkshire Hathaway Inc., Class A  *
    
18
    
5,356,800
 
Visa Inc., Class A
    
30,680
    
3,498,134
   
8,854,934
     
35,406,070
 
        Insurance – (24.54%)
 
           Insurance Brokers – (1.44%)
 
Marsh & McLennan Cos, Inc.
    
13,310
    
1,083,301
 
           Multi-line Insurance – (5.35%)
 
American International Group, Inc.
    
16,370
    
975,325
 
Loews Corp.
    
61,150
    
3,059,334
   
4,034,659
 
           Property & Casualty Insurance – (9.78%)
 
Chubb Ltd.
    
19,966
    
2,917,631
 
Markel Corp.  *
    
3,905
    
4,448,303
 
Trisura Group Ltd.  (Canada)*
    
192
    
3,982
   
7,369,916
 
           Reinsurance – (7.97%)
 
Alleghany Corp.  *
    
3,590
    
2,139,963
 
Everest Re Group, Ltd.
    
10,660
    
2,358,632
 
Swiss Re AG  (Switzerland)
    
16,090
    
1,506,709
   
6,005,304
     
18,493,180
     
Total Financials
    
69,322,487

6

DAVIS FINANCIAL PORTFOLIO
Schedule of Investments - (Continued)
 
December 31, 2017

 
Shares/Units/ Principal
  
Value
 (Note 1)
COMMON STOCK – (CONTINUED)
 
   INDUSTRIALS – (0.04%)
   
        Capital Goods – (0.04%)
     
Brookfield Business Partners L.P.  (Canada)
    
888
  
$
30,654
   
Total Industrials
    
30,654
 
   INFORMATION TECHNOLOGY – (3.72%)
 
        Software & Services – (3.72%)
 
Alphabet Inc., Class A  *
    
960
    
1,011,264
 
Alphabet Inc., Class C  *
    
1,315
    
1,376,016
 
Cielo S.A.  (Brazil)
    
59,111
    
419,128
 
Total Information Technology
    
2,806,408
     
 
TOTAL COMMON STOCK – (Identified cost $36,608,922)
 
    
72,159,549
SHORT-TERM INVESTMENTS – (4.36%)
 
INTL FCStone Financial Inc. Joint Repurchase Agreement, 1.33%,
01/02/18, dated 12/29/17, repurchase value of $595,088 (collateralized
by: U.S. Government agency mortgages and obligation in a pooled cash
account, 0.00%-10.00%, 01/25/18-11/01/47, total market value
$606,900)
  
$
595,000
    
595,000
 
Mizuho Securities USA Inc. Joint Repurchase Agreement, 1.36%,
01/02/18, dated 12/29/17, repurchase value of $94,014 (collateralized
by: U.S. Government agency obligations in a pooled cash account,
0.75%-1.625%, 03/31/18-06/30/20, total market value $95,880)
    
94,000
    
94,000
 
Nomura Securities International, Inc. Joint Repurchase Agreement,
1.42%, 01/02/18, dated 12/29/17, repurchase value of $1,881,297
(collateralized by: U.S. Government agency mortgages in a pooled cash
account, 2.50%-4.50%, 05/01/32-12/01/47, total market value
$1,918,620)
    
1,881,000
    
1,881,000
 
SunTrust Robinson Humphrey, Inc. Joint Repurchase Agreement,
1.43%, 01/02/18, dated 12/29/17, repurchase value of $714,113
(collateralized by: U.S. Government agency mortgages in a pooled cash
account, 2.82%-4.50%, 02/01/34-12/01/47, total market value $728,280)
    
714,000
    
714,000
 
 
TOTAL SHORT-TERM INVESTMENTS – (Identified cost $3,284,000)
 
    
3,284,000
 
 
Total Investments – (100.09%) – (Identified cost $39,892,922)
    
75,443,549
 
Liabilities Less Other Assets – (0.09%)
    
(65,449)
 
               Net Assets – (100.00%)
  
$
75,378,100
 
 
ADR: American Depositary Receipt
 
 
*
Non-income producing security.
 
See Notes to Financial Statements
 
7
 
DAVIS FINANCIAL PORTFOLIO
Statement of Assets and Liabilities
 
At December 31, 2017

ASSETS:
          
Investments in securities, at value* (see accompanying Schedule of Investments)
  
$
75,443,549
Cash
    
693
Receivables:
      
 
Capital stock sold
    
1
 
Dividends and interest
    
44,049
Prepaid expenses
    
2,141
   
Total assets
    
75,490,433
 
LIABILITIES:
      
Payables:
      
 
Capital stock redeemed
    
51,921
Accrued audit fees
    
13,318
Accrued investment advisory fee
    
36,331
Other accrued expenses
    
10,763
 
Total liabilities
    
112,333
 
NET ASSETS
  
$
75,378,100
 
SHARES OUTSTANDING
    
4,862,081
 
NET ASSET VALUE, offering, and redemption price per share (Net assets ÷ Shares outstanding)
  
$
15.50
 
NET ASSETS CONSIST OF:
      
Par value of shares of capital stock
  
$
4,862
Additional paid-in capital
    
39,775,891
Distributions in excess of net investment income
    
(22,123)
Accumulated net realized gains from investments
    
68,850
Net unrealized appreciation on investments and foreign currency transactions
    
35,550,620
 
Net Assets
  
$
75,378,100
         
*Including:
      
 
Cost of investments
  
$
39,892,922

See Notes to Financial Statements

8

DAVIS FINANCIAL PORTFOLIO
Statement of Operations
 
For the year ended December 31, 2017

INVESTMENT INCOME:
            
Income:
      
Dividends*
  
$
1,004,384
Interest
    
28,680
   
Total income
      
1,033,064
 
Expenses:
      
