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)
Lisa J. Cohen
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, 2022
Date of reporting period: June 30, 2022
____________________
ITEM 1. REPORT TO STOCKHOLDERS
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DAVIS VALUE PORTFOLIO
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Table of Contents
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2
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4
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5
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6
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9
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10
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11
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12
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16
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17
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20
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21
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This Semi-Annual Report is authorized for use by existing shareholders. Prospective shareholders must receive a current Davis Value Portfolio (the “Fund”) prospectus, which
contains more information about investment strategies, risks, charges, and expenses. Please read the prospectus carefully before investing or sending money.
Shares of the Fund 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.
Quarterly Schedule of Investments
The Fund files its complete schedule of investments with the SEC on Form N-CSR (as of the end of the second and fourth quarters) and on Form N-PORT Part F (as of the end of the first and third quarters). The Fund’s
Forms N-CSR (Annual and Semi-Annual Reports) and N-PORT Part F are 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.
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DAVIS VALUE PORTFOLIO
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Performance Overview
Davis Value Portfolio underperformed the Standard & Poor’s 500® Index (“S&P 500®” or the “Index”) for the six-month period ended June 30, 2022 (the “period”). The Fund
delivered a total return of -21.94%, versus a -19.96% return for the S&P 500®. The sectors1 within the S&P 500® that reported the weakest performance were Consumer Discretionary (down 33%), Communication
Services (down 30%), and Information Technology (down 27%). Energy (up 32%) was the only sector in the S&P 500® that reported positive performance during the period. The other sectors within the Index that were stronger
comparatively were Utilities (down 1%) and Consumer Staples (down 6%).
Detractors from Performance
The Fund’s Communication Services holdings were the most important detractor2 from Fund performance relative to the Index. The Fund’s holdings underperformed the Index sector (down 36%,
versus down 30%) and the Fund was overweight in this weaker performing sector (average weighting of 13%, versus 9%). Meta Platforms3 (down 52%) and Alphabet (down 25%) were among the weaker performers from this sector.
The Fund continued to hold a large position in Financials. These holdings were the top detractor from absolute performance. Capital One Financial (down
28%), Wells Fargo (down 18%), Bank of New York Mellon (down 27%), and JPMorgan Chase (down 28%), all holdings that
were significant contributors in 2021, were among the key detractors from performance during the period. Wells Fargo, Capital One Financial, and Bank of New York Mellon all remain as top ten holdings at the end of the period, representing 7.83%, 6.87%, and 3.80% of net assets, respectively.
The Fund’s Information Technology holdings were also a key detractor from absolute performance. The Fund’s holdings underperformed the Index sector (down 32%, versus down 27%). Applied Materials (down 42%), the largest holding at the beginning of the period, was the overall top detractor from performance. Intel (down 26%) was also among the
weaker performers from this sector.
The Fund had no exposure in Energy or Utilities and was underweight in Consumer Staples (average weighting of 1%, versus 6%), the three strongest performing sectors of the S&P 500®.
As a result, relative performance suffered.
Additional individual detractors from performance were Amazon (down 36%) and DiDi Global (down 64%). The Fund no
longer owns DiDi Global.
Contributors to Performance
Although the aforementioned Financials sector was the Fund’s largest detractor from absolute performance, the Fund benefited significantly from its overweight position (average weight of 48%,
compared to the Index sector’s 12%) while also outperforming the Index sector (down 16%, versus down 18%). AIA Group (up 9%), Chubb (up 3%), Markel (up 5%), and Loews (up 3%) were among the largest contributors to performance. American
Express (down 14%) started the period off strong but finished on a negative note, thus being down for the entire period. Fortunately, the Fund sold a majority of its shares before the performance declined. As a result, American Express was also a contributor for the period.
The Fund’s relative performance also benefited from both outperforming (down 29%, versus down 33%) and being underweight (average weighting of 9%, versus 12%) in the weakest performing sector of the
Index, Consumer Discretionary. While JD.com (down 6%) decreased during the period, the Fund benefited from some timely purchases in March and subsequent performance of those shares.
Cigna (up 16%), a Health Care holding, was the overall top contributor to performance and a top ten holding at the end of the period, representing 4.74% of
net assets. The Fund’s sole holding in the Materials sector, Teck Resources (up 8%), outperformed those of the Index (down 18%).
The Fund also benefited from its lower average weighting in the weaker performing Information Technology sector (15%, versus 27%). Additionally, the Fund had an average weighting of 15% of net
assets in foreign securities. The Fund’s foreign holdings outperformed the U.S. holdings (down 14%, versus down 24%). A 3% average repurchase agreement (cash) position during the period also benefited relative performance in a weak market
environment.
Davis Value Portfolio’s investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. Davis Value Portfolio’s principal
risks are: stock market risk, common stock risk, financial services risk, foreign country risk, headline risk, large-capitalization companies risk, manager risk, depositary receipts risk, emerging market risk, fees and expenses risk, foreign
currency risk, and mid- and small-capitalization companies 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 six-month period ended June 30, 2022, 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 six-month period, June 30, 2022, unless otherwise noted.
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1
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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.
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2
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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%.
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3
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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.
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2
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DAVIS VALUE PORTFOLIO
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Management’s Discussion of Fund Performance – (Continued)
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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 June 30, 2012
Average Annual Total Return for periods ended June 30, 2022
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Fund & Benchmark Index
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1-Year
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5-Year
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10-Year
|
Since Fund’s
Inception
(07/01/99)
|
Gross Expense
Ratio
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Net Expense
Ratio
|
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Davis Value Portfolio
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(24.81)%
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5.49%
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9.30%
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5.66%
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0.67%
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0.67%
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Standard & Poor’s 500® Index
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(10.62)%
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11.30%
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12.95%
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6.47%
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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 quoted in this report represents past performance, assumes that all distributions were reinvested, and is not a guarantee of future results. The
investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Current performance may be higher or lower than performance data quoted. The operating expense ratio may vary in
future years. For most recent month-end performance information, please call Investor Services at 1-800-279-0279 or visit the Fund’s website at www.davisfunds.com.
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
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DAVIS VALUE PORTFOLIO
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June 30, 2022 (Unaudited)
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Portfolio Composition
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Industry Weightings
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|||||||
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(% of Fund’s 06/30/22 Net Assets)
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(% of 06/30/22 Stock Holdings)
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|||||||
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Fund
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S&P 500®
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|||||||
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Common Stock (U.S.)
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79.14%
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Banks
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21.42%
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3.69%
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Common Stock (Foreign)
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16.28%
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Diversified Financials
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20.27%
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4.95%
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Short-Term Investments
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4.48%
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Information Technology
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14.67%
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26.84%
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Other Assets & Liabilities
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0.10%
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Media & Entertainment
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12.08%
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7.45%
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100.00%
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Retailing
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9.95%
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5.72%
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|||||
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Health Care
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9.74%
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15.14%
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||||||
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Insurance
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7.76%
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2.20%
|
||||||
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Materials
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1.66%
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2.60%
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||||||
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Capital Goods
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1.33%
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5.25%
|
||||||
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Food, Beverage & Tobacco
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1.12%
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3.72%
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||||||
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Energy
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–
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4.35%
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||||||
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Utilities
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–
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3.10%
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||||||
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Real Estate
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–
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2.92%
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||||||
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Other
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–
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12.07%
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||||||
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100.00%
|
100.00%
|
|||||||
Top 10 Long-Term Holdings
(% of Fund’s 06/30/22 Net Assets)
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Berkshire Hathaway Inc., Class A
|
Diversified Financial Services
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7.97%
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Wells Fargo & Co.
|
Banks
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7.83%
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Alphabet Inc.*
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Media & Entertainment
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6.99%
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Capital One Financial Corp.
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Consumer Finance
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6.87%
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Applied Materials, Inc.
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Semiconductors & Semiconductor Equipment
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5.50%
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Cigna Corp.
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Health Care Equipment & Services
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4.74%
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U.S. Bancorp
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Banks
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4.11%
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Amazon.com, Inc.
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Retailing
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4.08%
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Bank of New York Mellon Corp.
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Capital Markets
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3.80%
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Texas Instruments Inc.
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Semiconductors & Semiconductor Equipment
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3.68%
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*Alphabet Inc. holding includes Class A and Class C.
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4
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DAVIS VALUE PORTFOLIO
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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 June 30, 2022. 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
|
Ending
|
Expenses Paid
|
|||
|
Account Value
|
Account Value
|
During Period*
|
|||
|
(01/01/22)
|
(06/30/22)
|
(01/01/22-06/30/22)
|
|||
|
Actual
|
$1,000.00
|
$780.62
|
$2.96
|
||
|
Hypothetical
|
$1,000.00
|
$1,021.47
|
$3.36
|
Hypothetical assumes 5% annual return before expenses.
* Expenses are equal to the Fund’s annualized operating expense ratio (0.67%)**, multiplied by the average account value over the period, multiplied by 181/365 (to reflect
the one-half year period).
** The expense ratio reflects the impact, if any, of certain reimbursements from the Adviser.
5
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DAVIS VALUE PORTFOLIO
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|
|
June 30, 2022 (Unaudited)
|
|
Shares
|
Value
(Note 1) |
|||||||||||
|
COMMON STOCK – (95.42%)
|
||||||||||||
|
COMMUNICATION SERVICES – (11.53%)
|
||||||||||||
|
Media & Entertainment – (11.53%)
|
||||||||||||
|
Alphabet Inc., Class A *
|
1,690
|
$
|
3,682,949
|
|||||||||
|
Alphabet Inc., Class C *
|
1,103
|
2,412,757
|
||||||||||
|
IAC/InterActiveCorp *
|
11,240
|
853,903
|
||||||||||
|
Liberty TripAdvisor Holdings, Inc., Series A *
|
3,168
|
2,397
|
||||||||||
|
Meta Platforms, Inc., Class A *
|
18,580
|
2,996,025
|
||||||||||
|
Vimeo, Inc. *
|
18,250
|
109,865
|
||||||||||
|
Total Communication Services
|
10,057,896
|
|||||||||||
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CONSUMER DISCRETIONARY – (9.49%)
|
||||||||||||
|
Retailing – (9.49%)
|
||||||||||||
|
Alibaba Group Holding Ltd., ADR (China)*
|
6,280
|
713,910
|
||||||||||
|
Amazon.com, Inc. *
|
33,520
|
3,560,159
|
||||||||||
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Coupang, Inc., Class A (South Korea)*
|
46,102
|
587,801
|
||||||||||
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JD.com, Inc., Class A, ADR (China)
|
29,290
|
1,881,004
|
||||||||||
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Naspers Ltd. - N (South Africa)
|
2,590
|
376,943
|
||||||||||
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Prosus N.V., Class N (Netherlands)
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17,694
|
1,158,531
|
||||||||||
|
Total Consumer Discretionary
|
8,278,348
|
|||||||||||
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CONSUMER STAPLES – (1.07%)
|
||||||||||||
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Food, Beverage & Tobacco – (1.07%)
|
||||||||||||
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Darling Ingredients Inc. *
|
15,640
|
935,272
|
||||||||||
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Total Consumer Staples
|
935,272
|
|||||||||||
|
FINANCIALS – (47.19%)
|
||||||||||||
|
Banks – (20.44%)
|
||||||||||||
|
Danske Bank A/S (Denmark)
|
93,850
|
1,326,254
|
||||||||||
|
DBS Group Holdings Ltd. (Singapore)
|
142,077
|
3,035,230
|
||||||||||
|
JPMorgan Chase & Co.
|
27,098
|
3,051,506
|
||||||||||
|
U.S. Bancorp
|
77,910
|
3,585,418
|
||||||||||
|
Wells Fargo & Co.
|
174,424
|
6,832,188
|
||||||||||
|
17,830,596
|
||||||||||||
|
Diversified Financials – (19.34%)
|
||||||||||||
|
Capital Markets – (3.80%)
|
||||||||||||
|
Bank of New York Mellon Corp.
|
79,420
|
3,312,608
|
||||||||||
|
Consumer Finance – (7.57%)
|
||||||||||||
|
American Express Co.
|
4,439
|
615,334
|
||||||||||
|
Capital One Financial Corp.
|
57,520
|
5,993,009
|
||||||||||
|
6,608,343
|
||||||||||||
|
Diversified Financial Services – (7.97%)
|
||||||||||||
|
Berkshire Hathaway Inc., Class A *
|
17
|
6,952,150
|
||||||||||
|
16,873,101
|
||||||||||||
|
Insurance – (7.41%)
|
||||||||||||
|
Life & Health Insurance – (4.25%)
|
||||||||||||
|
AIA Group Ltd. (Hong Kong)
|
215,600
|
2,336,848
|
||||||||||
|
Ping An Insurance (Group) Co. of China, Ltd. - H (China)
|
201,000
|
1,366,589
|
||||||||||
|
3,703,437
|
||||||||||||
|
Property & Casualty Insurance – (3.16%)
|
||||||||||||
|
Chubb Ltd.
|
8,290
|
1,629,648
|
||||||||||
|
Loews Corp.
|
10,950
|
648,897
|
||||||||||
6
|
DAVIS VALUE PORTFOLIO
|
Schedule of Investments - (Continued)
|
|
June 30, 2022 (Unaudited)
|
|
Shares/Principal
|
Value
(Note 1) |
||||||||||||
|
COMMON STOCK – (CONTINUED)
|
|||||||||||||
|
FINANCIALS – (CONTINUED)
|
|||||||||||||
|
Insurance – (Continued)
|
|||||||||||||
|
Property & Casualty Insurance – (Continued)
|
|||||||||||||
|
Markel Corp. *
|
370
|
$
|
478,503
|
||||||||||
|
2,757,048
|
|||||||||||||
|
6,460,485
|
|||||||||||||
|
Total Financials
|
41,164,182
|
||||||||||||
|
HEALTH CARE – (9.30%)
|
|||||||||||||
|
Health Care Equipment & Services – (6.22%)
|
|||||||||||||
|
Cigna Corp.
|
15,687
|
4,133,838
|
|||||||||||
|
Quest Diagnostics Inc.
|
9,730
|
1,293,896
|
|||||||||||
|
5,427,734
|
|||||||||||||
|
Pharmaceuticals, Biotechnology & Life Sciences – (3.08%)
|
|||||||||||||
|
Viatris Inc.
|
256,290
|
2,683,356
|
|||||||||||
|
Total Health Care
|
8,111,090
|
||||||||||||
|
INDUSTRIALS – (1.26%)
|
|||||||||||||
|
Capital Goods – (1.26%)
|
|||||||||||||
|
Orascom Construction PLC (United Arab Emirates)
|
13,155
|
37,079
|
|||||||||||
|
Owens Corning
|
14,350
|
1,066,348
|
|||||||||||
|
Total Industrials
|
1,103,427
|
||||||||||||
|
INFORMATION TECHNOLOGY – (14.00%)
|
|||||||||||||
|
Semiconductors & Semiconductor Equipment – (12.80%)
|
|||||||||||||
|
Applied Materials, Inc.
|
52,780
|
4,801,924
|
|||||||||||
|
Intel Corp.
|
84,400
|
3,157,404
|
|||||||||||
|
Texas Instruments Inc.
|
20,890
|
3,209,749
|
|||||||||||
|
11,169,077
|
|||||||||||||
|
Software & Services – (1.20%)
|
|||||||||||||
|
Microsoft Corp.
|
4,060
|
1,042,730
|
|||||||||||
|
Total Information Technology
|
12,211,807
|
||||||||||||
|
MATERIALS – (1.58%)
|
|||||||||||||
|
Teck Resources Ltd., Class B (Canada)
|
45,150
|
1,380,236
|
|||||||||||
|
Total Materials
|
1,380,236
|
||||||||||||
|
TOTAL COMMON STOCK – (Identified cost $49,038,272)
|
83,242,258
|
||||||||||||
|
SHORT-TERM INVESTMENTS – (4.48%)
|
|||||||||||||
|
StoneX Financial Inc. Joint Repurchase Agreement, 1.50%, 07/01/22,
dated 06/30/22, repurchase value of $2,019,084 (collateralized by: U.S.
Government agency mortgages and obligations in a pooled cash
account, 0.375%-8.50%, 11/20/22-10/15/63, total market value
$2,059,380)
|
$
|
2,019,000
|
2,019,000
|
||||||||||
|
Truist Securities, Inc. Joint Repurchase Agreement, 1.49%, 07/01/22,
dated 06/30/22, repurchase value of $1,885,078 (collateralized by: U.S.
Government agency mortgages in a pooled cash account, 2.27%-4.00%,
09/01/26-04/01/52, total market value $1,922,700)
|
1,885,000
|
1,885,000
|
|||||||||||
|
TOTAL SHORT-TERM INVESTMENTS – (Identified cost $3,904,000)
|
3,904,000
|
||||||||||||
7
|
DAVIS VALUE PORTFOLIO
|
Schedule of Investments - (Continued)
|
|
June 30, 2022 (Unaudited)
|
|
Total Investments – (99.90%) – (Identified cost $52,942,272)
|
$
|
87,146,258
|
|||||
|
Other Assets Less Liabilities – (0.10%)
|
87,174
|
||||||
|
Net Assets – (100.00%)
|
$
|
87,233,432
|
|||||
|
ADR: American Depositary Receipt
|
|||||||
|
*
|
Non-income producing security.
|
||||||
|
See Notes to Financial Statements
|
|||||||
8
|
DAVIS VALUE PORTFOLIO
|
|
|
At June 30, 2022 (Unaudited)
|
|
ASSETS:
|
||||||||
|
Investments in securities, at value* (see accompanying Schedule of Investments)
|
$
|
87,146,258
|
||||||
|
Cash
|
3,491
|
|||||||
|
Receivables:
|
||||||||
|
Capital stock sold
|
74,646
|
|||||||
|
Dividends and interest
|
74,961
|
|||||||
|
Investment securities sold
|
337,575
|
|||||||
|
Prepaid expenses
|
2,505
|
|||||||
|
Total assets
|
87,639,436
|
|||||||
|
LIABILITIES:
|
||||||||
|
Payables:
|
||||||||
|
Capital stock redeemed
|
291
|
|||||||
|
Investment securities purchased
|
309,322
|
|||||||
|
Accrued custodian fees
|
21,400
|
|||||||
|
Accrued investment advisory fees
|
44,596
|
|||||||
|
Other accrued expenses
|
30,395
|
|||||||
|
Total liabilities
|
406,004
|
|||||||
|
NET ASSETS
|
$
|
87,233,432
|
||||||
|
SHARES OUTSTANDING
|
12,447,876
|
|||||||
|
NET ASSET VALUE, offering, and redemption price per share (Net assets ÷ Shares outstanding)
|
$
|
7.01
|
||||||
|
NET ASSETS CONSIST OF:
|
||||||||
|
Par value of shares of capital stock
|
$
|
12,448
|
||||||
|
Additional paid-in capital
|
17,204,098
|
|||||||
|
Distributable earnings
|
70,016,886
|
|||||||
|
Net Assets
|
$
|
87,233,432
|
||||||
|
*Including:
|
||||||||
|
Cost of investments
|
$
|
52,942,272
|
||||||
|
See Notes to Financial Statements
|
9
|
DAVIS VALUE PORTFOLIO
|
|
|
For the six months ended June 30, 2022 (Unaudited)
|
|
INVESTMENT INCOME:
|
|||||||||||
|
Income:
|
|||||||||||
|
Dividends*
|
$
|
1,253,928
|
|||||||||
|
Interest
|
9,750
|
||||||||||
|
Total income
|
1,263,678
|
||||||||||
|
Expenses:
|
|||||||||||
|
Investment advisory fees (Note 3)
|
$
|
458,715
|
|||||||||
|
Custodian fees
|
19,683
|
||||||||||
|
Transfer agent fees
|
7,525
|
||||||||||
|
Audit fees
|
12,103
|
||||||||||
|
Legal fees
|
3,057
|
||||||||||
|
Accounting fees (Note 3)
|
4,500
|
||||||||||
|
Reports to shareholders
|
2,377
|
||||||||||
|
Directors’ fees and expenses
|
35,328
|
||||||||||
|
Registration and filing fees
|
27
|
||||||||||
|
Miscellaneous
|
12,324
|
||||||||||
|
Total expenses
|
555,639
|
||||||||||
|
Net investment income
|
708,039
|
||||||||||
|
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
|
|||||||||||
|
Net realized gain (loss) from:
|
|||||||||||
|
Investment transactions
|
31,638,421
|
||||||||||
|
Foreign currency transactions
|
(2,438)
|
||||||||||
|
Net realized gain
|
31,635,983
|
||||||||||
|
Net decrease in unrealized appreciation
|
(72,345,891)
|
||||||||||
|
Net realized and unrealized loss on investments and
foreign currency transactions
|
(40,709,908)
|
||||||||||
|
Net decrease in net assets resulting from operations
|
$
|
(40,001,869)
|
|||||||||
|
*Net of foreign taxes withheld of
|
$
|
18,100
|
|
See Notes to Financial Statements
|
10
|
DAVIS VALUE PORTFOLIO
|
|
Six months ended
June 30, 2022
(Unaudited)
|
Year ended
December 31, 2021
|
||||||||
|
OPERATIONS:
|
|||||||||
|
Net investment income
|
$
|
708,039
|
$
|
1,197,048
|
|||||
|
Net realized gain from investments and foreign currency transactions
|
31,635,983
|
35,183,006
|
|||||||
|
Net increase (decrease) in unrealized appreciation on investments and foreign
currency transactions
|
(72,345,891)
|
1,361,114
|
|||||||
|
Net increase (decrease) in net assets resulting from operations
|
(40,001,869)
|
37,741,168
|
|||||||
|
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
|
–
|
(37,073,808)
|
|||||||
|
CAPITAL SHARE TRANSACTIONS:
|
|||||||||
|
Net increase (decrease) in net assets resulting from capital share transactions
(Note 4)
|
(91,060,849)
|
5,262,431
|
|||||||
|
Total increase (decrease) in net assets
|
(131,062,718)
|
5,929,791
|
|||||||
|
NET ASSETS:
|
|||||||||
|
Beginning of period
|
218,296,150
|
212,366,359
|
|||||||
|
End of period
|
$
|
87,233,432
|
$
|
218,296,150
|
|||||
|
See Notes to Financial Statements
|
11
|
DAVIS VALUE PORTFOLIO
|
|
|
June 30, 2022 (Unaudited)
|
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a separate series of Davis Variable Account Fund, Inc. (a Maryland corporation) and 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 COVID-19 pandemic has caused market disruptions on a global scale and the long-term impact is uncertain. The
aforementioned disruptions may adversely affect the value and liquidity of the Fund’s investments and thus Fund performance. 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 for 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 investments 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.
12
|
DAVIS VALUE PORTFOLIO
|
Notes to Financial Statements – (Continued)
|
|
June 30, 2022 (Unaudited)
|
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)
Fair Value Measurements - (Continued)
The following is a summary of the inputs used as of June 30, 2022 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
|
||||||||
|
Common Stock:
|
|||||||||||
|
Communication Services
|
$
|
10,057,896
|
$
|
–
|
$
|
–
|
$
|
10,057,896
|
|||
|
Consumer Discretionary
|
8,278,348
|
–
|
–
|
8,278,348
|
|||||||
|
Consumer Staples
|
935,272
|
–
|
–
|
935,272
|
|||||||
|
Financials
|
41,164,182
|
–
|
–
|
41,164,182
|
|||||||
|
Health Care
|
8,111,090
|
–
|
–
|
8,111,090
|
|||||||
|
Industrials
|
1,103,427
|
–
|
–
|
1,103,427
|
|||||||
|
Information Technology
|
12,211,807
|
–
|
–
|
12,211,807
|
|||||||
|
Materials
|
1,380,236
|
–
|
–
|
1,380,236
|
|||||||
|
Short-Term Investments
|
–
|
3,904,000
|
–
|
3,904,000
|
|||||||
|
Total Investments
|
$
|
83,242,258
|
$
|
3,904,000
|
$
|
–
|
$
|
87,146,258
|
|||
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 United States Dollar (“USD”) on the date of valuation using exchange rates determined as of the close of trading on the Exchange. 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 USD. 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 USD 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 period 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.
13
|
DAVIS VALUE PORTFOLIO
|
Notes to Financial Statements – (Continued)
|
|
June 30, 2022 (Unaudited)
|
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 June 30, 2022, 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 2018.
At June 30, 2022, the aggregate cost of investments and unrealized appreciation (depreciation) for federal income tax purposes were as follows:
|
Cost
|
$
|
54,006,174
|
|
Unrealized appreciation
|
37,496,269
|
|
|
Unrealized depreciation
|
(4,356,185)
|
|
|
Net unrealized appreciation
|
$
|
33,140,084
|
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 [collectively “Distributable earnings (losses)”] may differ for financial statement and tax purposes primarily due to permanent and temporary
differences which may include wash sales, corporate actions, Directors’ deferred compensation payments, passive foreign investment company shares, 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.
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.
14
|
DAVIS VALUE PORTFOLIO
|
Notes to Financial Statements – (Continued)
|
|
June 30, 2022 (Unaudited)
|
NOTE 2 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of investment securities (excluding short-term investments) during the six months ended June 30, 2022 were $5,052,351 and $95,555,857, 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 and Reimbursement of Expenses - 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% until May 1, 2023; after that date, there is no assurance that
expenses will be capped. The expense cap cannot be terminated prior to this date without the consent of the Board of Directors. The Adviser may not recoup any of the operating expenses it has reimbursed to the Fund.
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 six months ended June 30, 2022 amounted
to $4,500.
NOTE 4 - CAPITAL STOCK
At June 30, 2022, there were 500 million shares of capital stock ($0.001 par value per share) authorized. Transactions in capital stock were as follows:
|
Six months ended June 30, 2022 (Unaudited)
|
|||||||||||
|
Sold
|
Reinvestment of
Distributions
|
Redeemed
|
Net Decrease
|
||||||||
|
Shares:
|
223,665
|
–
|
(12,074,650)
|
(11,850,985)
|
|||||||
|
Value:
|
$
|
1,825,320
|
$
|
–
|
$
|
(92,886,169)
|
$
|
(91,060,849)
|
|||
|
Year ended December 31, 2021
|
|||||||||||
|
Sold
|
Reinvestment of
Distributions
|
Redeemed
|
Net Increase
|
||||||||
|
Shares:
|
976,627
|
4,110,178
|
(3,953,486)
|
1,133,319
|
|||||||
|
Value:
|
$
|
10,420,262
|
$
|
37,073,808
|
$
|
(42,231,639)
|
$
|
5,262,431
|
|||
NOTE 5 - 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 June 30, 2022, 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.
15
|
DAVIS VALUE PORTFOLIO
|
|
The following financial information represents selected data for each share of capital stock outstanding throughout each period:
|
|
Six months
ended
June 30, 2022
|
Year ended December 31,
|
|||||||||||||||||||||||||||||||||
|
(Unaudited)
|
2021
|
2020
|
2019
|
2018
|
2017
|
|||||||||||||||||||||||||||||
|
Net Asset Value, Beginning of Period
|
$
|
8.98
|
$
|
9.17
|
$
|
8.48
|
$
|
6.89
|
$
|
10.19
|
$
|
9.10
|
||||||||||||||||||||||
|
Income (Loss) from Investment Operations:
|
||||||||||||||||||||||||||||||||||
|
Net Investment Incomea
|
0.03
|
0.06
|
0.06
|
0.07
|
0.09
|
0.07
|
||||||||||||||||||||||||||||
|
Net Realized and Unrealized Gains (Losses)
|
(2.00)
|
1.59
|
0.93
|
2.09
|
(1.49)
|
1.99
|
||||||||||||||||||||||||||||
|
Total from Investment Operations
|
(1.97)
|
1.65
|
0.99
|
2.16
|
(1.40)
|
2.06
|
||||||||||||||||||||||||||||
|
Dividends and Distributions:
|
||||||||||||||||||||||||||||||||||
|
Dividends from Net Investment Income
|
–
|
(0.07)
|
(0.06)
|
(0.14)
|
(0.09)
|
(0.08)
|
||||||||||||||||||||||||||||
|
Distributions from Realized Gains
|
–
|
(1.77)
|
(0.24)
|
(0.43)
|
(1.81)
|
(0.89)
|
||||||||||||||||||||||||||||
|
Total Dividends and Distributions
|
–
|
(1.84)
|
(0.30)
|
(0.57)
|
(1.90)
|
(0.97)
|
||||||||||||||||||||||||||||
|
Net Asset Value, End of Period
|
$
|
7.01
|
$
|
8.98
|
$
|
9.17
|
$
|
8.48
|
$
|
6.89
|
$
|
10.19
|
||||||||||||||||||||||
|
Total Returnb
|
(21.94)
|
%
|
17.85
|
%
|
11.72
|
%
|
31.17
|
%
|
(13.60)
|
%
|
22.63
|
%
|
||||||||||||||||||||||
|
Ratios/Supplemental Data:
|
||||||||||||||||||||||||||||||||||
|
Net Assets, End of Period (in thousands)
|
$
|
87,233
|
$
|
218,296
|
$
|
212,366
|
$
|
217,068
|
$
|
194,007
|
$
|
254,032
|
||||||||||||||||||||||
|
Ratio of Expenses to Average Net Assets:
|
||||||||||||||||||||||||||||||||||
|
Gross
|
0.67
|
%c
|
0.65
|
%
|
0.65
|
%
|
0.64
|
%
|
0.64
|
%
|
0.64
|
%
|
||||||||||||||||||||||
|
Netd
|
0.67
|
%c
|
0.65
|
%
|
0.65
|
%
|
0.64
|
%
|
0.64
|
%
|
0.64
|
%
|
||||||||||||||||||||||
|
Ratio of Net Investment Income to Average Net Assets
|
0.85
|
%c
|
0.52
|
%
|
0.71
|
%
|
0.90
|
%
|
0.86
|
%
|
0.72
|
%
|
||||||||||||||||||||||
|
Portfolio Turnover Ratee
|
3
|
%
|
20
|
%
|
13
|
%
|
8
|
%
|
23
|
%
|
12
|
%
|
||||||||||||||||||||||
|
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 are not annualized for periods of less than one year and do not reflect charges attributable to your
insurance company’s separate account. Inclusion of these charges would reduce the total returns shown.
|
|
c
|
Annualized.
|
|
d
|
The Net Ratio of Expenses to Average Net Assets reflects the impact, if any, of certain reimbursements.
|
|
e
|
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 VALUE PORTFOLIO
|
Process of Annual Review
The Board of Directors of the Davis Funds oversees the management of each Davis Fund and, as required by law, determines annually whether to approve the continuance of each Davis Fund’s
advisory agreement with Davis Selected Advisers, L.P. and sub-advisory agreement with Davis Selected Advisers-NY, Inc. (jointly “Davis Advisors” and “Advisory Agreements”).
With the assistance of counsel to the Independent Directors, the Independent Directors undertook a comprehensive review process in anticipation of their annual contract review meeting, held in March 2022. As part
of this process, Davis Advisors provided the Independent Directors with material (including recent investment performance data) that was responsive to questions submitted to Davis Advisors by the Independent Directors. At this meeting, the
Independent Directors reviewed and evaluated all information which they deemed reasonably necessary under the circumstances and were provided guidance by their independent counsel. In reaching their decision, the Independent Directors also took
into account information furnished to them throughout the year and otherwise provided to them during their quarterly meetings or through other prior communications. The Independent Directors concluded that they had been supplied with sufficient
information and data to analyze the Advisory Agreements and that their questions had been sufficiently answered by Davis Advisors. Upon completion of this review, the Independent Directors found that the terms of the Advisory Agreements were fair
and reasonable and that continuation of the Advisory Agreements is in the best interests of Davis Value Portfolio (the “Fund”) and its shareholders.