Investment advisory fees (Note 3)
  
$
388,643
      
Custodian fees
    
25,109
      
Transfer agent fees
    
10,192
      
Audit fees
    
19,623
      
Legal fees
    
2,019
      
Accounting fees (Note 3)
    
2,000
      
Reports to shareholders
    
23,460
      
Directors' fees and expenses
    
23,378
      
Registration and filing fees
    
62
      
Miscellaneous
    
11,339
      
 
Total expenses
      
505,825
Net investment income
    
527,239
 
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
            
Net realized gain (loss) from:
      
 
Investment transactions
    
5,613,677
 
Foreign currency transactions
    
(1,302)
Net realized gain
    
5,612,375
Net increase in unrealized appreciation
    
7,645,217
 
Net realized and unrealized gain on investments and
foreign currency transactions
      
13,257,592
Net increase in net assets resulting from operations
  
$
13,784,831
 
*Net of foreign taxes withheld of
  
$
4,401

See Notes to Financial Statements
 
9
 
DAVIS FINANCIAL PORTFOLIO
Statements of Changes in Net Assets


   
Year ended December 31,
   
2017
  
2016
 
OPERATIONS:
            
Net investment income
  
$
527,239
  
$
650,908
Net realized gain from investments and foreign currency transactions
    
5,612,375
    
5,192,330
Net increase in unrealized appreciation on investments and foreign currency transactions
    
7,645,217
    
2,323,457
 
Net increase in net assets resulting from operations
    
13,784,831
    
8,166,695
 
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
            
Net investment income
    
(512,393)
    
(648,852)
 
Realized gains from investment transactions
    
(6,326,938)
    
(4,785,862)
 
CAPITAL SHARE TRANSACTIONS:
            
Net decrease in net assets resulting from capital share transactions (Note 4)
    
(1,332,761)
    
(507,771)
 
Total increase in net assets
    
5,612,739
    
2,224,210
 
NET ASSETS:
            
Beginning of year
    
69,765,361
    
67,541,151
End of year*
  
$
75,378,100
  
$
69,765,361
 
*Including distributions in excess of net investment income
  
$
(22,123)
  
$
(15,143)
 
See Notes to Financial Statements
 
10
 
DAVIS FINANCIAL PORTFOLIO
Notes to Financial Statements
 
December 31, 2017

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Fund is a separate series of Davis Variable Account Fund, Inc. (a Maryland corporation), is registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management investment company. The Fund follows the reporting guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 946, Financial Services – Investment Companies. 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 last quoted bid price. 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, 2017

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, 2017 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
$
69,322,487
  
$
–
  
$
–
  
$
69,322,487
Industrials
  
30,654
    
–
    
–
    
30,654
Information Technology
  
2,806,408
    
–
    
–
    
2,806,408
Short-term securities
  
–
    
3,284,000
    
–
    
3,284,000
Total Investments
$
72,159,549
  
$
3,284,000
  
$
–
  
$
75,443,549

There were no transfers of investments between Level 1 and Level 2 of the fair value hierarchy during the year ended December 31, 2017.

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. There were no forward contracts entered into by the Fund.

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, 2017

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 analyzed the Fund's tax positions taken on federal and state income tax returns for all open tax years and concluded that as of December 31, 2017, 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 2014.

At December 31, 2017, the unrealized appreciation (depreciation) and aggregate cost of securities for federal income tax purposes were as follows:

Unrealized appreciation
$
35,509,303
Unrealized depreciation
  
–
    Net unrealized appreciation
$
35,509,303
     
Aggregate cost
$
39,934,246

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, 2017, amounts have been reclassified to reflect an increase in distributions in excess of net investment income of $21,826 and a corresponding increase 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, 2017 and 2016 was as follows:

 
2017
  
2016
Ordinary income
$
637,150
  
$
648,852
Long-term capital gain
  
6,202,181
    
4,785,862
Total
$
6,839,331
  
$
5,434,714

As of December 31, 2017, the components of distributable earnings on a tax basis were as follows:

Undistributed net investment income
$
19,350
Undistributed long-term capital gain
  
90,823
Net unrealized appreciation on investments
  
35,509,295
Total
$
35,619,468
 
13
 
DAVIS FINANCIAL PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2017

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, 2017 were $9,133,310 and $14,386,480, 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.

All officers of the Fund (including Interested Directors) hold positions as executive officers with the Adviser or its affiliates.

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, 2017 amounted to $2,000.
 
14
 
DAVIS FINANCIAL PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2017

NOTE 4 - CAPITAL STOCK

At December 31, 2017, 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, 2017
   
Sold
    
Reinvestment of
Distributions
    
Redeemed
    
Net Decrease
                       
Shares: 
  
496,470
    
441,248
    
(1,049,527)
    
(111,809)
Value: 
$
7,738,356
  
$
6,839,331
  
$
(15,910,448)
  
$
(1,332,761)
                       
 
 
Year ended December 31, 2016
   
Sold
    
Reinvestment of
Distributions
    
Redeemed
    
Net Decrease
                       
Shares: 
  
572,282
    
385,988
    
(1,059,918)
    
(101,648)
Value: 
$
8,081,772
  
$
5,434,714
  
$
(14,024,257)
  
$
(507,771)
                       

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 of 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, 2017.
 