Reasons the Independent Directors Approved Continuation of the Advisory Agreements
The Independent Directors’ determinations were based upon a comprehensive consideration of all information provided to them, and they did not identify any single item or piece of information as
the controlling factor. Each Independent Director did not necessarily attribute the same weight to each factor. The following considerations and conclusions were important, but not exclusive, to the Independent Directors’ recommendation to renew
the Advisory Agreements.
The Independent Directors considered the investment performance of the Fund on an absolute basis, as well as relative to its benchmark and other comparable funds. The Independent Directors not
only considered the investment performance of the Fund, but also the full range and quality of services provided by Davis Advisors to the Fund and its shareholders, including whether the Fund:
|
1.
|
achieves satisfactory investment results over the long-term, after all costs;
|
|
2.
|
efficiently and effectively handles shareholder transactions, inquiries, requests, and records, provides quality accounting, legal, and compliance services, and oversees third-party service providers; and
|
|
3.
|
fosters healthy investor behavior.
|
Davis Advisors is reimbursed a portion of its costs in providing some but not all of these services.
A shareholder’s ultimate return is the product of a fund’s results as well as the shareholder’s behavior, specifically in selecting when to invest or redeem. The Independent Directors concluded
that, through its actions and communications, Davis Advisors has attempted to have a meaningful positive impact on investor behavior.
In aggregate, Davis Advisors, employees of Davis Advisors, and the Davis family have made significant investments in the Davis Funds. The Independent Directors considered that these investments
tend to align Davis Advisors’, Davis Advisors’ employees, and the Davis family’s interests with other shareholders, as they face the same risks, pay the same fees, and are motivated to achieve satisfactory long-term returns.
The Independent Directors noted the importance of reviewing quantitative measures, but recognized that qualitative factors are also important in assessing whether Davis Funds’ shareholders are
likely to be well served by the renewal of the Advisory Agreements. They noted both the value and shortcomings of purely quantitative measures, including the data provided by independent service providers, and concluded that, while such measures
and data may be informative, the judgment of the Independent Directors must take many factors into consideration in representing the shareholders of the Davis Funds, including those listed below. In connection with reviewing comparative
performance information, the Independent Directors generally give greater weight to longer-term measurements.
The Independent Directors noted that Davis Advisors employs a disciplined, company-specific, research-driven, businesslike, long-term investment philosophy. The Independent Directors considered
the quality of Davis Advisors’ investment process as well as the experience, capability and integrity of its senior management and other personnel.
17
|
DAVIS VALUE PORTFOLIO
|
Director Approval of Advisory Agreements
|
|
(Unaudited) – (Continued)
|
Reasons the Independent Directors Approved Continuation of the Advisory Agreements – (Continued)
The Independent Directors recognized Davis Advisors’ (a) efforts to minimize transaction costs by generally having a long- term time horizon and low portfolio turnover; (b) record of generally
producing satisfactory results over longer-term periods; (c) efforts towards fostering healthy investor behavior by, among other things, providing informative and substantial educational material; and (d) efforts to promote shareholder interests
by actively speaking out on corporate governance issues.
The Independent Directors assessed (a) comparative fee and expense information for other funds, as selected and analyzed by a nationally recognized independent service provider; (b) information
regarding fees charged by Davis Advisors to other advisory clients, which includes other funds it advises, other funds which it sub-advises, and private accounts, as well as the differences in the services provided to such other clients; and (c)
the fee schedule of the Fund, including an assessment of competitive fee schedules.
The Independent Directors reviewed the management fee schedule for the Fund, profitability of the Fund to Davis Advisors, the extent to which economies of scale might be realized if the Fund’s
net assets increase, and whether the fee schedule should reflect those potential economies of scale, at this time. The Independent Directors considered the nature, quality, and extent of the services being provided to the Fund and the costs
incurred by Davis Advisors in providing such services. The Independent Directors considered various potential benefits that Davis Advisors may receive in connection with the services it provides under the Advisory Agreements with the Fund,
including a review of portfolio brokerage practices. The Independent Directors noted that Davis Advisors does not use client commissions to pay for publications that are available to the general public or for research reports that are created by
parties other than the broker-dealers providing trade execution, clearing, and/or settlement services to the Fund.
The Independent Directors compared the fees paid to Davis Advisors by the Davis Funds with those paid by Davis Advisors’ advised and sub-advised clients, private account clients, and managed
money/wrap clients. To the extent sub-advised, private account, or managed money/wrap fees were lower than fees paid by the Davis Funds, the Independent Directors noted that the range of services provided to the Davis Funds is more extensive,
with greater risks associated with operating SEC registered, publicly traded mutual funds. Serving as the primary adviser for mutual funds is more work because of the complex overlay of regulatory, tax, and accounting issues, which are unique to
mutual funds. In addition, the operational work required to service shareholders is more extensive because of the significantly greater number of shareholders, and managing trading is more complex because of the more frequent fund flows. With
respect to risk, not only has regulation become more complex and burdensome, but the scrutiny of regulators and shareholders has become more intense. The Independent Directors concluded that reasonable justifications existed for any differences
between the fee rates for the Davis Funds and Davis Advisors’ other lines of business.
The Independent Directors noted that Davis Value Portfolio underperformed its benchmark, the Standard & Poor’s 500® Index (the “S&P 500®”), over the one-, three-,
five-, ten-year, and since-inception time periods, all periods ended February 28, 2022.
Broadridge, an independent service provider, presented a report to the Independent Directors that compared the Fund to all Lipper large-cap value funds underlying variable insurance products
(the “Performance Universe Average”), as well as the relevant Lipper Index. The report indicated that the Fund outperformed both the Performance Universe Average and Lipper Index over the two-, three-, five-, and ten-year time periods, but
underperformed both over the one- and four-year time periods, all periods ended December 31, 2021.
The Independent Directors also reviewed the Fund’s performance versus both the S&P 500® and the Morningstar U.S. Insurance Large Blend category when measured over rolling five-
and ten-year time frames. The Fund outperformed the S&P 500® in 6 out of 19 rolling five-year time periods and outperformed the Morningstar U.S. Insurance Large Blend category in 8 out of 19 rolling five-year time periods, all
periods ended December 31 for each year from 2003 through 2021. The Fund outperformed the S&P 500® in 3 out of 14 rolling ten-year time periods and outperformed the Morningstar U.S. Insurance Large Blend category in 4 out of 14
rolling ten-year time periods, all periods ended December 31 for each year from 2008 through 2021.
The Independent Directors considered Davis Value Portfolio’s management fee and total expense ratio. They observed that both were reasonable and below the average and median of its expense
group, as determined by Broadridge. The Independent Directors also noted that the Adviser has agreed to cap expenses through May 1, 2023.
18
|
DAVIS VALUE PORTFOLIO
|
Director Approval of Advisory Agreements
|
|
(Unaudited) – (Continued)
|
Approval of Advisory Agreements
The Independent Directors concluded that Davis Advisors had provided Davis Value Portfolio and its shareholders a reasonable level of both investment and non-investment services. The
Independent Directors further concluded that shareholders have received a significant benefit from Davis Advisors’ shareholder-oriented approach, as well as the execution of its investment discipline.
The Independent Directors determined that the advisory fee for Davis Value Portfolio was reasonable in light of the nature, quality, and extent of the services being provided to the Fund, the
costs incurred by Davis Advisors in providing such services, and in comparison to the range of the average advisory fees of its peer group, as determined by an independent service provider. The Independent Directors found that the terms of the
Advisory Agreements are fair and reasonable and that continuation of the Advisory Agreements is in the best interests of the Fund and its shareholders. The Independent Directors and the full Board of Directors therefore voted to continue the
Advisory Agreements.
19
|
DAVIS VALUE PORTFOLIO
|
Following is a description of the operation and effectiveness of the Liquidity Risk Management Program (“LRMP”) that was adopted by the Board of Directors (the “Board”) in accordance with Rule 22e-4 under the
Investment Company Act of 1940 (the “Liquidity Rule”). The Liquidity Rule is meant to promote effective liquidity risk management practices in order to reduce the likelihood that a fund would be unable to meet its redemption obligations.
The Board has appointed Davis Selected Advisers, L.P. (the “Adviser”) to serve as the Administrator of the LRMP, subject to the supervision of the Board. The Adviser has engaged a third party to perform certain
functions, including the production of liquidity classification model information.
The Adviser monitors the adequacy and effectiveness of the implementation of the LRMP on an ongoing basis. This monitoring includes a review of the Fund’s liquidity risk based on a variety of factors including the
Fund’s (1) investment strategy, (2) portfolio liquidity and cash flow projections during normal and reasonably foreseeable stressed conditions, (3) shareholder redemptions, and (4) borrowing arrangements and other funding sources. The Liquidity
Rule places a 15% limit on a fund’s illiquid investments and requires a fund that does not primarily hold assets that are highly liquid investments to determine and maintain a minimum percentage of the fund’s net assets in highly liquid
investments (highly liquid investment minimum or HLIM). The LRMP includes provisions and safeguards that are reasonably designed to comply with the 15% limit on illiquid investments and the Fund is currently classified as a Fund that primarily
holds highly liquid investments. The LRMP includes the classification, no less than monthly, of the Fund’s investments into one of four liquidity classifications as provided for in the Liquidity Rule.
At a recent meeting of the Fund’s Board of Directors, the Adviser provided a written report to the Board pertaining to the operation, adequacy, and effectiveness of implementation of the LRMP from April 1, 2021
through March 31, 2022. The report concluded that the LRMP is operating effectively and is reasonably designed to assess and manage the Fund’s liquidity risk. There can be no guarantee that the LRMP will achieve its objectives in the future.
Additional information regarding risks of investing in the Fund, including liquidity risks presented by the Fund’s investment portfolio, is found in the Fund’s Prospectus and Statement of Additional Information.
20
|
DAVIS VALUE PORTFOLIO
|
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. Subject to exceptions and
exemptions which may be granted by the Independent Directors, Directors must retire from the Board of Directors and cease being a Director at the close of business on the last day of the calendar year in which the Director attains age
seventy-eight (78).
|
Name, Date of Birth,
Position(s) Held with
Fund, Length of Service
|
Principal Occupation(s) During Past Five Years
|
Number of
Portfolios
Overseen
|
Other Directorships
|
Independent Directors
|
John S. Gates Jr.
(08/02/53)
Director since 2007
|
Executive Chairman, TradeLane Properties LLC
(industrial real estate company).
|
13
|
Chairman and Chief Executive Officer of PortaeCo
LLC (private investment company); Director, Miami
Corp. (diversified investment company).
|
|
Thomas S. Gayner
(12/16/61)
Director since 2004
Chairman since 2009
|
Co-Chief Executive Officer and Director, Markel Corp.
(diversified financial holding company).
|
13
|
Director, Graham Holdings Company (educational
and media company); Director, Cable ONE Inc. (cable
service provider).
|
|
Samuel H. Iapalucci
(07/19/52)
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 since 2002
|
Principal, Spears Abacus Advisors, LLC (investment
management firm) since 2011; Chairman, NorthRoad
Capital Management, LLC (investment management
firm) 2002-2011.
|
13
|
None
|
|
Lara N. Vaughan
(04/20/69)
Director since 2021
|
Chief Executive Officer and Chief Financial Officer of
Parchman, Vaughan & Company, L.L.C. (investment
bank).
|
13
|
None
|
|
Marsha C. Williams
(03/28/51)
Director since 1999
|
Retired; Senior Vice President and Chief Financial
Officer, Orbitz Worldwide, Inc. (travel-service
provider) 2007-2010.
|
13
|
Chairperson, Modine Manufacturing Company (heat
transfer technology); Director, Fifth Third Bancorp
(diversified financial services); Director, Crown
Holdings, Inc. (manufacturing company).
|
Interested Directors*
|
Andrew A. Davis
(06/25/63)
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 since 1997
|
President or Vice President of each Davis Fund,
Selected Fund, Clipper Fund, and Davis 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; Lead Independent
Director, Graham Holdings Company (educational
and media company); Director, The Coca-Cola
Company (beverage company); Director, Berkshire
Hathaway Inc. (financial services).
|
* 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
Lisa J. Cohen (born 04/25/89, Davis Funds officer since 2021). 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 four portfolios); Vice President, Senior Attorney, and Secretary, Davis Selected
Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
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 four 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
four 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 four 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.
21
|
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 219197
|
|
Kansas City, Missouri 64121-9197
|
|
Custodian
|
|
State Street Bank and Trust Co.
|
|
One Lincoln Street
|
|
Boston, Massachusetts 02111
|
|
Legal Counsel
|
|
Greenberg Traurig, LLP
|
|
1144 15th Street, Suite 3300
|
|
Denver, Colorado 80202
|
|
Independent Registered Public Accounting Firm
|
|
KPMG LLP
|
|
1225 17th 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
|
|
|
15
|
|
|
16
|
|
|
19
|
|
|
20
|
This Semi-Annual Report is authorized for use by existing shareholders. Prospective shareholders must receive a current Davis Financial Portfolio (the “Fund”) prospectus,
which contains more information about investment strategies, risks, charges, and expenses. Please read the prospectus carefully before investing or sending money.
Shares of the Fund 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.
Quarterly Schedule of Investments
The Fund files its complete schedule of investments with the SEC on Form N-CSR (as of the end of the second and fourth quarters) and on Form N-PORT Part F (as of the end of the first and third quarters). The
Fund’s Forms N-CSR (Annual and Semi-Annual Reports) and N-PORT Part F are 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.
|
DAVIS FINANCIAL PORTFOLIO
|
Performance Overview
Davis Financial Portfolio outperformed the Standard & Poor’s 500® Index (“S&P 500®” or the “Index”) for the six-month period ended June 30, 2022 (the “period”). The Fund delivered
a total return of -15.25%, versus a -19.96% return for the S&P 500®. The sectors1 within the S&P 500® that reported the weakest performance were Consumer Discretionary (down 33%), Communication
Services (down 30%), and Information Technology (down 27%). In addition, each of the five industries within the Financials sector saw negative performance (Banks, Capital Markets, Consumer Finance, Diversified Financial Services, and
Insurance). Energy (up 32%) was the only sector in the S&P 500® that reported positive performance during the period. The other sectors within the Index that were stronger comparatively were Utilities (down 1%) and Consumer
Staples (down 6%).
Contributors to Performance
The Fund continued to hold a large position in the Insurance industry. The Fund ended the period with 20% of net assets in this industry. The Fund’s Insurance holdings were the most
important contributor2 to absolute performance and the primary reason why the Fund outperformed the Index during the period. The Fund’s holdings outperformed the Index industry (up 6%, compared to down 2%). Alleghany3 (up 25%) was the overall top contributor to performance. The Fund liquidated its Alleghany position
in June. Markel (up 5%), Chubb (up 3%), Loews (up 3%), and Everest Re Group (up
4%) were other contributors from the Insurance industry. Chubb and Markel were top five holdings at the end of the period, representing 6.66% and 6.13% of
net assets, respectively.
In March, the Fund initiated a position in Prosus (up 16%), the only non-financial holding in the Fund.
The Consumer Discretionary holding was the second largest contributor to performance during the period.
The Fund had an average weighting of 20% of net assets in foreign securities. The Fund’s foreign holdings slightly outperformed the U.S. holdings (down 15%, versus down 16%).
Detractors from Performance
The Fund’s largest industry weighting during the period was in Banks, ending the period with 43% of net assets in this industry. The Fund’s Bank holdings were the top detractor from absolute
performance. JPMorgan Chase (down 28%), Bank of America (down 29%), Wells Fargo (down 18%), PNC Financial (down 20%), and U.S. Bancorp (down 17%), all holdings that were significant contributors in 2021, were among the largest detractors from performance
during the period. All remain as top ten holdings at the end of the period.
All three holdings from the Capital Markets industry, Bank of New York Mellon (down 27%), Julius Baer Group (down
28%), and Charles Schwab (down 24%), were top detractors from performance.
The overall top detractor from performance was also the largest holding at the end of the period, Capital One Financial. The Consumer Finance
holding was down 28% and represented 7.85% of net assets at the end of the period. Another weak performer was Thrifts & Mortgage Finance holding, Rocket Companies (down 43%).
Davis Financial Portfolio’s investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. Davis
Financial Portfolio’s principal risks are: stock market risk, common stock risk, financial services risk, credit risk, interest rate sensitivity risk, focused portfolio risk, headline risk, foreign country risk, large-capitalization companies
risk, manager risk, depositary receipts risk, fees and expenses risk, foreign currency risk, emerging market risk, and mid- and small-capitalization companies 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 positive and negative, 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 positive and negative, 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 six-month period ended June 30, 2022, 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 six-month period, June 30, 2022, 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 June 30, 2012
Average Annual Total Return for periods ended June 30, 2022
|
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
|
(11.52)%
|
5.44%
|
10.10%
|
5.72%
|
0.73%
|
0.73%
|
|
Standard & Poor’s 500® Index
|
(10.62)%
|
11.30%
|
12.95%
|
6.47%
|
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 quoted in this report represents past performance, assumes that all distributions were reinvested, and is not a guarantee of future results. The
investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Current performance may be higher or lower than performance data quoted. The operating expense ratio may
vary in future years. For most recent month-end performance information, please call Investor Services at 1-800-279-0279 or visit the Fund’s website at www.davisfunds.com.
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
|
|
|
June 30, 2022 (Unaudited)
|
|
Portfolio Composition
|
Industry Weightings
|
|||||
|
(% of Fund’s 06/30/22 Net Assets)
|
(% of 06/30/22 Stock Holdings)
|
|||||
|
Fund
|
S&P 500®
|
|||||
|
Common Stock (U.S.)
|
75.38%
|
Banks
|
43.85%
|
3.69%
|
||
|
Common Stock (Foreign)
|
21.71%
|
Insurance
|
20.13%
|
2.20%
|
||
|
Short-Term Investments
|
2.78%
|
Capital Markets
|
13.02%
|
2.88%
|
||
|
Other Assets & Liabilities
|
0.13%
|
Consumer Finance
|
11.94%
|
0.52%
|
||
|
100.00%
|
Diversified Financial Services
|
6.40%
|
1.55%
|
|||
|
Retailing
|
2.68%
|
5.72%
|
||||
|
Thrifts & Mortgage Finance
|
1.98%
|
–
|
||||
|
Information Technology
|
–
|
26.84%
|
||||
|
Health Care
|
–
|
15.14%
|
||||
|
Media & Entertainment
|
–
|
7.45%
|
||||
|
Capital Goods
|
–
|
5.25%
|
||||
|
Energy
|
–
|
4.35%
|
||||
|
Food, Beverage & Tobacco
|
–
|
3.72%
|
||||
|
Other
|
–
|
20.69%
|
||||
|
100.00%
|
100.00%
|
|||||
Top 10 Long-Term Holdings
(% of Fund’s 06/30/22 Net Assets)
|
Capital One Financial Corp.
|
Consumer Finance
|
7.85%
|
|
Chubb Ltd.
|
Property & Casualty Insurance
|
6.66%
|
|
Berkshire Hathaway Inc., Class A
|
Diversified Financial Services
|
6.22%
|
|
Markel Corp.
|
Property & Casualty Insurance
|
6.13%
|
|
Wells Fargo & Co.
|
Banks
|
6.13%
|
|
JPMorgan Chase & Co.
|
Banks
|
5.68%
|
|
U.S. Bancorp
|
Banks
|
5.62%
|
|
PNC Financial Services Group, Inc.
|
Banks
|
4.90%
|
|
Bank of America Corp.
|
Banks
|
4.83%
|
|
Bank of New York Mellon Corp.
|
Capital Markets
|
4.77%
|
4
|
DAVIS FINANCIAL PORTFOLIO
|
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 June 30, 2022. 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
|
Ending
|
Expenses Paid
|
|||
|
Account Value
|
Account Value
|
During Period*
|
|||
|
(01/01/22)
|
(06/30/22)
|
(01/01/22-06/30/22)
|
|||
|
Actual
|
$1,000.00
|
$847.53
|
$3.34
|
||
|
Hypothetical
|
$1,000.00
|
$1,021.17
|
$3.66
|
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 181/365 (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
|
|
|
June 30, 2022 (Unaudited)
|
|
Shares
|
Value
(Note 1) |
|||||||||||
|
COMMON STOCK – (97.09%)
|
||||||||||||
|
CONSUMER DISCRETIONARY – (2.60%)
|
||||||||||||
|
Retailing – (2.60%)
|
||||||||||||
|
Prosus N.V., Class N (Netherlands)
|
20,880
|
$
|
1,367,137
|
|||||||||
|
Total Consumer Discretionary
|
1,367,137
|
|||||||||||
|
FINANCIALS – (94.49%)
|
||||||||||||
|
Banks – (44.50%)
|
||||||||||||
|
Banks – (42.58%)
|
||||||||||||
|
Bank of America Corp.
|
81,660
|
2,542,076
|
||||||||||
|
Bank of N.T. Butterfield & Son Ltd. (Bermuda)
|
46,930
|
1,463,746
|
||||||||||
|
Danske Bank A/S (Denmark)
|
112,270
|
1,586,559
|
||||||||||
|
DBS Group Holdings Ltd. (Singapore)
|
112,437
|
2,402,023
|
||||||||||
|
DNB Bank ASA (Norway)
|
67,120
|
1,203,086
|
||||||||||
|
Fifth Third Bancorp
|
39,350
|
1,322,160
|
||||||||||
|
JPMorgan Chase & Co.
|
26,530
|
2,987,543
|
||||||||||
|
Metro Bank PLC (United Kingdom)*
|
139,120
|
130,739
|
||||||||||
|
PNC Financial Services Group, Inc.
|
16,330
|
2,576,384
|
||||||||||
|
U.S. Bancorp
|
64,290
|
2,958,626
|
||||||||||
|
Wells Fargo & Co.
|
82,320
|
3,224,474
|
||||||||||
|
22,397,416
|
||||||||||||
|
Thrifts & Mortgage Finance – (1.92%)
|
||||||||||||
|
Rocket Companies, Inc., Class A
|
137,200
|
1,009,792
|
||||||||||
|
23,407,208
|
||||||||||||
|
Diversified Financials – (30.45%)
|
||||||||||||
|
Capital Markets – (12.64%)
|
||||||||||||
|
Bank of New York Mellon Corp.
|
60,200
|
2,510,942
|
||||||||||
|
Charles Schwab Corp.
|
26,660
|
1,684,379
|
||||||||||
|
Julius Baer Group Ltd. (Switzerland)
|
53,169
|
2,452,797
|
||||||||||
|
6,648,118
|
||||||||||||
|
Consumer Finance – (11.59%)
|
||||||||||||
|
American Express Co.
|
14,210
|
1,969,790
|
||||||||||
|
Capital One Financial Corp.
|
39,620
|
4,128,008
|
||||||||||
|
6,097,798
|
||||||||||||
|
Diversified Financial Services – (6.22%)
|
||||||||||||
|
Berkshire Hathaway Inc., Class A *
|
8
|
3,271,600
|
||||||||||
|
16,017,516
|
||||||||||||
|
Insurance – (19.54%)
|
||||||||||||
|
Life & Health Insurance – (1.55%)
|
||||||||||||
|
Ping An Insurance (Group) Co. of China, Ltd. - H (China)
|
120,000
|
815,874
|
||||||||||
|
Property & Casualty Insurance – (16.34%)
|
||||||||||||
|
Chubb Ltd.
|
17,826
|
3,504,235
|
||||||||||
|
Loews Corp.
|
31,480
|
1,865,505
|
||||||||||
|
Markel Corp. *
|
2,495
|
3,226,659
|
||||||||||
|
8,596,399
|
||||||||||||
|
Reinsurance – (1.65%)
|
||||||||||||
|
Everest Re Group, Ltd.
|
1,960
|
549,349
|
||||||||||
6
|
DAVIS FINANCIAL PORTFOLIO
|
Schedule of Investments - (Continued)
|
|
June 30, 2022 (Unaudited)
|
|
Shares/Principal
|
Value
(Note 1) |
||||||||||||||
|
COMMON STOCK – (CONTINUED)
|
|||||||||||||||
|
FINANCIALS – (CONTINUED)
|
|||||||||||||||
|
Insurance – (Continued)
|
|||||||||||||||
|
Reinsurance – (Continued)
|
|||||||||||||||
|
Greenlight Capital Re, Ltd., Class A *
|
41,380
|
$
|
319,867
|
||||||||||||
|
869,216
|
|||||||||||||||
|
10,281,489
|
|||||||||||||||
|
Total Financials
|
49,706,213
|
||||||||||||||
|
TOTAL COMMON STOCK – (Identified cost $34,726,768)
|
51,073,350
|
||||||||||||||
|
SHORT-TERM INVESTMENTS – (2.78%)
|
|||||||||||||||
|
StoneX Financial Inc. Joint Repurchase Agreement, 1.50%, 07/01/22,
dated 06/30/22, repurchase value of $757,032 (collateralized by: U.S.
Government agency mortgages and obligations in a pooled cash
account, 0.375%-8.50%, 11/20/22-10/15/63, total market value
$772,140)
|
$
|
757,000
|
757,000
|
||||||||||||
|
Truist Securities, Inc. Joint Repurchase Agreement, 1.49%, 07/01/22,
dated 06/30/22, repurchase value of $707,029 (collateralized by: U.S.
Government agency mortgages in a pooled cash account, 3.00%-4.00%,
08/01/29-04/01/52, total market value $721,140)
|
707,000
|
707,000
|
|||||||||||||
|
TOTAL SHORT-TERM INVESTMENTS – (Identified cost $1,464,000)
|
1,464,000
|
||||||||||||||
|
Total Investments – (99.87%) – (Identified cost $36,190,768)
|
52,537,350
|
||||||||||||||
|
Other Assets Less Liabilities – (0.13%)
|
67,105
|
||||||||||||||
|
Net Assets – (100.00%)
|
$
|
52,604,455
|
|||||||||||||
|
*
|
Non-income producing security.
|
||||||||||||||
|
See Notes to Financial Statements
|
|||||||||||||||
7
|
DAVIS FINANCIAL PORTFOLIO
|
|
|
At June 30, 2022 (Unaudited)
|
|
ASSETS:
|
||||||||
|
Investments in securities, at value* (see accompanying Schedule of Investments)
|
$
|
52,537,350
|
||||||
|
Cash
|
118
|
|||||||
|
Receivables:
|
||||||||
|
Capital stock sold
|
13,641
|
|||||||
|
Dividends and interest
|
113,629
|
|||||||
|
Prepaid expenses
|
757
|
|||||||
|
Total assets
|
52,665,495
|
|||||||
|
LIABILITIES:
|
||||||||
|
Payables:
|
||||||||
|
Capital stock redeemed
|
395
|
|||||||
|
Accrued audit fees
|
9,353
|
|||||||
|
Accrued custodian fees
|
13,550
|
|||||||
|
Accrued investment advisory fees
|
25,896
|
|||||||
|
Other accrued expenses
|
11,846
|
|||||||
|
Total liabilities
|
61,040
|
|||||||
|
NET ASSETS
|
$
|
52,604,455
|
||||||
|
SHARES OUTSTANDING
|
4,443,710
|
|||||||
|
NET ASSET VALUE, offering, and redemption price per share (Net assets ÷ Shares outstanding)
|
$
|
11.84
|
||||||
|
NET ASSETS CONSIST OF:
|
||||||||
|
Par value of shares of capital stock
|
$
|
4,444
|
||||||
|
Additional paid-in capital
|
33,214,323
|
|||||||
|
Distributable earnings
|
19,385,688
|
|||||||
|
Net Assets
|
$
|
52,604,455
|
||||||
|
*Including:
|
||||||||
|
Cost of investments
|
$
|
36,190,768
|
||||||
|
See Notes to Financial Statements
|
8
|
DAVIS FINANCIAL PORTFOLIO
|
|
|
For the six months ended June 30, 2022 (Unaudited)
|
|
INVESTMENT INCOME:
|
|||||||||||
|
Income:
|
|||||||||||
|
Dividends*
|
$
|
928,444
|
|||||||||
|
Interest
|
2,203
|
||||||||||
|
Total income
|
930,647
|
||||||||||
|
Expenses:
|
|||||||||||
|
Investment advisory fees (Note 3)
|
$
|
177,985
|
|||||||||
|
Custodian fees
|
13,437
|
||||||||||
|
Transfer agent fees
|
6,061
|
||||||||||
|
Audit fees
|
10,752
|
||||||||||
|
Legal fees
|
1,101
|
||||||||||
|
Accounting fees (Note 3)
|
1,002
|
||||||||||
|
Reports to shareholders
|
1,440
|
||||||||||
|
Directors’ fees and expenses
|
17,460
|
||||||||||
|
Registration and filing fees
|
9
|
||||||||||
|
Miscellaneous
|
8,478
|
||||||||||
|
Total expenses
|
237,725
|
||||||||||
|
Net investment income
|
692,922
|
||||||||||
|
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
|
|||||||||||
|
Net realized gain (loss) from:
|
|||||||||||
|
Investment transactions
|
2,343,788
|
||||||||||
|
Foreign currency transactions
|
(11,019)
|
||||||||||
|
Net realized gain
|
2,332,769
|
||||||||||
|
Net decrease in unrealized appreciation
|
(13,366,080)
|
||||||||||
|
Net realized and unrealized loss on investments and
foreign currency transactions
|
(11,033,311)
|
||||||||||
|
Net decrease in net assets resulting from operations
|
$
|
(10,340,389)
|
|||||||||
|
*Net of foreign taxes withheld of
|
$
|
38,951
|
|||||||||
|
See Notes to Financial Statements
|
9
|
DAVIS FINANCIAL PORTFOLIO
|
|
Six months ended
June 30, 2022
(Unaudited)
|
Year ended
December 31, 2021
|
||||||||
|
OPERATIONS:
|
|||||||||
|
Net investment income
|
$
|
692,922
|
$
|
876,395
|
|||||
|
Net realized gain from investments and foreign currency transactions
|
2,332,769
|
4,904,469
|
|||||||
|
Net increase (decrease) in unrealized appreciation on investments and foreign
currency transactions
|
(13,366,080)
|
11,309,017
|
|||||||
|
Net increase (decrease) in net assets resulting from operations
|
(10,340,389)
|
17,089,881
|
|||||||
|
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
|
–
|
(6,021,876)
|
|||||||
|
CAPITAL SHARE TRANSACTIONS:
|
|||||||||
|
Net increase (decrease) in net assets resulting from capital share transactions
(Note 4)
|
(4,890,690)
|
892,019
|
|||||||
|
Total increase (decrease) in net assets
|
(15,231,079)
|
11,960,024
|
|||||||
|
NET ASSETS:
|
|||||||||
|
Beginning of period
|
67,835,534
|
55,875,510
|
|||||||
|
End of period
|
$
|
52,604,455
|
$
|
67,835,534
|
|||||
|
See Notes to Financial Statements
|
10
|
DAVIS FINANCIAL PORTFOLIO
|
|
|
June 30, 2022 (Unaudited)
|
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a separate series of Davis Variable Account Fund, Inc. (a Maryland corporation) and 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 COVID-19 pandemic has caused market disruptions on a global scale and the long-term impact is uncertain. The aforementioned disruptions may adversely affect the
value and liquidity of the Fund’s investments and thus Fund performance. 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 for 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 investments 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)
|
|
June 30, 2022 (Unaudited)
|
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)
Fair Value Measurements - (Continued)
The following is a summary of the inputs used as of June 30, 2022 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
|
||||||||
|
Common Stock:
|
|||||||||||
|
Consumer Discretionary
|
$
|
1,367,137
|
$
|
–
|
$
|
–
|
$
|
1,367,137
|
|||
|
Financials
|
49,706,213
|
–
|
–
|
49,706,213
|
|||||||
|
Short-Term Investments
|
–
|
1,464,000
|
–
|
1,464,000
|
|||||||
|
Total Investments
|
$
|
51,073,350
|
$
|
1,464,000
|
$
|
–
|
$
|
52,537,350
|
|||
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 United States Dollar (“USD”) on the date of valuation using exchange rates determined as of the close of trading on the Exchange. 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 USD. 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 USD 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 period 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)
|
|
June 30, 2022 (Unaudited)
|
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 June 30, 2022, 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 2018.