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,
     
2017
  
2016
  
2015
  
2014
  
2013
 
Net Asset Value, Beginning of Period
  
$
14.03
  
$
13.31
  
$
14.98
  
$
15.08
  
$
11.55
 
Income from Investment Operations:
                                                  
Net Investment Income
  
0.12
  
0.14
  
0.13
  
0.17
  
0.13
Net Realized and Unrealized Gains
  
2.89
  
1.76
  
0.20
  
1.79
  
3.48
 
Total from Investment Operations
  
3.01
  
1.90
  
0.33
  
1.96
  
3.61
 
Dividends and Distributions:
                                                  
Dividends from Net Investment Income
  
(0.12)
  
(0.14)
  
(0.14)
  
(0.20)
  
(0.08)
Distributions from Realized Gains
  
(1.42)
  
(1.04)
  
(1.86)
  
(1.86)
  
–
 
 
Total Dividends and Distributions
  
(1.54)
  
(1.18)
  
(2.00)
  
(2.06)
  
(0.08)
Net Asset Value, End of Period
  
$
15.50
  
$
14.03
  
$
13.31
  
$
14.98
  
$
15.08
 
Total Returna
  
21.42
%
  
14.25
%
  
2.01
%
  
12.85
%
  
31.26
%
 
Ratios/Supplemental Data:
                                                  
Net Assets, End of Period (in thousands)
  
$
75,378
    
$
69,765
    
$
67,541
    
$
77,859
    
$
80,881
  
Ratio of Expenses to Average Net Assets:
                                                  
 
Gross
  
0.72
%
  
0.70
%
  
0.68
%
  
0.68
%
  
0.68
%
 
Netb
  
0.72
%
  
0.65
%
  
0.68
%
  
0.68
%
  
0.68
%
Ratio of Net Investment Income to Average Net Assets
  
0.75
%
  
1.04
%
  
0.82
%
  
0.96
%
  
0.90
%
Portfolio Turnover Ratec
  
14
%
  
12
%
  
12
%
  
32
%
  
2
%

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 certain reimbursements.
 
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
 
16
 
DAVIS FINANCIAL PORTFOLIO
Report of Independent Registered Public Accounting Firm


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

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Davis Financial Portfolio (a separate series of Davis Variable Account Fund, Inc.) (the "Fund"), including the schedule of investments, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the "financial statements") and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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.

Basis for Opinion

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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.


KPMG LLP


We have served as the auditor of one or more Davis Funds investment companies since 1998.

Denver, Colorado
February 7, 2018
 
17
 
DAVIS FINANCIAL PORTFOLIO
Matters Submitted to a Vote of Shareholders (Unaudited)
 
 
A special meeting of shareholders was held on October 18, 2017. The number of votes necessary to conduct the meeting and approve the proposals was obtained. The results of the votes of shareholders are listed below.

Shares outstanding on record date (August 16, 2017):
4,457,378
  
Total shares voting on October 18, 2017:
4,203,389
(94.3% of shares outstanding)

PROPOSAL
1. Approval of changing the classification of the Fund from a "diversified" fund to a "non-diversified" fund, as such terms are defined in the Investment Company Act of 1940 (the "1940 Act"). Section 13(a)(1) of the 1940 Act provides that shareholder approval is required for a fund to change its classification from diversified to non-diversified.

   
Number of Shares
 
For
  
3,564,470
 
Against
  
408,199
 
Abstain
  
230,720
 
 
FEDERAL INCOME TAX INFORMATION (UNAUDITED)

During the calendar year ended December 31, 2017, the Fund declared and paid long-term capital gain distributions in the amount of $6,202,181.

During the calendar year ended December 31, 2017, $637,150 of dividends paid by the Fund constituted income dividends for federal income tax purposes. The Fund designates $637,150 or 100% as income qualifying for the corporate dividends-received deduction.
 
18
 
DAVIS FINANCIAL PORTFOLIO
Directors and Officers

For the purpose 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-eight (78).

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
Overseen
Other Directorships
           
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); Trustee,
DCT Industrial Trust (REIT);
Director, Miami Corp.
(diversified investment
company).
           
Thomas S.
Gayner
(12/16/61)
Director/
Chairman
Director since
2004/Chairman
since 2009
Co-CEO and Director, 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
none
           
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 C.
Williams
(03/28/51)
Director
Director since
1999
Retired; Senior Vice President and
Chief Financial Officer, Orbitz
Worldwide, Inc. (travel-service
provider) 2007-2010.
13
Lead Independent Director,
Modine Manufacturing
Company (heat transfer
technology); Director, Chicago
Bridge & Iron Company, N.V.
(industrial construction and
engineering);
Chairman/Director, Fifth Third
Bancorp (diversified financial
services).
 
19
 
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
Overseen
Other Directorships
           
Interested Directors*
           
Andrew A.
Davis
(06/25/63)
Director
Director since
1997
President or Vice President of each
Davis Fund, Selected Fund, and
Clipper 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, 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, Clipper
Fund, and Davis Fundamental ETF;
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.
16
Director, Selected Funds
(consisting of two portfolios)
since 1998; Trustee, 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 the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Trustee/Chairman, Executive Vice President, and Principal Executive Officer of Davis Fundamental ETF Trust (consisting of three portfolios); 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 the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), Clipper Funds Trust (consisting of one portfolio), and Davis Fundamental ETF Trust (consisting of three portfolios); Vice President and Director of Fund Accounting, Davis Selected Advisers, L.P.

Randi J. Roessler (born 06/26/81, Davis Funds officer since 2018). Vice President and Chief Compliance Officer of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), Clipper Funds Trust (consisting of one portfolio), and Davis Fundamental ETF Trust (consisting of three portfolios); 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 the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), Clipper Funds Trust (consisting of one portfolio), and Davis Fundamental ETF Trust (consisting of three portfolios); 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.
 
20
 
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
DST Asset Manager Solutions, 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


2
   
4
   
6
   
7
   
10
   
11
   
12
   
13
   
17
   
18
   
19
   
20


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, D.C., 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 outperformed the Wilshire U.S. Real Estate Securities Index ("Wilshire Index") for the twelve-month period ended December 31, 2017 (the "period"). The Fund delivered a total return of 8.25%, versus a 4.84% return for the Wilshire Index. The sub-industries1 within the Wilshire Index that reported the strongest performance were Hotels, Resorts & Cruise Lines (up 33%), Industrial REITs (up 22%), and Specialized REITs (up 16%). The sub-industries within the Wilshire Index that reported the weakest performance were Real Estate Operating Companies (down 12%), Retail REITs (down 6%), and Health Care REITs (down less than 1%).

Contributors to Performance
The Fund's holdings in the Specialized REITs sub-industry made the most significant contribution to performance2 on an absolute basis. The Specialized REITs sub-industry also helped performance when compared to the Wilshire Index as a result of stock selection (up 20%, compared to up 16%) and a higher average weighting (20%, versus 16%). CyrusOne3 (up 37%), CatchMark Timber Trust (up 22%), a top holding of the Fund, DuPont Fabros Technology (up 40%), and Crown Castle International (up 33%) were key contributors during the period. The Fund no longer owns DuPont Fabros Technology.

The Fund's Industrial REITs holdings were also a key contributor to performance for the period. The Fund benefited from its overweight position in the Industrial REITs sub-industry when compared to the Wilshire Index (13%, compared to 8%). Three of the Fund's Industrial REITs holdings were among the top ten contributors for the period. These included Terreno Realty (up 26%), the second-largest contributor, Prologis (up 26%), and DCT Industrial Trust (up 26%).

The Fund's top performing sector was from outside of Real Estate as the Fund had one Information Technology holding. This holding, InterXion (up 68%), was the top performing holding during the period.

The Fund's strong stock selection in Office REITs also helped performance (up 7%, compared to up 3% for the Wilshire Index). Individual securities which were key contributors to performance included Great Portland Estates (up 20%) and Alexandria Real Estate Equities (up 21%).

The Fund ended the period with 4% of its net assets in foreign securities, which significantly outperformed its domestic holdings (up 54%, compared to up 8%).

Detractors from Performance
The Fund's Retail REITs holdings were the most significant detractor from performance on an absolute basis (down 6%). Individual securities which were key detractors for the period included Acadia Realty (down 13%), the second-largest holding and the top detractor, DDR (down 36%), Cedar Realty (down 4%), Kite Realty Group (down 12%), and Federal Realty Investment Trust (down 4%).

The Fund's holdings in the Residential REITs sub-industry were the most significant detractor from performance when compared to the Wilshire Index (up 1%, compared to up 6%) due to weaker stock selection. American Campus Communities (down 14%) was a top detractor for the period.

While the Fund's holdings in the Hotel & Resort REITs sub-industry outperformed those of the Wilshire Index (up 10%, compared to up 6%), the Fund suffered from its underweight position in the Hotel & Resort REITs sub-industry when compared to the Wilshire Index (average weighting of 2%, versus 6%). Similarly, the Fund had no holdings in the strongest performing sub-industry, Hotels, Resorts & Cruise Lines, which was a key detractor from performance when compared to the Wilshire Index.

While the Fund's holdings in the Office REITs sub-industry produced positive returns and outperformed those of the Wilshire Index, three individual Office REITs securities were among the top detractors for the period. These included Vornado Realty Trust (down 5%), New York REIT (down 12%), and SL Green Realty (down 3%). The Fund no longer owns New York REIT.

Public Storage (down 3%), from the Specialized REITs sub-industry, was an additional detractor for the period.

The Fund ended the period with 5% of its net assets in Cash & Equivalents, which detracted from performance when compared to the Wilshire Index.
 
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: common stock risk, fees and expenses risk, focused portfolio risk, headline risk, large-capitalization companies risk, manager risk, mid- and small-capitalization companies risk, real estate risk, stock market risk, and variable current income 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 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 twelve-month period ended December 31, 2017, unless otherwise noted. Return figures for underlying Fund positions reflect the return of the security from the beginning of the period or the date of first purchase if subsequent thereto through the end of the period 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). Portfolio holding information is as of the end of the twelve-month period, December 31, 2017, unless otherwise noted.
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, 2007
 
 
Average Annual Total Return for periods ended December 31, 2017

 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
8.25%
8.72%
4.96%
8.69%
0.93%
0.93%
 Standard & Poor's 500® Index
21.83%
15.79%
8.50%
5.64%
    
 Wilshire U.S. Real Estate Securities
 Index
 
4.84%
 
9.70%
 
7.36%
 
10.58%
    

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, 2017

Portfolio Composition
  
Industry Weightings
(% of Fund's 12/31/17 Net Assets)
  
(% of 12/31/17 Stock Holdings)
           
         
Wilshire U.S.
         
Real Estate
       
Fund
  
Securities Index
Common Stock (U.S.)
90.68%
  
Retail REITs
24.65%
  
18.76%
Common Stock (Foreign)
4.09%
  
Office REITs
18.74%
  
15.75%
Preferred Stock
0.30%
  
Specialized REITs
17.95%
  
16.69%
Short-Term Investments
4.73%
  
Residential REITs
14.21%
  
18.37%
Other Assets & Liabilities
0.20%
  
Industrial REITs
13.75%
  
8.63%
 
100.00%
  
Health Care REITs
4.73%
  
11.57%
     
Diversified REITs
2.38%
  
3.05%
     
Hotel & Resort REITs
1.99%
  
6.57%
     
Information Technology
1.60%
  
–
     
Real Estate Operating Companies
–
  
0.31%
     
Hotels, Resorts & Cruise Lines
–
  
0.30%
       
100.00%
  
100.00%









Top 10 Long-Term Holdings
(% of Fund's 12/31/17 Net Assets)
     