At June 30, 2022, the aggregate cost of investments and unrealized appreciation (depreciation) for federal income tax purposes were as follows:
|
Cost
|
$
|
36,223,045
|
|
Unrealized appreciation
|
19,762,952
|
|
|
Unrealized depreciation
|
(3,448,647)
|
|
|
Net unrealized appreciation
|
$
|
16,314,305
|
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 [collectively “Distributable earnings (losses)”] may differ for financial statement and tax purposes primarily due to permanent and temporary
differences which may include wash sales, foreign currency transactions, and Directors’ deferred compensation payments. 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.
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.
13
|
DAVIS FINANCIAL PORTFOLIO
|
Notes to Financial Statements – (Continued)
|
|
June 30, 2022 (Unaudited)
|
NOTE 2 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of investment securities (excluding short-term investments) during the six months ended June 30, 2022 were $5,632,780 and $9,971,100, 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 and Reimbursement of Expenses - 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% until May 1, 2023; after that date, there is no
assurance that expenses will be capped. The expense cap cannot be terminated prior to this date without the consent of the Board of Directors. The Adviser may not recoup any of the operating expenses it has reimbursed to the Fund.
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 six months ended June 30, 2022
amounted to $1,002.
NOTE 4 - CAPITAL STOCK
At June 30, 2022, there were 500 million shares of capital stock ($0.001 par value per share) authorized. Transactions in capital stock were as follows:
|
Six months ended June 30, 2022 (Unaudited)
|
|||||||||||
|
Sold
|
Reinvestment of
Distributions
|
Redeemed
|
Net Decrease
|
||||||||
|
Shares:
|
615,194
|
–
|
(1,027,505)
|
(412,311)
|
|||||||
|
Value:
|
$
|
8,800,568
|
$
|
–
|
$
|
(13,691,258)
|
$
|
(4,890,690)
|
|||
|
Year ended December 31, 2021
|
|||||||||||
|
Sold
|
Reinvestment of
Distributions
|
Redeemed
|
Net Increase
|
||||||||
|
Shares:
|
1,290,688
|
429,520
|
(1,621,580)
|
98,628
|
|||||||
|
Value:
|
$
|
18,293,169
|
$
|
6,021,876
|
$
|
(23,423,026)
|
$
|
892,019
|
|||
14
|
DAVIS FINANCIAL PORTFOLIO
|
|
The following financial information represents selected data for each share of capital stock outstanding throughout each period:
|
|
Six months
ended
June 30, 2022
|
Year ended December 31,
|
|||||||||||||||||||||||||||||||||
|
(Unaudited)
|
2021
|
2020
|
2019
|
2018
|
2017
|
|||||||||||||||||||||||||||||
|
Net Asset Value, Beginning of Period
|
$
|
13.97
|
$
|
11.74
|
$
|
13.47
|
$
|
11.55
|
$
|
15.50
|
$
|
14.03
|
||||||||||||||||||||||
|
Income (Loss) from Investment Operations:
|
||||||||||||||||||||||||||||||||||
|
Net Investment Income
|
0.16
|
0.20
|
0.17
|
0.22
|
0.21
|
0.12
|
||||||||||||||||||||||||||||
|
Net Realized and Unrealized Gains (Losses)
|
(2.29)
|
3.39
|
(0.99)
|
2.77
|
(1.89)
|
2.89
|
||||||||||||||||||||||||||||
|
Total from Investment Operations
|
(2.13)
|
3.59
|
(0.82)
|
2.99
|
(1.68)
|
3.01
|
||||||||||||||||||||||||||||
|
Dividends and Distributions:
|
||||||||||||||||||||||||||||||||||
|
Dividends from Net Investment Income
|
–
|
(0.21)
|
(0.17)
|
(0.21)
|
(0.20)
|
(0.12)
|
||||||||||||||||||||||||||||
|
Distributions from Realized Gains
|
–
|
(1.15)
|
(0.74)
|
(0.86)
|
(2.07)
|
(1.42)
|
||||||||||||||||||||||||||||
|
Total Dividends and Distributions
|
–
|
(1.36)
|
(0.91)
|
(1.07)
|
(2.27)
|
(1.54)
|
||||||||||||||||||||||||||||
|
Net Asset Value, End of Period
|
$
|
11.84
|
$
|
13.97
|
$
|
11.74
|
$
|
13.47
|
$
|
11.55
|
$
|
15.50
|
||||||||||||||||||||||
|
Total Returna
|
(15.25)
|
%
|
30.54
|
%
|
(5.99)
|
%
|
25.86
|
%
|
(10.67)
|
%
|
21.42
|
%
|
||||||||||||||||||||||
|
Ratios/Supplemental Data:
|
||||||||||||||||||||||||||||||||||
|
Net Assets, End of Period (in thousands)
|
$
|
52,604
|
$
|
67,836
|
$
|
55,876
|
$
|
67,991
|
$
|
61,692
|
$
|
75,378
|
||||||||||||||||||||||
|
Ratio of Expenses to Average Net Assets:
|
||||||||||||||||||||||||||||||||||
|
Gross
|
0.73
|
%b
|
0.70
|
%
|
0.73
|
%
|
0.70
|
%
|
0.69
|
%
|
0.72
|
%
|
||||||||||||||||||||||
|
Netc
|
0.73
|
%b
|
0.70
|
%
|
0.73
|
%
|
0.70
|
%
|
0.69
|
%
|
0.72
|
%
|
||||||||||||||||||||||
|
Ratio of Net Investment Income to Average
Net Assets
|
2.14
|
%b
|
1.28
|
%
|
1.49
|
%
|
1.58
|
%
|
1.31
|
%
|
0.75
|
%
|
||||||||||||||||||||||
|
Portfolio Turnover Rated
|
9
|
%
|
13
|
%
|
12
|
%
|
6
|
%
|
23
|
%
|
14
|
%
|
||||||||||||||||||||||
|
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 are not annualized for periods of less than one year and do not reflect charges attributable to your insurance company’s
separate account. Inclusion of these charges would reduce the total returns shown.
|
|
b
|
Annualized.
|
|
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
|
|
15
|
DAVIS FINANCIAL PORTFOLIO
|
Process of Annual Review
The Board of Directors of the Davis Funds oversees the management of each Davis Fund and, as required by law, determines annually whether to approve the continuance of each Davis Fund’s
advisory agreement with Davis Selected Advisers, L.P. and sub-advisory agreement with Davis Selected Advisers-NY, Inc. (jointly “Davis Advisors” and “Advisory Agreements”).
With the assistance of counsel to the Independent Directors, the Independent Directors undertook a comprehensive review process in anticipation of their annual contract review meeting, held
in March 2022. As part of this process, Davis Advisors provided the Independent Directors with material (including recent investment performance data) that was responsive to questions submitted to Davis Advisors by the Independent Directors.
At this meeting, the Independent Directors reviewed and evaluated all information which they deemed reasonably necessary under the circumstances and were provided guidance by their independent counsel. In reaching their decision, the
Independent Directors also took into account information furnished to them throughout the year and otherwise provided to them during their quarterly meetings or through other prior communications. The Independent Directors concluded that they
had been supplied with sufficient information and data to analyze the Advisory Agreements and that their questions had been sufficiently answered by Davis Advisors. Upon completion of this review, the Independent Directors found that the
terms of the Advisory Agreements were fair and reasonable and that continuation of the Advisory Agreements is in the best interests of Davis Financial Portfolio (the “Fund”) and its shareholders.
Reasons the Independent Directors Approved Continuation of the Advisory Agreements
The Independent Directors’ determinations were based upon a comprehensive consideration of all information provided to them, and they did not identify any single item or piece of
information as the controlling factor. Each Independent Director did not necessarily attribute the same weight to each factor. The following considerations and conclusions were important, but not exclusive, to the Independent Directors’
recommendation to renew the Advisory Agreements.
The Independent Directors considered the investment performance of the Fund on an absolute basis, as well as relative to its benchmark and other comparable funds. The Independent Directors
not only considered the investment performance of the Fund, but also the full range and quality of services provided by Davis Advisors to the Fund and its shareholders, including whether the Fund:
|
1.
|
achieves satisfactory investment results over the long-term, after all costs;
|
|
2.
|
efficiently and effectively handles shareholder transactions, inquiries, requests, and records, provides quality accounting, legal, and compliance services, and oversees third-party service providers;
and
|
|
3.
|
fosters healthy investor behavior.
|
Davis Advisors is reimbursed a portion of its costs in providing some but not all of these services.
A shareholder’s ultimate return is the product of a fund’s results as well as the shareholder’s behavior, specifically in selecting when to invest or redeem. The Independent Directors
concluded that, through its actions and communications, Davis Advisors has attempted to have a meaningful positive impact on investor behavior.
In aggregate, Davis Advisors, employees of Davis Advisors, and the Davis family have made significant investments in the Davis Funds. The Independent Directors considered that these
investments tend to align Davis Advisors’, Davis Advisors’ employees, and the Davis family’s interests with other shareholders, as they face the same risks, pay the same fees, and are motivated to achieve satisfactory long-term returns.
The Independent Directors noted the importance of reviewing quantitative measures, but recognized that qualitative factors are also important in assessing whether Davis Funds’ shareholders
are likely to be well served by the renewal of the Advisory Agreements. They noted both the value and shortcomings of purely quantitative measures, including the data provided by independent service providers, and concluded that, while such
measures and data may be informative, the judgment of the Independent Directors must take many factors into consideration in representing the shareholders of the Davis Funds, including those listed below. In connection with reviewing
comparative performance information, the Independent Directors generally give greater weight to longer-term measurements.
The Independent Directors noted that Davis Advisors employs a disciplined, company-specific, research-driven, businesslike, long-term investment philosophy. The Independent Directors
considered the quality of Davis Advisors’ investment process as well as the experience, capability and integrity of its senior management and other personnel.
16
|
DAVIS FINANCIAL PORTFOLIO
|
Director Approval of Advisory Agreements
|
|
(Unaudited) – (Continued)
|
Reasons the Independent Directors Approved Continuation of the Advisory Agreements – (Continued)
The Independent Directors recognized Davis Advisors’ (a) efforts to minimize transaction costs by generally having a long- term time horizon and low portfolio turnover; (b) record of
generally producing satisfactory results over longer-term periods; (c) efforts towards fostering healthy investor behavior by, among other things, providing informative and substantial educational material; and (d) efforts to promote
shareholder interests by actively speaking out on corporate governance issues.
The Independent Directors assessed (a) comparative fee and expense information for other funds, as selected and analyzed by a nationally recognized independent service provider; (b)
information regarding fees charged by Davis Advisors to other advisory clients, which includes other funds it advises, other funds which it sub-advises, and private accounts, as well as the differences in the services provided to such other
clients; and (c) the fee schedule of the Fund, including an assessment of competitive fee schedules.
The Independent Directors reviewed the management fee schedule for the Fund, profitability of the Fund to Davis Advisors, the extent to which economies of scale might be realized if the
Fund’s net assets increase, and whether the fee schedule should reflect those potential economies of scale, at this time. The Independent Directors considered the nature, quality, and extent of the services being provided to the Fund and the
costs incurred by Davis Advisors in providing such services. The Independent Directors considered various potential benefits that Davis Advisors may receive in connection with the services it provides under the Advisory Agreements with the
Fund, including a review of portfolio brokerage practices. The Independent Directors noted that Davis Advisors does not use client commissions to pay for publications that are available to the general public or for research reports that are
created by parties other than the broker-dealers providing trade execution, clearing, and/or settlement services to the Fund.
The Independent Directors compared the fees paid to Davis Advisors by the Davis Funds with those paid by Davis Advisors’ advised and sub-advised clients, private account clients, and
managed money/wrap clients. To the extent sub-advised, private account, or managed money/wrap fees were lower than fees paid by the Davis Funds, the Independent Directors noted that the range of services provided to the Davis Funds is more
extensive, with greater risks associated with operating SEC registered, publicly traded mutual funds. Serving as the primary adviser for mutual funds is more work because of the complex overlay of regulatory, tax, and accounting issues, which
are unique to mutual funds. In addition, the operational work required to service shareholders is more extensive because of the significantly greater number of shareholders, and managing trading is more complex because of the more frequent
fund flows. With respect to risk, not only has regulation become more complex and burdensome, but the scrutiny of regulators and shareholders has become more intense. The Independent Directors concluded that reasonable justifications existed
for any differences between the fee rates for the Davis Funds and Davis Advisors’ other lines of business.
The Independent Directors noted that Davis Financial Portfolio outperformed its benchmark, the Standard & Poor’s 500® Index (the “S&P 500®”), over the one-year
time period, but underperformed the S&P 500® over the three-, five-, ten-year, and since-inception time periods, all periods ended February 28, 2022.
Broadridge, an independent service provider, presented a report to the Independent Directors that compared the Fund to all Lipper financial services funds underlying variable insurance
products (the “Performance Universe Average”). The report indicated that the Fund underperformed the Performance Universe Average over the one-, two-, three-, four-, five-, and ten-year time periods, all periods ended December 31, 2021.
The Independent Directors also reviewed the Fund’s performance versus both the S&P 500® and the Morningstar U.S. Insurance Financial category when measured over rolling
five- and ten-year time frames. The Fund outperformed the S&P 500® in 6 out of 19 rolling five-year time periods and outperformed the Morningstar U.S. Insurance Financial category in 12 out of 19 rolling five-year time periods,
all periods ended December 31 for each year from 2003 through 2021. The Fund outperformed the S&P 500® in 1 out of 14 rolling ten-year time periods and outperformed the Morningstar U.S. Insurance Financial category in 13 out
of 14 rolling ten-year time periods, all periods ended December 31 for each year from 2008 through 2021.
The Independent Directors considered Davis Financial Portfolio’s management fee and total expense ratio. They observed that both were reasonable and well below the average and median of its
expense group, as determined by Broadridge. The Independent Directors also noted that the Adviser has agreed to cap expenses through May 1, 2023.
17
|
DAVIS FINANCIAL PORTFOLIO
|
Director Approval of Advisory Agreements
|
|
(Unaudited) – (Continued)
|
Approval of Advisory Agreements
The Independent Directors concluded that Davis Advisors had provided Davis Financial Portfolio and its shareholders a reasonable level of both investment and non-investment services. The
Independent Directors further concluded that shareholders have received a significant benefit from Davis Advisors’ shareholder-oriented approach, as well as the execution of its investment discipline.
The Independent Directors determined that the advisory fee for Davis Financial Portfolio was reasonable in light of the nature, quality, and extent of the services being provided to the
Fund, the costs incurred by Davis Advisors in providing such services, and in comparison to the range of the average advisory fees of its peer group, as determined by an independent service provider. The Independent Directors found that the
terms of the Advisory Agreements are fair and reasonable and that continuation of the Advisory Agreements is in the best interests of the Fund and its shareholders. The Independent Directors and the full Board of Directors therefore voted to
continue the Advisory Agreements.
18
|
DAVIS FINANCIAL PORTFOLIO
|
Following is a description of the operation and effectiveness of the Liquidity Risk Management Program (“LRMP”) that was adopted by the Board of Directors (the “Board”) in accordance with Rule 22e-4 under the
Investment Company Act of 1940 (the “Liquidity Rule”). The Liquidity Rule is meant to promote effective liquidity risk management practices in order to reduce the likelihood that a fund would be unable to meet its redemption obligations.
The Board has appointed Davis Selected Advisers, L.P. (the “Adviser”) to serve as the Administrator of the LRMP, subject to the supervision of the Board. The Adviser has engaged a third party to perform certain
functions, including the production of liquidity classification model information.