Simon Property Group, Inc.
Retail REITs
7.47%
Acadia Realty Trust
Retail REITs
3.45%
Public Storage
Specialized REITs
3.44%
Essex Property Trust, Inc.
Residential REITs
3.30%
Prologis, Inc.
Industrial REITs
3.09%
AvalonBay Communities, Inc.
Residential REITs
2.94%
Boston Properties, Inc.
Office REITs
2.89%
Welltower Inc.
Health Care REITs
2.85%
CatchMark Timber Trust Inc., Class A
Specialized REITs
2.59%
Great Portland Estates PLC
Office REITs
2.57%
 
4
 
DAVIS REAL ESTATE PORTFOLIO
Fund Overview – (Continued)
 
December 31, 2017

New Positions Added (01/01/17-12/31/17)
(Highlighted positions are those greater than 1.80% of the Fund's 12/31/17 net assets)
Security
Industry
Date of 1st
Purchase
% of Fund's
12/31/17
Net Assets
Brandywine Realty Trust
Office REITs
10/20/17
1.57%
Brixmor Property Group, Inc.
Retail REITs
09/26/17
0.50%
Great Portland Estates PLC
Office REITs
01/26/17
2.57%
Hudson Pacific Properties Inc.
Office REITs
01/25/17
1.86%
Invitation Homes Inc.
Residential REITs
12/15/17
0.50%
Kimco Realty Corp.
Retail REITs
07/10/17
1.52%
New York REIT, Inc.
Office REITs
01/06/17
–








Positions Closed (01/01/17-12/31/17)
(Gains and losses greater than $100,000 are highlighted)
Security
Industry
Date of
Final Sale
    
Realized
Gain (Loss)
Apartment Investment & Management Co.,
          
   Class A
Residential REITs
12/18/17
  
$
31,735
CorEnergy Infrastructure Trust, Inc.,
          
   Series A, 7.375%, Cum. Pfd.
Specialized REITs
01/12/17
    
30,343
DuPont Fabros Technology Inc.
Specialized REITs
06/09/17
    
211,637
Highwoods Properties, Inc.
Office REITs
02/08/17
    
58,889
Mid-America Apartment Communities, Inc.
Residential REITs
10/31/17
    
176,050
New York REIT, Inc.
Office REITs
05/11/17
    
(24,870)
 
5
 
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, 2017. 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 be 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
(07/01/17)
  
Ending
Account Value
(12/31/17)
  
Expenses Paid
During Period*
(07/01/17-12/31/17)
           
Actual
$1,000.00
  
$1,053.07
  
$4.81
Hypothetical
$1,000.00
  
$1,020.52
  
$4.74

Hypothetical assumes 5% annual return before expenses.

* Expenses are equal to the Fund's annualized operating expense ratio (0.93%)**, 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 REAL ESTATE PORTFOLIO
Schedule of Investments
 
December 31, 2017

 
Shares
  
Value
 (Note 1)
COMMON STOCK – (94.77%)
 
   INFORMATION TECHNOLOGY – (1.52%)
   
        Software & Services – (1.52%)
   
InterXion Holding N.V.  (Netherlands)*
    
4,030
  
$
237,488
   
Total Information Technology
    
237,488
 
   REAL ESTATE – (93.25%)
   
           Equity Real Estate Investment Trusts (REITs) – (93.25%)
 
        Diversified REITs – (2.26%)
 
Forest City Realty Trust Inc., Class A
    
14,630
    
352,583
 
        Health Care REITs – (4.50%)
 
Ventas, Inc.
    
4,280
    
256,843
 
Welltower Inc.
    
6,980
    
445,114
   
701,957
 
        Hotel & Resort REITs – (1.89%)
 
Host Hotels & Resorts Inc.
    
14,850
    
294,773
 
        Industrial REITs – (13.07%)
 
DCT Industrial Trust Inc.
    
5,570
    
327,405
 
EastGroup Properties, Inc.
    
2,760
    
243,929
 
First Industrial Realty Trust, Inc.
    
11,160
    
351,205
 
Prologis, Inc.
    
7,470
    
481,890
 
Rexford Industrial Realty, Inc.
    
11,220
    
327,175
 
Terreno Realty Corp.
    
8,770
    
307,476
   
2,039,080
 
        Office REITs – (17.82%)
 
Alexandria Real Estate Equities, Inc.
    
2,980
    
389,158
 
Boston Properties, Inc.
    
3,470
    
451,204
 
Brandywine Realty Trust
    
13,430
    
244,292
 
Cousins Properties, Inc.
    
36,680
    
339,290
 
Great Portland Estates PLC  (United Kingdom)
    
43,054
    
400,221
 
Hudson Pacific Properties Inc.
    
8,480
    
290,440
 
JBG SMITH Properties
    
4,805
    
166,878
 
SL Green Realty Corp.
    
2,920
    
294,715
 
Vornado Realty Trust
    
2,610
    
204,050
   
2,780,248
 
        Residential REITs – (13.51%)
 
American Campus Communities, Inc.
    
8,080
    
331,522
 
American Homes 4 Rent, Class A
    
3,540
    
77,314
 
AvalonBay Communities, Inc.
    
2,570
    
458,514
 
Camden Property Trust
    
3,490
    
321,289
 
Equity Residential
    
5,130
    
327,140
 
Essex Property Trust, Inc.
    
2,130
    
514,118
 
Invitation Homes Inc.
    
3,300
    
77,781
   
2,107,678
 
        Retail REITs – (23.14%)
 
Acadia Realty Trust
    
19,700
    
538,992
 
Brixmor Property Group, Inc.
    
4,220
    
78,745
 
Cedar Realty Trust Inc.
    
15,540
    
94,483
 
DDR Corp.
    
7,020
    
62,899
 
Federal Realty Investment Trust
    
2,350
    
312,103
 
GGP Inc.
    