The Adviser monitors the adequacy and effectiveness of the implementation of the LRMP on an ongoing basis. This monitoring includes a review of the Fund’s liquidity risk based on a variety of factors including
the Fund’s (1) investment strategy, (2) portfolio liquidity and cash flow projections during normal and reasonably foreseeable stressed conditions, (3) shareholder redemptions, and (4) borrowing arrangements and other funding sources. The
Liquidity Rule places a 15% limit on a fund’s illiquid investments and requires a fund that does not primarily hold assets that are highly liquid investments to determine and maintain a minimum percentage of the fund’s net assets in highly
liquid investments (highly liquid investment minimum or HLIM). The LRMP includes provisions and safeguards that are reasonably designed to comply with the 15% limit on illiquid investments and the Fund is currently classified as a Fund that
primarily holds highly liquid investments. The LRMP includes the classification, no less than monthly, of the Fund’s investments into one of four liquidity classifications as provided for in the Liquidity Rule.
At a recent meeting of the Fund’s Board of Directors, the Adviser provided a written report to the Board pertaining to the operation, adequacy, and effectiveness of implementation of the LRMP from April 1, 2021
through March 31, 2022. The report concluded that the LRMP is operating effectively and is reasonably designed to assess and manage the Fund’s liquidity risk. There can be no guarantee that the LRMP will achieve its objectives in the future.
Additional information regarding risks of investing in the Fund, including liquidity risks presented by the Fund’s investment portfolio, is found in the Fund’s Prospectus and Statement of Additional Information.
19
|
DAVIS FINANCIAL PORTFOLIO
|
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. Subject to exceptions and
exemptions which may be granted by the Independent Directors, Directors must retire from the Board of Directors and cease being a Director at the close of business on the last day of the calendar year in which the Director attains age
seventy-eight (78).
|
Name, Date of Birth,
Position(s) Held with
Fund, Length of Service
|
Principal Occupation(s) During Past Five Years
|
Number of
Portfolios
Overseen
|
Other Directorships
|
Independent Directors
|
John S. Gates Jr.
(08/02/53)
Director since 2007
|
Executive Chairman, TradeLane Properties LLC
(industrial real estate company).
|
13
|
Chairman and Chief Executive Officer of PortaeCo
LLC (private investment company); Director, Miami
Corp. (diversified investment company).
|
|
Thomas S. Gayner
(12/16/61)
Director since 2004
Chairman since 2009
|
Co-Chief Executive Officer and Director, Markel Corp.
(diversified financial holding company).
|
13
|
Director, Graham Holdings Company (educational
and media company); Director, Cable ONE Inc. (cable
service provider).
|
|
Samuel H. Iapalucci
(07/19/52)
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 since 2002
|
Principal, Spears Abacus Advisors, LLC (investment
management firm) since 2011; Chairman, NorthRoad
Capital Management, LLC (investment management
firm) 2002-2011.
|
13
|
None
|
|
Lara N. Vaughan
(04/20/69)
Director since 2021
|
Chief Executive Officer and Chief Financial Officer of
Parchman, Vaughan & Company, L.L.C. (investment
bank).
|
13
|
None
|
|
Marsha C. Williams
(03/28/51)
Director since 1999
|
Retired; Senior Vice President and Chief Financial
Officer, Orbitz Worldwide, Inc. (travel-service
provider) 2007-2010.
|
13
|
Chairperson, Modine Manufacturing Company (heat
transfer technology); Director, Fifth Third Bancorp
(diversified financial services); Director, Crown
Holdings, Inc. (manufacturing company).
|
Interested Directors*
|
Andrew A. Davis
(06/25/63)
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 since 1997
|
President or Vice President of each Davis Fund,
Selected Fund, Clipper Fund, and Davis 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; Lead Independent
Director, Graham Holdings Company (educational
and media company); Director, The Coca-Cola
Company (beverage company); Director, Berkshire
Hathaway Inc. (financial services).
|
* 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
Lisa J. Cohen (born 04/25/89, Davis Funds officer since 2021). 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 four portfolios); Vice President, Senior Attorney, and Secretary, Davis Selected
Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
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 four 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 four 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 four 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.
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 219197
|
|
Kansas City, Missouri 64121-9197
|
|
Custodian
|
|
State Street Bank and Trust Co.
|
|
One Lincoln Street
|
|
Boston, Massachusetts 02111
|
|
Legal Counsel
|
|
Greenberg Traurig, LLP
|
|
1144 15th Street, Suite 3300
|
|
Denver, Colorado 80202
|
|
Independent Registered Public Accounting Firm
|
|
KPMG LLP
|
|
1225 17th 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
|
|
|
5
|
|
|
6
|
|
|
8
|
|
|
9
|
|
|
10
|
|
|
11
|
|
|
15
|
|
|
16
|
|
|
19
|
|
|
20
|
This Semi-Annual Report is authorized for use by existing shareholders. Prospective shareholders must receive a current Davis Real Estate Portfolio (the “Fund”)
prospectus, which contains more information about investment strategies, risks, charges, and expenses. Please read the prospectus carefully before investing or sending money.
Shares of the Fund 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.
Quarterly Schedule of Investments
The Fund files its complete schedule of investments with the SEC on Form N-CSR (as of the end of the second and fourth quarters) and on Form N-PORT Part F (as of the end of the first and third quarters). The
Fund’s Forms N-CSR (Annual and Semi-Annual Reports) and N-PORT Part F are 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.
|
DAVIS REAL ESTATE PORTFOLIO
|
Performance Overview
Davis Real Estate Portfolio slightly outperformed the Wilshire U.S. Real Estate Securities Index (“Wilshire Index” or the “Index”) for the six-month period ended June 30, 2022 (the “period”).
The Fund delivered a total return of -21.09%, versus a -21.63% return for the Wilshire Index. All sub-industries1 in the Wilshire Index reported negative performance during the period. The sub-industries that reported the weakest
performance were Retail REITs (down 29%), Industrial REITs (down 28%), and Office REITs (down 26%). The sub-industries within the Wilshire Index that were stronger comparatively were Diversified REITs (down 1%) and Health Care REITs (down
7%).
Contributors to Performance
No REIT sub-industry contributed2 positively to the Fund’s absolute performance during the period. However, several sub-industries contributed to performance relative to the Wilshire
Index, including the largest Fund position and strongest contributor, Specialized REITs. The Fund’s holdings outperformed the Index sub-industry (down 17%, versus down 21%) and the Fund had a higher average weighting than the Index (23%,
versus 22%). Top contributors included CatchMark Timber Trust3 (up 18%) and VICI Properties (up 1%).
Residential REITs, the second-largest sub-industry position with an average weighting of 19%, were another relative outperformer. The Fund’s holdings outperformed the Index sub-industry (down
19%, versus down 21%). American Campus Communities (up 14%) was the single most important contributor to performance during the period. The Fund sold its position in American Campus Communities in April soon after it was announced the company was being purchased by Blackstone.
Radius Global Infrastructure (up 10%), a non-REIT position added to the Fund early in the period, was a key contributor to performance. Additional
individual contributors were Ventas (up 2%), a Health Care REIT, and Duke Realty (up 6%), a recently purchased Industrial REIT.
Given the down market, the Fund benefited from its 2% average position in repurchase agreements (cash) during the period.
Detractors from Performance
Industrial REITs were the top detractor from absolute performance and an important detractor relative to the Wilshire Index. The Fund’s holdings underperformed the Index sub-industry (down 30%,
versus down 28%), but a smaller average weighting than the Index (14%, versus 17%) in the lesser performing Index sub-industry reduced the impact from the weaker stock selection. Prologis (down 29%),
the single largest contributor in 2021, was the overall top detractor from performance during the most recent period. Prologis remained the largest holding at the end of the period, representing 5.87%
of net assets. Terreno Realty (down 34%) and Rexford Industrial Realty (down 28%), two other top contributors in 2021, were also significant detractors from
the Industrial REITs sub-industry during the period.
The Fund’s Office REITs were a top detractor from performance on both an absolute and relative basis. The Fund was overweight in the weaker performing sub-industry (average weighting of 13%,
versus 10% for the Index) and the Fund’s holdings underperformed the Index sub-industry (down 29%, versus down 26%). Alexandria Real Estate Equities (down 34%) and Cousins
Properties (down 26%) were among the top detractors from performance.
The Fund was underweight in the top performing sub-industry of the Index, Diversified REITs (1% average weighting, versus 2%), and its lone holding underperformed (down 22%, versus down 1% for
the Index sub-industry).
As discussed above, the Specialized REITs position in the Fund was a contributor to performance relative to the Wilshire Index. However, Specialized REITs were a significant detractor from
absolute performance. Equinix (down 22%) and Digital Realty Trust (down 25%) were top detractors from this sub-industry.
Simon Property Group (down 39%), a Retail REIT, was the second largest detractor from performance during the period. Also among the top detractors were
two Residential REITs, Essex Property Trust (down 25%) and AvalonBay Communities (down 22%).
Davis Real Estate Portfolio’s investment objective is total return through a combination of growth and income. There can be no assurance that the Fund will
achieve its objective. Davis Real Estate Portfolio’s principal risks are: stock market risk, common stock risk, real estate risk, headline risk, large-capitalization companies risk, manager risk, fees and expenses risk, mid- and
small-capitalization companies 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 positive and negative, 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 six-month period ended June 30, 2022, 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 six-month period, June 30, 2022, 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 sub-industry’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 June 30, 2012
Average Annual Total Return for periods ended June 30, 2022
|
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
|
(7.96)%
|
5.35%
|
6.71%
|
7.90%
|
1.02%
|
1.00%
|
|
Standard & Poor’s 500® Index
|
(10.62)%
|
11.30%
|
12.95%
|
6.47%
|
||
|
Wilshire U.S. Real Estate Securities
Index
|
(6.68)%
|
5.25%
|
7.45%
|
9.53%
|
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 quoted in this report represents past performance, assumes that all distributions were reinvested, and is not a guarantee of future results. The
investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Current performance may be higher or lower than performance data quoted. The operating expense ratio may
vary in future years. For most recent month-end performance information, please call Investor Services at 1-800-279-0279 or visit the Fund’s website at www.davisfunds.com.
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
|
|
|
June 30, 2022 (Unaudited)
|
|
Portfolio Composition
|
Sub-Industry Weightings
|
|||||
|
(% of Fund’s 06/30/22 Net Assets)
|
(% of 06/30/22 Stock Holdings)
|
|||||
|
Wilshire U.S.
|
||||||
|
Real Estate
|
||||||
|
Fund
|
Securities Index
|
|||||
|
Common Stock
|
98.78%
|
Specialized REITs
|
26.11%
|
22.57%
|
||
|
Short-Term Investments
|
1.12%
|
Residential REITs
|
17.68%
|
23.91%
|
||
|
Other Assets & Liabilities
|
0.10%
|
Industrial REITs
|
14.12%
|
16.58%
|
||
|
100.00%
|
Retail REITs
|
12.67%
|
9.66%
|
|||
|
Office REITs
|
12.04%
|
9.32%
|
||||
|
Health Care REITs
|
10.94%
|
11.31%
|
||||
|
Hotel & Resort REITs
|
4.20%
|
3.46%
|
||||
|
Integrated Telecommunication
Services
|
1.22%
|
–
|
||||
|
Diversified REITs
|
1.02%
|
2.67%
|
||||
|
Real Estate Operating Companies
|
–
|
0.28%
|
||||
|
Hotels, Resorts & Cruise Lines
|
–
|
0.24%
|
||||
|
100.00%
|
100.00%
|
|||||
Top 10 Long-Term Holdings
(% of Fund’s 06/30/22 Net Assets)
|
Prologis, Inc.
|
Industrial REITs
|
5.87%
|
|
American Tower Corp.
|
Specialized REITs
|
4.61%
|
|
Welltower Inc.
|
Health Care REITs
|
4.35%
|
|
Public Storage
|
Specialized REITs
|
4.14%
|
|
Equinix, Inc.
|
Specialized REITs
|
3.97%
|
|
Brixmor Property Group, Inc.
|
Retail REITs
|
3.72%
|
|
AvalonBay Communities, Inc.
|
Residential REITs
|
3.65%
|
|
Equity Residential
|
Residential REITs
|
3.37%
|
|
Rexford Industrial Realty, Inc.
|
Industrial REITs
|
3.29%
|
|
Crown Castle, Inc.
|
Specialized REITs
|
3.26%
|
4
|
DAVIS REAL ESTATE PORTFOLIO
|
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 June 30, 2022. 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
|
Ending
|
Expenses Paid
|
|||
|
Account Value
|
Account Value
|
During Period*
|
|||
|
(01/01/22)
|
(06/30/22)
|
(01/01/22-06/30/22)
|
|||
|
Actual
|
$1,000.00
|
$789.13
|
$4.44
|
||
|
Hypothetical
|
$1,000.00
|
$1,019.84
|
$5.01
|
Hypothetical assumes 5% annual return before expenses.
* Expenses are equal to the Fund’s annualized operating expense ratio (1.00%)**, multiplied by the average account value over the period, multiplied by 181/365 (to
reflect the one-half year period).
** The expense ratio reflects the impact, if any, of certain reimbursements from the Adviser.
5
|
DAVIS REAL ESTATE PORTFOLIO
|
|
|
June 30, 2022 (Unaudited)
|
|
Shares
|
Value
(Note 1) |
||||||||||
|
COMMON STOCK – (98.78%)
|
|||||||||||
|
COMMUNICATION SERVICES – (1.21%)
|
|||||||||||
|
Telecommunication Services – (1.21%)
|
|||||||||||
|
Integrated Telecommunication Services – (1.21%)
|
|||||||||||
|
Radius Global Infrastructure, Inc., Class A *
|
9,260
|
$
|
141,308
|
||||||||
|
Total Communication Services
|
141,308
|
||||||||||
|
REAL ESTATE – (97.57%)
|
|||||||||||
|
Equity Real Estate Investment Trusts (REITs) – (97.57%)
|
|||||||||||
|
Diversified REITs – (1.01%)
|
|||||||||||
|
STORE Capital Corp.
|
4,520
|
117,882
|
|||||||||
|
Health Care REITs – (10.81%)
|
|||||||||||
|
Healthcare Realty Trust, Inc.
|
8,230
|
229,699
|
|||||||||
|
Healthpeak Properties, Inc.
|
8,580
|
222,308
|
|||||||||
|
Ventas, Inc.
|
5,920
|
304,466
|
|||||||||
|
Welltower Inc.
|
6,180
|
508,923
|
|||||||||
|
1,265,396
|
|||||||||||
|
Hotel & Resort REITs – (4.15%)
|
|||||||||||
|
Host Hotels & Resorts Inc.
|
13,680
|
214,502
|
|||||||||
|
Sunstone Hotel Investors, Inc. *
|
27,350
|
271,312
|
|||||||||
|
485,814
|
|||||||||||
|
Industrial REITs – (13.94%)
|
|||||||||||
|
Americold Realty Trust
|
2,330
|
69,993
|
|||||||||
|
Duke Realty Corp.
|
1,230
|
67,589
|
|||||||||
|
Innovative Industrial Properties, Inc.
|
1,000
|
109,870
|
|||||||||
|
Prologis, Inc.
|
5,843
|
687,429
|
|||||||||
|
Rexford Industrial Realty, Inc.
|
6,690
|
385,277
|
|||||||||
|
Terreno Realty Corp.
|
5,610
|
312,645
|
|||||||||
|
1,632,803
|
|||||||||||
|
Office REITs – (11.89%)
|
|||||||||||
|
Alexandria Real Estate Equities, Inc.
|
2,620
|
379,979
|
|||||||||
|
Boston Properties, Inc.
|
2,120
|
188,638
|
|||||||||
|
Cousins Properties, Inc.
|
10,655
|
311,446
|
|||||||||
|
Douglas Emmett, Inc.
|
9,250
|
207,015
|
|||||||||
|
Highwoods Properties, Inc.
|
4,790
|
163,770
|
|||||||||
|
Hudson Pacific Properties, Inc.
|
5,610
|
83,252
|
|||||||||
|
SL Green Realty Corp.
|
1,262
|
58,241
|
|||||||||
|
1,392,341
|
|||||||||||
|
Residential REITs – (17.46%)
|
|||||||||||
|
American Homes 4 Rent, Class A
|
7,140
|
253,042
|
|||||||||
|
AvalonBay Communities, Inc.