10,250
    
239,748
 
7
 
DAVIS REAL ESTATE PORTFOLIO
Schedule of Investments - (Continued)
 
December 31, 2017

 
Shares/Principal
  
Value
 (Note 1)
COMMON STOCK – (CONTINUED)
 
   REAL ESTATE – (CONTINUED)
   
           Equity Real Estate Investment Trusts (REITs) – (Continued)
   
        Retail REITs – (Continued)
 
Kimco Realty Corp.
    
13,090
  
$
237,584
 
Kite Realty Group Trust
    
3,909
    
76,616
 
Ramco-Gershenson Properties Trust
    
6,250
    
92,063
 
Regency Centers Corp.
    
5,040
    
348,667
 
Retail Opportunity Investments Corp.
    
18,150
    
362,092
 
Simon Property Group, Inc.
    
6,790
    
1,166,115
   
3,610,107
 
        Specialized REITs – (17.06%)
 
CatchMark Timber Trust Inc., Class A
    
30,774
    
404,063
 
Crown Castle International Corp.
    
2,440
    
270,864
 
CubeSmart
    
10,400
    
300,768
 
CyrusOne Inc.
    
4,030
    
239,906
 
Extra Space Storage Inc.
    
3,030
    
264,973
 
Life Storage, Inc.
    
3,670
    
326,887
 
Public Storage
    
2,570
    
537,130
 
Weyerhaeuser Co.
    
9,030
    
318,398
   
2,662,989
   
Total Real Estate
    
14,549,415
   
 
TOTAL COMMON STOCK – (Identified cost $12,897,415)
 
    
14,786,903
PREFERRED STOCK – (0.30%)
 
   REAL ESTATE – (0.30%)
 
           Equity Real Estate Investment Trusts (REITs) – (0.30%)
 
        Retail REITs – (0.30%)
 
CBL & Associates Properties, Inc., Series D, 7.375%, Cum. Pfd.
    
1,506
    
32,921
 
CBL & Associates Properties, Inc., Series E, 6.625%, Cum. Pfd.
    
630
    
13,892
 
Total Real Estate
    
46,813
 
 
TOTAL PREFERRED STOCK – (Identified cost $50,644)
 
    
46,813
SHORT-TERM INVESTMENTS – (4.73%)
 
INTL FCStone Financial Inc. Joint Repurchase Agreement, 1.33%,
01/02/18, dated 12/29/17, repurchase value of $134,020 (collateralized
by: U.S. Government agency mortgages and obligation in a pooled cash
account, 0.00%-10.00%, 01/25/18-11/01/47, total market value
$136,680)
  
$
134,000
    
134,000
 
Mizuho Securities USA Inc. Joint Repurchase Agreement, 1.36%,
01/02/18, dated 12/29/17, repurchase value of $20,003 (collateralized
by: U.S. Government agency obligations in a pooled cash account,
0.75%-1.625%, 03/31/18-06/30/20, total market value $20,400)
    
20,000
    
20,000
 
Nomura Securities International, Inc. Joint Repurchase Agreement,
1.42%, 01/02/18, dated 12/29/17, repurchase value of $423,067
(collateralized by: U.S. Government agency mortgages and obligation in
a pooled cash account, 0.75%-5.00%, 08/15/19-10/01/47, total market
value $431,460)
    
423,000
    
423,000

8

DAVIS REAL ESTATE PORTFOLIO
Schedule of Investments - (Continued)
 
December 31, 2017

 
Principal
  
Value
 (Note 1)
SHORT-TERM INVESTMENTS – (CONTINUED)
   
SunTrust Robinson Humphrey, Inc. Joint Repurchase Agreement,
1.43%, 01/02/18, dated 12/29/17, repurchase value of $161,026
(collateralized by: U.S. Government agency mortgages in a pooled cash
account, 3.50%-4.50%, 12/01/47, total market value $164,220)
  
$
161,000
  
$
161,000
     
 
TOTAL SHORT-TERM INVESTMENTS – (Identified cost $738,000)
 
    
738,000
 
 
Total Investments – (99.80%) – (Identified cost $13,686,059)
    
15,571,716
 
Other Assets Less Liabilities – (0.20%)
    
30,578
 
              Net Assets – (100.00%)
  
$
15,602,294
 
 
*
Non-income producing security.
 
See Notes to Financial Statements

9

DAVIS REAL ESTATE PORTFOLIO
Statement of Assets and Liabilities
 
At December 31, 2017

ASSETS:
          
Investments in securities, at value* (see accompanying Schedule of Investments)
  
$
15,571,716
Cash
    
689
Receivables:
      
 
Capital stock sold
    
44
 
Dividends and interest
    
62,582
Prepaid expenses
    
541
   
Total assets
    
15,635,572
 
LIABILITIES:
      
Payables:
      
 
Capital stock redeemed
    
1,423
Accrued audit fees
    
13,318
Accrued custodian fees
    
2,584
Accrued investment advisory fee
    
9,349
Other accrued expenses
    
6,604
 
Total liabilities
    
33,278
 
NET ASSETS
  
$
15,602,294
 
SHARES OUTSTANDING
    
1,050,527
 
NET ASSET VALUE, offering, and redemption price per share (Net assets ÷ Shares outstanding)
  
$
14.85
 
NET ASSETS CONSIST OF:
      
Par value of shares of capital stock
  
$
1,051
Additional paid-in capital
    
13,436,060
Undistributed net investment income
    
183,220
Accumulated net realized gains from investments
    
96,258
Net unrealized appreciation on investments and foreign currency transactions
    
1,885,705
 
Net Assets
  
$
15,602,294
         
*Including:
      
 
Cost of investments
  
$
13,686,059

See Notes to Financial Statements
 
10
 
DAVIS REAL ESTATE PORTFOLIO
Statement of Operations
 
For the year ended December 31, 2017

INVESTMENT INCOME:
            
Income:
      
Dividends*
  
$
399,103
Interest
    
4,670
   
Total income
      
403,773
 
Expenses:
      
Investment advisory fees (Note 3)
  
$
91,250
      
Custodian fees
    
16,957
      
Transfer agent fees
    
6,488
      
Audit fees
    
19,623
      
Legal fees
    
476
      
Accounting fees (Note 3)
    
2,000
      
Reports to shareholders
    
17
      
Directors' fees and expenses
    
7,899
      
Registration and filing fees
    
16
      
Miscellaneous
    
9,408
      
 
Total expenses
      
154,134
Net investment income
    
249,639
 
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
            
Net realized gain (loss) from:
      
 
Investment transactions
    
1,139,630
 
Foreign currency transactions
    
(173)
Net realized gain
    
1,139,457
Net decrease in unrealized appreciation
    
(92,451)
 
Net realized and unrealized gain on investments and
foreign currency transactions
      
1,047,006
Net increase in net assets resulting from operations
  
$
1,296,645
 
*Net of foreign taxes withheld of
  
$
1,907

See Notes to Financial Statements
 
11
 
DAVIS REAL ESTATE PORTFOLIO
Statements of Changes in Net Assets


   
Year ended December 31,
   
2017
  
2016
 
OPERATIONS:
            
Net investment income
  
$
249,639
  
$
239,551
Net realized gain from investments and foreign currency transactions
    
1,139,457
    
705,360
Net increase (decrease) in unrealized appreciation on investments and foreign
currency transactions
    
(92,451)
    
727,866
 
Net increase in net assets resulting from operations
    
1,296,645
    
1,672,777
 
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
            
Net investment income
    
(198,001)
    
(311,612)
 
Realized gains from investment transactions
    
(512,073)
    
–
 
CAPITAL SHARE TRANSACTIONS:
            
Net decrease in net assets resulting from capital share transactions (Note 4)
    
(2,838,936)
    
(1,427,225)
 
Total decrease in net assets
    
(2,252,365)
    
(66,060)
 
NET ASSETS:
            
Beginning of year
    
17,854,659
    
17,920,719
End of year*
  
$
15,602,294
  
$
17,854,659
 
*Including undistributed net investment income of
  
$
183,220
  
$
131,755
 
See Notes to Financial Statements
 
12
 
DAVIS REAL ESTATE PORTFOLIO
Notes to Financial Statements
 
December 31, 2017

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Fund is a separate series of Davis Variable Account Fund, Inc. (a Maryland corporation), is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Fund follows the reporting guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 946, Financial Services – Investment Companies. 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 last quoted bid price. 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.
 
13
 
DAVIS REAL ESTATE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2017

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, 2017 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:
                      
Information Technology
$
237,488
  
$
–
  
$
–
  
$
237,488
Real Estate
  
14,596,228
    
–
    
–
    
14,596,228
Short-term securities
  
–
    
738,000
    
–
    
738,000
Total Investments
$
14,833,716
  
$
738,000
  
$
–
  
$
15,571,716

There were no transfers of investments between Level 1 and Level 2 of the fair value hierarchy during the year ended December 31, 2017.

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. There were no forward contracts entered into by the Fund.

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.
 
14
 
DAVIS REAL ESTATE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2017

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 analyzed the Fund's tax positions taken on federal and state income tax returns for all open tax years and concluded that as of December 31, 2017, 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 2014.

During the year ended December 31, 2017, the Fund utilized $476,311 in capital loss carryforwards and thus did not have unused capital loss carryforwards available for federal income tax purposes at the end of the year.

At December 31, 2017, the unrealized appreciation (depreciation) and aggregate cost of securities for federal income tax purposes were as follows:

Unrealized appreciation
$
2,188,186
Unrealized depreciation
  
(334,186)
Net unrealized appreciation
$
1,854,000
     
Aggregate cost
$
13,717,716

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. Accordingly, during the year ended December 31, 2017, amounts have been reclassified to reflect a decrease in undistributed net investment income of $173 and a corresponding increase in accumulated net realized gains from investments and foreign currency transactions. The Fund's net assets have not been affected by this reclassification.
 
15
 
DAVIS REAL ESTATE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2017

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, 2017 and 2016 was as follows:

 
2017
  
2016
Ordinary income
$
198,001
  
$
311,612
Long-term capital gain
  
512,073
    
–
Total
$
710,074
  
$
311,612

As of December 31, 2017, the components of distributable earnings on a tax basis were as follows:

Undistributed net investment income
$
190,248
Undistributed long-term capital gain
  
127,914
Net unrealized appreciation on investments
  
1,854,048
Total
$
2,172,210

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, 2017 were $3,537,693 and $6,551,766, 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.

All officers of the Fund (including Interested Directors) hold positions as executive officers with the Adviser or its affiliates.

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, 2017 amounted to $2,000.
 
16
 
DAVIS REAL ESTATE PORTFOLIO
Notes to Financial Statements – (Continued)
 
December 31, 2017

NOTE 4 - CAPITAL STOCK

At December 31, 2017, 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, 2017
   
Sold
    
Reinvestment of
Distributions
    
Redeemed
    
Net Decrease
                       
Shares:
  
40,639
    
48,097
    
(281,463)
    
(192,727)
Value:
$
597,438
  
$
710,074
  
$
(4,146,448)
  
$
(2,838,936)
                       
 
 
Year ended December 31, 2016
   
Sold
    
Reinvestment of
Distributions
    
Redeemed
    
Net Decrease
                       
Shares:
  
189,222
    
21,629
    
(314,303)
    
(103,452)
Value:
$
2,676,307
  
$
311,612
  
$
(4,415,144)
  
$
(1,427,225)
                       

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 of 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, 2017.
 