|
2,200
|
427,350
|
|||||||||
|
Camden Property Trust
|
1,970
|
264,926
|
|||||||||
|
Equity Residential
|
5,460
|
394,321
|
|||||||||
|
Essex Property Trust, Inc.
|
1,440
|
376,574
|
|||||||||
|
Sun Communities, Inc.
|
850
|
135,456
|
|||||||||
|
UDR, Inc.
|
4,180
|
192,447
|
|||||||||
|
2,044,116
|
|||||||||||
|
Retail REITs – (12.52%)
|
|||||||||||
|
Acadia Realty Trust
|
5,577
|
87,113
|
|||||||||
|
Brixmor Property Group, Inc.
|
21,560
|
435,727
|
|||||||||
6
|
DAVIS REAL ESTATE PORTFOLIO
|
Schedule of Investments - (Continued)
|
|
June 30, 2022 (Unaudited)
|
|
Shares/Principal
|
Value
(Note 1) |
||||||||||||
|
COMMON STOCK – (CONTINUED)
|
|||||||||||||
|
REAL ESTATE – (CONTINUED)
|
|||||||||||||
|
Equity Real Estate Investment Trusts (REITs) – (Continued)
|
|||||||||||||
|
Retail REITs – (Continued)
|
|||||||||||||
|
Federal Realty Investment Trust
|
2,590
|
$
|
247,966
|
||||||||||
|
NetSTREIT Corp.
|
7,040
|
132,845
|
|||||||||||
|
Retail Opportunity Investments Corp.
|
14,005
|
220,999
|
|||||||||||
|
Simon Property Group, Inc.
|
3,590
|
340,763
|
|||||||||||
|
1,465,413
|
|||||||||||||
|
Specialized REITs – (25.79%)
|
|||||||||||||
|
American Tower Corp.
|
2,110
|
539,295
|
|||||||||||
|
CatchMark Timber Trust Inc., Class A
|
16,490
|
165,889
|
|||||||||||
|
Crown Castle, Inc.
|
2,270
|
382,223
|
|||||||||||
|
CubeSmart
|
2,970
|
126,878
|
|||||||||||
|
Digital Realty Trust, Inc.
|
2,860
|
371,314
|
|||||||||||
|
Equinix, Inc.
|
708
|
465,170
|
|||||||||||
|
Extra Space Storage Inc.
|
1,390
|
236,467
|
|||||||||||
|
Life Storage, Inc.
|
1,120
|
125,059
|
|||||||||||
|
Public Storage
|
1,550
|
484,638
|
|||||||||||
|
VICI Properties Inc.
|
4,120
|
122,735
|
|||||||||||
|
3,019,668
|
|||||||||||||
|
Total Real Estate
|
11,423,433
|
||||||||||||
|
TOTAL COMMON STOCK – (Identified cost $9,605,456)
|
11,564,741
|
||||||||||||
|
SHORT-TERM INVESTMENTS – (1.12%)
|
|||||||||||||
|
StoneX Financial Inc. Joint Repurchase Agreement, 1.50%, 07/01/22,
dated 06/30/22, repurchase value of $68,003 (collateralized by: U.S.
Government agency mortgages and obligations in a pooled cash
account, 0.375%-8.50%, 11/20/22-10/15/63, total market value $69,360)
|
$
|
68,000
|
68,000
|
||||||||||
|
Truist Securities, Inc. Joint Repurchase Agreement, 1.49%, 07/01/22,
dated 06/30/22, repurchase value of $63,003 (collateralized by: U.S.
Government agency mortgage and obligation in a pooled cash account,
0.00%-4.00%, 12/07/22-04/01/52, total market value $64,260)
|
63,000
|
63,000
|
|||||||||||
|
TOTAL SHORT-TERM INVESTMENTS – (Identified cost $131,000)
|
131,000
|
||||||||||||
|
Total Investments – (99.90%) – (Identified cost $9,736,456)
|
11,695,741
|
||||||||||||
|
Other Assets Less Liabilities – (0.10%)
|
12,103
|
||||||||||||
|
Net Assets – (100.00%)
|
$
|
11,707,844
|
|||||||||||
|
*
|
Non-income producing security.
|
||||||||||||
|
See Notes to Financial Statements
|
|||||||||||||
7
|
DAVIS REAL ESTATE PORTFOLIO
|
|
|
At June 30, 2022 (Unaudited)
|
|
ASSETS:
|
||||||||
|
Investments in securities, at value* (see accompanying Schedule of Investments)
|
$
|
11,695,741
|
||||||
|
Cash
|
652
|
|||||||
|
Receivables:
|
||||||||
|
Capital stock sold
|
193
|
|||||||
|
Dividends and interest
|
43,711
|
|||||||
|
Prepaid expenses
|
164
|
|||||||
|
Due from Adviser
|
1,500
|
|||||||
|
Total assets
|
11,741,961
|
|||||||
|
LIABILITIES:
|
||||||||
|
Payables:
|
||||||||
|
Capital stock redeemed
|
950
|
|||||||
|
Accrued audit fees
|
8,765
|
|||||||
|
Accrued custodian fees
|
6,200
|
|||||||
|
Accrued directors’ fees and expenses
|
1,783
|
|||||||
|
Accrued investment advisory fees
|
7,557
|
|||||||
|
Other accrued expenses
|
8,862
|
|||||||
|
Total liabilities
|
34,117
|
|||||||
|
NET ASSETS
|
$
|
11,707,844
|
||||||
|
SHARES OUTSTANDING
|
755,611
|
|||||||
|
NET ASSET VALUE, offering, and redemption price per share (Net assets ÷ Shares outstanding)
|
$
|
15.49
|
||||||
|
NET ASSETS CONSIST OF:
|
||||||||
|
Par value of shares of capital stock
|
$
|
756
|
||||||
|
Additional paid-in capital
|
8,942,319
|
|||||||
|
Distributable earnings
|
2,764,769
|
|||||||
|
Net Assets
|
$
|
11,707,844
|
||||||
|
*Including:
|
||||||||
|
Cost of investments
|
$
|
9,736,456
|
||||||
|
See Notes to Financial Statements
|
8
|
DAVIS REAL ESTATE PORTFOLIO
|
|
|
For the six months ended June 30, 2022 (Unaudited)
|
|
INVESTMENT INCOME:
|
|||||||||||
|
Income:
|
|||||||||||
|
Dividends
|
$
|
205,767
|
|||||||||
|
Interest
|
458
|
||||||||||
|
Total income
|
206,225
|
||||||||||
|
Expenses:
|
|||||||||||
|
Investment advisory fees (Note 3)
|
$
|
39,362
|
|||||||||
|
Custodian fees
|
6,057
|
||||||||||
|
Transfer agent fees
|
3,487
|
||||||||||
|
Audit fees
|
10,164
|
||||||||||
|
Legal fees
|
247
|
||||||||||
|
Accounting fees (Note 3)
|
1,002
|
||||||||||
|
Reports to shareholders
|
384
|
||||||||||
|
Directors’ fees and expenses
|
5,095
|
||||||||||
|
Registration and filing fees
|
2
|
||||||||||
|
Miscellaneous
|
7,022
|
||||||||||
|
Total expenses
|
72,822
|
||||||||||
|
Reimbursement of expenses by Adviser (Note 3)
|
(1,500)
|
||||||||||
|
Net expenses
|
71,322
|
||||||||||
|
Net investment income
|
134,903
|
||||||||||
|
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
|
|||||||||||
|
Net realized gain from:
|
|||||||||||
|
Investment transactions
|
526,419
|
||||||||||
|
Net realized gain
|
526,419
|
||||||||||
|
Net decrease in unrealized appreciation
|
(3,890,051)
|
||||||||||
|
Net realized and unrealized loss on investments
|
(3,363,632)
|
||||||||||
|
Net decrease in net assets resulting from operations
|
$
|
(3,228,729)
|
|||||||||
|
See Notes to Financial Statements
|
9
|
DAVIS REAL ESTATE PORTFOLIO
|
|
Six months ended
June 30, 2022
(Unaudited)
|
Year ended
December 31, 2021
|
||||||||
|
OPERATIONS:
|
|||||||||
|
Net investment income
|
$
|
134,903
|
$
|
116,880
|
|||||
|
Net realized gain from investments
|
526,419
|
841,005
|
|||||||
|
Net increase (decrease) in unrealized appreciation on investments
|
(3,890,051)
|
3,916,022
|
|||||||
|
Net increase (decrease) in net assets resulting from operations
|
(3,228,729)
|
4,873,907
|
|||||||
|
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
|
(63,414)
|
(167,554)
|
|||||||
|
CAPITAL SHARE TRANSACTIONS:
|
|||||||||
|
Net increase (decrease) in net assets resulting from capital share transactions
(Note 4)
|
(1,655,996)
|
323,329
|
|||||||
|
Total increase (decrease) in net assets
|
(4,948,139)
|
5,029,682
|
|||||||
|
NET ASSETS:
|
|||||||||
|
Beginning of period
|
16,655,983
|
11,626,301
|
|||||||
|
End of period
|
$
|
11,707,844
|
$
|
16,655,983
|
|||||
|
See Notes to Financial Statements
|
10
|
DAVIS REAL ESTATE PORTFOLIO
|
|
|
June 30, 2022 (Unaudited)
|
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a separate series of Davis Variable Account Fund, Inc. (a Maryland corporation) and 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 COVID-19 pandemic has caused market disruptions on a global scale and the long-term impact is uncertain. The aforementioned disruptions may adversely
affect the value and liquidity of the Fund’s investments and thus Fund performance. 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 for 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 investments 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 REAL ESTATE PORTFOLIO
|
Notes to Financial Statements – (Continued)
|
|
June 30, 2022 (Unaudited)
|
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)
Fair Value Measurements - (Continued)
The following is a summary of the inputs used as of June 30, 2022 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
|
||||||||
|
Common Stock:
|
|||||||||||
|
Communication Services
|
$
|
141,308
|
$
|
–
|
$
|
–
|
$
|
141,308
|
|||
|
Real Estate
|
11,423,433
|
–
|
–
|
11,423,433
|
|||||||
|
Short-Term Investments
|
–
|
131,000
|
–
|
131,000
|
|||||||
|
Total Investments
|
$
|
11,564,741
|
$
|
131,000
|
$
|
–
|
$
|
11,695,741
|
|||
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 United States Dollar (“USD”) on the date of valuation using exchange rates determined as of the close of trading on the Exchange. 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 USD. 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 USD 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 period 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 June 30, 2022, 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 2018.
12
|
DAVIS REAL ESTATE PORTFOLIO
|
Notes to Financial Statements – (Continued)
|
|
June 30, 2022 (Unaudited)
|
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)
Federal Income Taxes - (Continued)
At June 30, 2022, the aggregate cost of investments and unrealized appreciation (depreciation) for federal income tax purposes were as follows:
|
Cost
|
$
|
9,867,285
|
|
Unrealized appreciation
|
2,505,828
|
|
|
Unrealized depreciation
|
(677,372)
|
|
|
Net unrealized appreciation
|
$
|
1,828,456
|
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 [collectively “Distributable earnings (losses)”] may differ for financial statement and tax purposes primarily due to permanent and temporary
differences which may include wash sales, excise tax payments, 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.
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 investments) during the six months ended June 30, 2022 were $1,904,945 and $2,641,524, respectively.
13
|
DAVIS REAL ESTATE PORTFOLIO
|
Notes to Financial Statements – (Continued)
|
|
June 30, 2022 (Unaudited)
|
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 and Reimbursement of Expenses - 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% until May 1, 2023; after that date, there is no
assurance that expenses will be capped. The expense cap cannot be terminated prior to this date without the consent of the Board of Directors. The Adviser may not recoup any of the operating expenses it has reimbursed to the Fund. During the
six months ended June 30, 2022, such reimbursements amounted to $1,500.
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 six months ended June 30, 2022
amounted to $1,002.
NOTE 4 - CAPITAL STOCK
At June 30, 2022, there were 500 million shares of capital stock ($0.001 par value per share) authorized. Transactions in capital stock were as follows:
|
Six months ended June 30, 2022 (Unaudited)
|
|||||||||||
|
Sold
|
Reinvestment of
Distributions
|
Redeemed
|
Net Decrease
|
||||||||
|
Shares:
|
43,783
|
3,647
|
(136,588)
|
(89,158)
|
|||||||
|
Value:
|
$
|
779,149
|
$
|
63,414
|
$
|
(2,498,559)
|
$
|
(1,655,996)
|
|||
|
Year ended December 31, 2021
|
|||||||||||
|
Sold
|
Reinvestment of
Distributions
|
Redeemed
|
Net Increase
|
||||||||
|
Shares:
|
155,394
|
9,658
|
(147,690)
|
17,362
|
|||||||
|
Value:
|
$
|
2,619,644
|
$
|
167,554
|
$
|
(2,463,869)
|
$
|
323,329
|
|||
14
|
DAVIS REAL ESTATE PORTFOLIO
|
|
The following financial information represents selected data for each share of capital stock outstanding throughout each period:
|
|
Six months
ended
June 30, 2022
|
Year ended December 31,
|
|||||||||||||||||||||||||||||||||
|
(Unaudited)
|
2021
|
2020
|
2019
|
2018
|
2017
|
|||||||||||||||||||||||||||||
|
Net Asset Value, Beginning of Period
|
$
|
19.72
|
$
|
14.05
|
$
|
15.69
|
$
|
13.02
|
$
|
14.85
|
$
|
14.36
|
||||||||||||||||||||||
|
Income (Loss) from Investment Operations:
|
||||||||||||||||||||||||||||||||||
|
Net Investment Incomea
|
0.17
|
0.14
|
0.17
|
0.28
|
0.30
|
0.22
|
||||||||||||||||||||||||||||
|
Net Realized and Unrealized Gains (Losses)
|
(4.32)
|
5.73
|
(1.48)
|
3.06
|
(1.01)
|
0.96
|
||||||||||||||||||||||||||||
|
Total from Investment Operations
|
(4.15)
|
5.87
|
(1.31)
|
3.34
|
(0.71)
|
1.18
|
||||||||||||||||||||||||||||
|
Dividends and Distributions:
|
||||||||||||||||||||||||||||||||||
|
Dividends from Net Investment Income
|
(0.08)
|
(0.20)
|
(0.27)
|
(0.15)
|
(0.41)
|
(0.18)
|
||||||||||||||||||||||||||||
|
Distributions from Realized Gains
|
–
|
–
|
(0.06)
|
(0.52)
|
(0.71)
|
(0.51)
|
||||||||||||||||||||||||||||
|
Total Dividends and Distributions
|
(0.08)
|
(0.20)
|
(0.33)
|
(0.67)
|
(1.12)
|
(0.69)
|
||||||||||||||||||||||||||||
|
Net Asset Value, End of Period
|
$
|
15.49
|
$
|
19.72
|
$
|
14.05
|
$
|
15.69
|
$
|
13.02
|
$
|
14.85
|
||||||||||||||||||||||
|
Total Returnb
|
(21.09)
|
%
|
41.98
|
%
|
(8.08)
|
%
|
25.74
|
%
|
(4.82)
|
%
|
8.25
|
%
|
||||||||||||||||||||||
|
Ratios/Supplemental Data:
|
||||||||||||||||||||||||||||||||||
|
Net Assets, End of Period (in thousands)
|
$
|
11,708
|
$
|
16,656
|
$
|
11,626
|
$
|
14,414
|
$
|
12,564
|
$
|
15,602
|
||||||||||||||||||||||
|
Ratio of Expenses to Average Net Assets:
|
||||||||||||||||||||||||||||||||||
|
Gross
|
1.02
|
%c
|
0.97
|
%
|
1.04
|
%
|
0.97
|
%
|
1.00
|
%
|
0.93
|
%
|
||||||||||||||||||||||
|
Netd
|
1.00
|
%c
|
0.97
|
%
|
1.00
|
%
|
0.97
|
%
|
1.00
|
%
|
0.93
|
%
|
||||||||||||||||||||||
|
Ratio of Net Investment Income to Average
Net Assets
|
1.89
|
%c
|
0.83
|
%
|
1.28
|
%
|
1.83
|
%
|
2.07
|
%
|
1.50
|
%
|
||||||||||||||||||||||
|
Portfolio Turnover Ratee
|
13
|
%
|
28
|
%
|
24
|
%
|
15
|
%
|
40
|
%
|
22
|
%
|
||||||||||||||||||||||
|
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 are not annualized for periods of less than one year and do not reflect charges attributable to your insurance company’s
separate account. Inclusion of these charges would reduce the total returns shown.
|
|
c
|
Annualized.
|
|
d
|
The Net Ratio of Expenses to Average Net Assets reflects the impact, if any, of certain reimbursements.
|
|
e
|
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
|
|
15
|
DAVIS REAL ESTATE PORTFOLIO
|
Process of Annual Review
The Board of Directors of the Davis Funds oversees the management of each Davis Fund and, as required by law, determines annually whether to approve the continuance of each Davis Fund’s
advisory agreement with Davis Selected Advisers, L.P. and sub-advisory agreement with Davis Selected Advisers-NY, Inc. (jointly “Davis Advisors” and “Advisory Agreements”).
With the assistance of counsel to the Independent Directors, the Independent Directors undertook a comprehensive review process in anticipation of their annual contract review meeting, held
in March 2022. As part of this process, Davis Advisors provided the Independent Directors with material (including recent investment performance data) that was responsive to questions submitted to Davis Advisors by the Independent Directors.
At this meeting, the Independent Directors reviewed and evaluated all information which they deemed reasonably necessary under the circumstances and were provided guidance by their independent counsel. In reaching their decision, the
Independent Directors also took into account information furnished to them throughout the year and otherwise provided to them during their quarterly meetings or through other prior communications. The Independent Directors concluded that they
had been supplied with sufficient information and data to analyze the Advisory Agreements and that their questions had been sufficiently answered by Davis Advisors. Upon completion of this review, the Independent Directors found that the
terms of the Advisory Agreements were fair and reasonable and that continuation of the Advisory Agreements is in the best interests of Davis Real Estate Portfolio (the “Fund”) and its shareholders.
Reasons the Independent Directors Approved Continuation of the Advisory Agreements
The Independent Directors’ determinations were based upon a comprehensive consideration of all information provided to them, and they did not identify any single item or piece of
information as the controlling factor. Each Independent Director did not necessarily attribute the same weight to each factor. The following considerations and conclusions were important, but not exclusive, to the Independent Directors’
recommendation to renew the Advisory Agreements.
The Independent Directors considered the investment performance of the Fund on an absolute basis, as well as relative to its benchmark and other comparable funds. The Independent Directors
not only considered the investment performance of the Fund, but also the full range and quality of services provided by Davis Advisors to the Fund and its shareholders, including whether the Fund:
|
1.
|
achieves satisfactory investment results over the long-term, after all costs;
|
|
2.
|
efficiently and effectively handles shareholder transactions, inquiries, requests, and records, provides quality accounting, legal, and compliance services, and oversees third-party service providers;
and
|
|
3.
|
fosters healthy investor behavior.
|
Davis Advisors is reimbursed a portion of its costs in providing some but not all of these services.
A shareholder’s ultimate return is the product of a fund’s results as well as the shareholder’s behavior, specifically in selecting when to invest or redeem. The Independent Directors
concluded that, through its actions and communications, Davis Advisors has attempted to have a meaningful positive impact on investor behavior.
In aggregate, Davis Advisors, employees of Davis Advisors, and the Davis family have made significant investments in the Davis Funds. The Independent Directors considered that these
investments tend to align Davis Advisors’, Davis Advisors’ employees, and the Davis family’s interests with other shareholders, as they face the same risks, pay the same fees, and are motivated to achieve satisfactory long-term returns.
The Independent Directors noted the importance of reviewing quantitative measures, but recognized that qualitative factors are also important in assessing whether Davis Funds’ shareholders
are likely to be well served by the renewal of the Advisory Agreements. They noted both the value and shortcomings of purely quantitative measures, including the data provided by independent service providers, and concluded that, while such
measures and data may be informative, the judgment of the Independent Directors must take many factors into consideration in representing the shareholders of the Davis Funds, including those listed below. In connection with reviewing
comparative performance information, the Independent Directors generally give greater weight to longer-term measurements.
The Independent Directors noted that Davis Advisors employs a disciplined, company-specific, research-driven, businesslike, long-term investment philosophy. The Independent Directors
considered the quality of Davis Advisors’ investment process as well as the experience, capability and integrity of its senior management and other personnel.
16
|
DAVIS REAL ESTATE PORTFOLIO
|
Director Approval of Advisory Agreements
|
|
(Unaudited) – (Continued)
|
Reasons the Independent Directors Approved Continuation of the Advisory Agreements – (Continued)
The Independent Directors recognized Davis Advisors’ (a) efforts to minimize transaction costs by generally having a long- term time horizon and low portfolio turnover; (b) record of
generally producing satisfactory results over longer-term periods; (c) efforts towards fostering healthy investor behavior by, among other things, providing informative and substantial educational material; and (d) efforts to promote
shareholder interests by actively speaking out on corporate governance issues.
The Independent Directors assessed (a) comparative fee and expense information for other funds, as selected and analyzed by a nationally recognized independent service provider; (b)
information regarding fees charged by Davis Advisors to other advisory clients, which includes other funds it advises, other funds which it sub-advises, and private accounts, as well as the differences in the services provided to such other
clients; and (c) the fee schedule of the Fund, including an assessment of competitive fee schedules.
The Independent Directors reviewed the management fee schedule for the Fund, profitability of the Fund to Davis Advisors, the extent to which economies of scale might be realized if the
Fund’s net assets increase, and whether the fee schedule should reflect those potential economies of scale, at this time. The Independent Directors considered the nature, quality, and extent of the services being provided to the Fund and the
costs incurred by Davis Advisors in providing such services. The Independent Directors considered various potential benefits that Davis Advisors may receive in connection with the services it provides under the Advisory Agreements with the
Fund, including a review of portfolio brokerage practices. The Independent Directors noted that Davis Advisors does not use client commissions to pay for publications that are available to the general public or for research reports that are
created by parties other than the broker-dealers providing trade execution, clearing, and/or settlement services to the Fund.
The Independent Directors compared the fees paid to Davis Advisors by the Davis Funds with those paid by Davis Advisors’ advised and sub-advised clients, private account clients, and
managed money/wrap clients. To the extent sub-advised, private account, or managed money/wrap fees were lower than fees paid by the Davis Funds, the Independent Directors noted that the range of services provided to the Davis Funds is more
extensive, with greater risks associated with operating SEC registered, publicly traded mutual funds. Serving as the primary adviser for mutual funds is more work because of the complex overlay of regulatory, tax, and accounting issues, which
are unique to mutual funds. In addition, the operational work required to service shareholders is more extensive because of the significantly greater number of shareholders, and managing trading is more complex because of the more frequent
fund flows. With respect to risk, not only has regulation become more complex and burdensome, but the scrutiny of regulators and shareholders has become more intense. The Independent Directors concluded that reasonable justifications existed
for any differences between the fee rates for the Davis Funds and Davis Advisors’ other lines of business.
The Independent Directors noted that Davis Real Estate Portfolio outperformed its benchmark, the Wilshire U.S. Real Estate Securities Index (the “Wilshire U.S. RESI”), over the five-year
time period, but underperformed the Wilshire U.S. RESI over the one-, three-, ten-year, and since-inception time periods, all periods ended February 28, 2022.
Broadridge, an independent service provider, presented a report to the Independent Directors that compared the Fund to all Lipper real estate funds underlying variable insurance products
(the “Performance Universe Average”), as well as the relevant Lipper Index. The report indicated that the Fund underperformed both the Performance Universe Average and Lipper Index over the one-, two-, three-, and four-year time periods,
performed in line with the Performance Universe Average and outperformed the Lipper Index over the five-year time period, and performed in line with the Lipper Index and underperformed the Performance Universe Average over the ten-year time
period, all periods ended December 31, 2021.
The Independent Directors also reviewed the Fund’s performance versus both the Wilshire U.S. RESI and the Morningstar U.S. Insurance Real Estate category when measured over rolling five-
and ten-year time frames. The Fund outperformed the Wilshire U.S. RESI in 4 out of 19 rolling five-year time periods and outperformed the Morningstar U.S. Insurance Real Estate category in 6 out of 19 rolling five-year time periods, all
periods ended December 31 for each year from 2003 through 2021. The Fund underperformed the Wilshire U.S. RESI in 14 out of 14 rolling ten-year time periods and outperformed the Morningstar U.S. Insurance Real Estate category in 1 out of 14
rolling ten-year time periods, all periods ended December 31 for each year from 2008 through 2021.
The Independent Directors considered Davis Real Estate Portfolio’s management fee and total expense ratio. They observed that both were reasonable and below the average and median of its
expense group, as determined by Broadridge. The Independent Directors also noted that the Adviser has agreed to cap expenses through May 1, 2023.
17
|
DAVIS REAL ESTATE PORTFOLIO
|
Director Approval of Advisory Agreements
|
|
(Unaudited) – (Continued)
|
Approval of Advisory Agreements
The Independent Directors concluded that Davis Advisors had provided Davis Real Estate Portfolio and its shareholders a reasonable level of both investment and non-investment services. The
Independent Directors further concluded that shareholders have received a significant benefit from Davis Advisors’ shareholder-oriented approach, as well as the execution of its investment discipline.
The Independent Directors determined that the advisory fee for Davis Real Estate Portfolio was reasonable in light of the nature, quality, and extent of the services being provided to the
Fund, the costs incurred by Davis Advisors in providing such services, and in comparison to the range of the average advisory fees of its peer group, as determined by an independent service provider. The Independent Directors found that the
terms of the Advisory Agreements are fair and reasonable and that continuation of the Advisory Agreements is in the best interests of the Fund and its shareholders. The Independent Directors and the full Board of Directors therefore voted to
continue the Advisory Agreements.
18
|
DAVIS REAL ESTATE PORTFOLIO
|
Following is a description of the operation and effectiveness of the Liquidity Risk Management Program (“LRMP”) that was adopted by the Board of Directors (the “Board”) in accordance with Rule 22e-4 under the
Investment Company Act of 1940 (the “Liquidity Rule”). The Liquidity Rule is meant to promote effective liquidity risk management practices in order to reduce the likelihood that a fund would be unable to meet its redemption obligations.
The Board has appointed Davis Selected Advisers, L.P. (the “Adviser”) to serve as the Administrator of the LRMP, subject to the supervision of the Board. The Adviser has engaged a third party to perform certain
functions, including the production of liquidity classification model information.
The Adviser monitors the adequacy and effectiveness of the implementation of the LRMP on an ongoing basis. This monitoring includes a review of the Fund’s liquidity risk based on a variety of factors including
the Fund’s (1) investment strategy, (2) portfolio liquidity and cash flow projections during normal and reasonably foreseeable stressed conditions, (3) shareholder redemptions, and (4) borrowing arrangements and other funding sources. The
Liquidity Rule places a 15% limit on a fund’s illiquid investments and requires a fund that does not primarily hold assets that are highly liquid investments to determine and maintain a minimum percentage of the fund’s net assets in highly
liquid investments (highly liquid investment minimum or HLIM). The LRMP includes provisions and safeguards that are reasonably designed to comply with the 15% limit on illiquid investments and the Fund is currently classified as a Fund that
primarily holds highly liquid investments. The LRMP includes the classification, no less than monthly, of the Fund’s investments into one of four liquidity classifications as provided for in the Liquidity Rule.
At a recent meeting of the Fund’s Board of Directors, the Adviser provided a written report to the Board pertaining to the operation, adequacy, and effectiveness of implementation of the LRMP from April 1, 2021
through March 31, 2022. The report concluded that the LRMP is operating effectively and is reasonably designed to assess and manage the Fund’s liquidity risk. There can be no guarantee that the LRMP will achieve its objectives in the future.
Additional information regarding risks of investing in the Fund, including liquidity risks presented by the Fund’s investment portfolio, is found in the Fund’s Prospectus and Statement of Additional Information.
19
|
DAVIS REAL ESTATE PORTFOLIO
|
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. Subject to exceptions and
exemptions which may be granted by the Independent Directors, Directors must retire from the Board of Directors and cease being a Director at the close of business on the last day of the calendar year in which the Director attains age
seventy-eight (78).
|
Name, Date of Birth,
Position(s) Held with
Fund, Length of Service
|
Principal Occupation(s) During Past Five Years
|
Number of
Portfolios
Overseen
|
Other Directorships
|
Independent Directors
|
John S. Gates Jr.
(08/02/53)
Director since 2007
|
Executive Chairman, TradeLane Properties LLC
(industrial real estate company).
|
13
|
Chairman and Chief Executive Officer of PortaeCo
LLC (private investment company); Director, Miami
Corp. (diversified investment company).
|
|
Thomas S. Gayner
(12/16/61)
Director since 2004
Chairman since 2009
|
Co-Chief Executive Officer and Director, Markel Corp.
(diversified financial holding company).
|
13
|
Director, Graham Holdings Company (educational
and media company); Director, Cable ONE Inc. (cable
service provider).
|
|
Samuel H. Iapalucci
(07/19/52)
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 since 2002
|
Principal, Spears Abacus Advisors, LLC (investment
management firm) since 2011; Chairman, NorthRoad
Capital Management, LLC (investment management
firm) 2002-2011.
|
13
|
None
|
|
Lara N. Vaughan
(04/20/69)
Director since 2021
|
Chief Executive Officer and Chief Financial Officer of
Parchman, Vaughan & Company, L.L.C. (investment
bank).
|
13
|
None
|
|
Marsha C. Williams
(03/28/51)
Director since 1999
|
Retired; Senior Vice President and Chief Financial
Officer, Orbitz Worldwide, Inc. (travel-service
provider) 2007-2010.
|
13
|
Chairperson, Modine Manufacturing Company (heat
transfer technology); Director, Fifth Third Bancorp
(diversified financial services); Director, Crown
Holdings, Inc. (manufacturing company).
|
Interested Directors*
|
Andrew A. Davis
(06/25/63)
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 since 1997
|
President or Vice President of each Davis Fund,
Selected Fund, Clipper Fund, and Davis 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; Lead Independent
Director, Graham Holdings Company (educational
and media company); Director, The Coca-Cola
Company (beverage company); Director, Berkshire
Hathaway Inc. (financial services).
|
* 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
Lisa J. Cohen (born 04/25/89, Davis Funds officer since 2021). 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 four portfolios); Vice President, Senior Attorney, and Secretary, Davis Selected
Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
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 four 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 four 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 four 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.
20
|
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 219197
|
|
Kansas City, Missouri 64121-9197
|
|
Custodian
|
|
State Street Bank and Trust Co.
|
|
One Lincoln Street
|
|
Boston, Massachusetts 02111
|
|
Legal Counsel
|
|
Greenberg Traurig, LLP
|
|
1144 15th Street, Suite 3300
|
|
Denver, Colorado 80202
|
|
Independent Registered Public Accounting Firm
|
|
KPMG LLP
|
|
1225 17th 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
Not Applicable
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The registrant’s board of directors has determined that independent director 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
Not Applicable
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not Applicable
ITEM 6. SCHEDULE OF INVESTMENTS
|
(a)
|
Not Applicable. The complete Schedule of Investments is included in Item 1 of this Form N-CSR
|
|
(b)
|
Not Applicable.
|
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not Applicable.
ITEM 9. 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 Directors.
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. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not Applicable.
ITEM 13. EXHIBITS
|
(a)(1)
|
Not Applicable
|
|
(a)(2)
|
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are attached.
|
|
(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: August 12, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
By
|
/s/ Kenneth C. Eich
|
|
|
Kenneth C. Eich
|
|
|
Principal Executive Officer
|
Date: August 12, 2022
|
By
|
/s/ Douglas A. Haines
|
|
|
Douglas A. Haines
|
|
|
Principal Financial Officer and Principal Accounting Officer
|
Date: August 12, 2022