 
FEDERAL INCOME TAX INFORMATION (UNAUDITED)

During the calendar year ended December 31, 2017, the Fund declared and paid long-term capital gain distributions in the amount of $512,073.

During the calendar year ended December 31, 2017, $198,001 of dividends paid by the Fund constituted income dividends for federal income tax purposes. The Fund designates $1,794 or 1% as income qualifying for the corporate dividends-received deduction.
 
17
 
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,
     
2017
  
2016
  
2015
  
2014
  
2013
 
Net Asset Value, Beginning of Period
  
$
14.36
  
$
13.31
  
$
13.31
  
$
10.56
  
$
10.83
 
Income (Loss) from Investment Operations:
                                                  
Net Investment Income
  
0.22a
  
0.18a
  
0.14a
  
0.17
  
0.19
Net Realized and Unrealized Gains (Losses)
  
0.96
  
1.11
  
0.08
  
2.73
  
(0.33)
 
Total from Investment Operations
  
1.18
  
1.29
  
0.22
  
2.90
  
(0.14)
 
Dividends and Distributions:
                                                  
Dividends from Net Investment Income
  
(0.18)
  
(0.24)
  
(0.22)
  
(0.15)
  
(0.13)
Distributions from Realized Gains
  
(0.51)
  
–
  
–
  
–
  
–
 
 
Total Dividends and Distributions
  
(0.69)
  
(0.24)
  
(0.22)
  
(0.15)
  
(0.13)
Net Asset Value, End of Period
  
$
14.85
  
$
14.36
  
$
13.31
  
$
13.31
  
$
10.56
 
Total Returnb
  
8.25
%
  
9.70
%
  
1.65
%
  
27.54
%
  
(1.32)
%
 
Ratios/Supplemental Data:
                                                  
Net Assets, End of Period (in thousands)
  
$
15,602
    
$
17,855
    
$
17,921
    
$
26,137
    
$
22,011
  
Ratio of Expenses to Average Net Assets:
                                                  
 
Gross
  
0.93
%
  
0.87
%
  
0.85
%
  
0.81
%
  
0.81
%
 
Netc
  
0.93
%
  
0.74
%
  
0.85
%
  
0.81
%
  
0.81
%
Ratio of Net Investment Income to Average Net Assets
  
1.50
%
  
1.29
%
  
1.02
%
  
1.34
%
  
1.52
%
Portfolio Turnover Rated
  
22
%
  
55
%
  
95
%
  
54
%
  
73
%

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 certain reimbursements.
 
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
 
18
 
DAVIS REAL ESTATE PORTFOLIO
Report of Independent Registered Public Accounting Firm


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

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Davis Real Estate Portfolio (a separate series of Davis Variable Account Fund, Inc.) (the "Fund"), including the schedule of investments, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the "financial statements") and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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.

Basis for Opinion

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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.


KPMG LLP


We have served as the auditor of one or more Davis Funds investment companies since 1998.

Denver, Colorado
February 7, 2018
 
19
 
DAVIS REAL ESTATE PORTFOLIO
Directors and Officers


For the purpose 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-eight (78).

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
Overseen
Other Directorships
           
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); Trustee,
DCT Industrial Trust (REIT);
Director, Miami Corp.
(diversified investment
company).
           
Thomas S.
Gayner
(12/16/61)
Director/
Chairman
Director since
2004/Chairman
since 2009
Co-CEO and Director, 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
none
           
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 C.
Williams
(03/28/51)
Director
Director since
1999
Retired; Senior Vice President and
Chief Financial Officer, Orbitz
Worldwide, Inc. (travel-service
provider) 2007-2010.
13
Lead Independent Director,
Modine Manufacturing
Company (heat transfer
technology); Director, Chicago
Bridge & Iron Company, N.V.
(industrial construction and
engineering);
Chairman/Director, Fifth Third
Bancorp (diversified financial
services).
 
20
 
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
Overseen
Other Directorships
           
Interested Directors*
           
Andrew A.
Davis
(06/25/63)
Director
Director since
1997
President or Vice President of each
Davis Fund, Selected Fund, and
Clipper 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, 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, Clipper
Fund, and Davis Fundamental ETF;
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.
16
Director, Selected Funds
(consisting of two portfolios)
since 1998; Trustee, 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 the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Trustee/Chairman, Executive Vice President, and Principal Executive Officer of Davis Fundamental ETF Trust (consisting of three portfolios); 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 the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), Clipper Funds Trust (consisting of one portfolio), and Davis Fundamental ETF Trust (consisting of three portfolios); Vice President and Director of Fund Accounting, Davis Selected Advisers, L.P.

Randi J. Roessler (born 06/26/81, Davis Funds officer since 2018). Vice President and Chief Compliance Officer of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), Clipper Funds Trust (consisting of one portfolio), and Davis Fundamental ETF Trust (consisting of three portfolios); 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 the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), Clipper Funds Trust (consisting of one portfolio), and Davis Fundamental ETF Trust (consisting of three portfolios); 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.
 
21
 
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
DST Asset Manager Solutions, 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, 2017 and December 31, 2016 were $61,454 and $59,219, 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 for fiscal year ends December 31, 2017 and December 31, 2016 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, 2017 and December 31, 2016 were $24,558 and $22,809, 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, 2017 and December 31, 2016 were $67 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.
   
(e)(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, 2017 and December 31, 2016.  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 7, 2018

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 7, 2018

By
/s/ Douglas A. Haines
 
Douglas A. Haines
 
Principal Financial Officer and Principal Accounting Officer
   
Date:  February 7, 2018