DAVIS VARIABLE ACCOUNT FUND, INC.
Ryan M. Charles
Davis Selected Advisers, L.P.
| DAVIS VALUE PORTFOLIO | Table of Contents |
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This Annual Report is authorized for use by existing shareholders. Prospective shareholders must receive a current Davis Value Portfolio prospectus, which contains more information about investment strategies, risks, charges, and expenses. Please read the prospectus carefully before investing or sending money.
Shares of Davis Value Portfolio are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including possible loss of the principal amount invested.
Portfolio Proxy Voting Policies and Procedures
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under which the Fund votes proxies relating to securities held by the Fund. A description of the Fund's Portfolio Proxy Voting Policies and Procedures is available (i) without charge, upon request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.
In addition, the Fund is required to file Form N-PX, with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. The Fund's Form N-PX filing is available (i) without charge, upon request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.
Form N-Q
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q is available without charge, upon request, by calling 1-800-279-0279, on the Fund's website at www.davisfunds.com, and on the SEC's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
| DAVIS VALUE PORTFOLIO | Management's Discussion of Fund Performance |
Performance Overview
Davis Value Portfolio outperformed the Standard & Poor's 500® Index (S&P 500®) for the twelve-month period ended December 31, 2015. The Fund delivered a total return of 1.60%, versus a 1.38% return for the S&P 500®. The sectors1 within the S&P 500® that reported the strongest performance were Consumer Discretionary (up 10%), Health Care (up 7%), and Consumer Staples (up 7%). The sectors within the S&P 500® that reported the weakest performance were Energy (down 21%), Materials (down 8%), and Utilities (down 5%).
Contributors to Performance
The Fund's holdings in the Consumer Discretionary sector made significant contributions to performance2. The Fund's Consumer Discretionary holdings were up about 23%, compared to up 10% for the S&P 500® sector. The Fund also benefited from a higher average weighting (18%, compared to 13% for the S&P 500® sector) in the strongest performing sector. Amazon3 (up 118%) was the Fund's overall top contributor and its largest holding.
Returns from holdings in the Information Technology sector also helped performance. The Fund's Information Technology holdings were up about 26%, compared to up 5% for the S&P 500® sector. Alphabet Inc. (up 46%), a holding company for Google, Inc., was the second-largest holding in the Fund and a strong performer. Qihoo 360 Technology (up 27%), a provider of Internet and mobile security products and services in China also contributed.
Additional contributors included UnitedHealth Group (up 18%) from the Health Care sector; Costco (up 19%) and Heineken Holding (up 25%) from the Consumer Staples sector; and Julius Baer Group (up 24%), JPMorgan Chase (up 8%), and Visa (up 19%) from the Financial sector. The Fund no longer holds Julius Baer Group.
Detractors from Performance
The Fund's holdings in the Energy sector were the most significant detractor from performance. The Fund's Energy holdings were down about 44%, compared to down 21% for the S&P 500® sector. Leading detractors were Encana (down 62%), Cabot Oil & Gas (down 47%), and Ultra Petroleum (down 81%).
The Fund suffered from its heavily weighted position (34%, compared to 17% for the S&P 500® sector) in the weak performing Financial sector. American Express (down 24%) was the Fund's overall top detractor and fourth-largest holding. Standard Chartered (down 48%) and Berkshire Hathaway (down 12%) also lagged.
Several Consumer Discretionary holdings hindered performance despite the sector, as a whole, producing positive returns for the Fund. Las Vegas Sands (down 21%) and CarMax (down 19%) detracted from results.
The Fund had approximately 12% of its net assets invested in foreign securities. As a whole, the Fund's foreign holdings underperformed its domestic holdings (down 17%, versus up 5%).
Davis Value Portfolio's investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. Davis Value Portfolio's principal risks are: stock market risk, manager risk, common stock risk, large-capitalization companies risk, mid- and small-capitalization companies risk, headline risk, financial services risk, foreign country risk, emerging market risk, foreign currency risk, depositary receipts risk, and fees and expenses risk. See the prospectus for a full description of each risk.
Past performance does not guarantee future results, fund prices fluctuate, and the value of an investment may be worth more or less than the purchase price. Data provided in this performance overview is for the period ended December 31, 2015, unless otherwise noted. Return figures for underlying fund positions reflect the return of the security from the beginning of the year or the date of first purchase if subsequent thereto through the end of the year or the date the position is completely liquidated. The actual contribution to the Fund will vary based on a number of factors (e.g. trading activity, weighting).
1 The companies included in the Standard & Poor's 500® Index are divided into ten sectors. One or more industry groups make up a sector.
2 A company's or sector's contribution to or detraction from the Fund's performance is a product both of its appreciation or depreciation and its weighting within the Fund. For example, a 5% holding that rises 20% has twice as much impact as a 1% holding that rises 50%.
3 This Management Discussion of Fund Performance discusses a number of individual companies. The information provided in this report does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase, sell, or hold any particular security. The Schedule of Investments lists the Fund's holdings of each company discussed.
| DAVIS VALUE PORTFOLIO | Management's Discussion of Fund Performance – (Continued) |
Comparison of a $10,000 investment in Davis Value Portfolio versus the Standard & Poor's 500® Index
over 10 years for an investment made on December 31, 2005
Average Annual Total Return for periods ended December 31, 2015
| Fund & Benchmark Index | 1-Year | 5-Year | 10-Year | Since Fund's Inception (07/01/99) | Gross Expense Ratio | Net Expense Ratio |
| Davis Value Portfolio | 1.60% | 9.27% | 5.16% | 4.96% | 0.62% | 0.62% |
Standard & Poor's 500® Index | 1.38% | 12.57% | 7.31% | 4.37% | | |
The Standard & Poor's 500® Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalizations, and represents approximately two-thirds of the total market value of all domestic common stocks. Investments cannot be made directly in the Index.
The performance data for Davis Value Portfolio contained in this report represents past performance, assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Fund performance changes over time and current performance may be higher or lower than stated. The operating expense ratio may vary in future years. For more current information please call Davis Funds Investor Services at 1-800-279-0279.
Fund performance numbers are net of all Fund operating expenses, but do not include any insurance charges imposed by your insurance company's separate account. If performance included the effect of these additional charges, the return would be lower.
| DAVIS VALUE PORTFOLIO | |
| | December 31, 2015 |
| Portfolio Composition | | Industry Weightings |
| (% of Fund's 12/31/15 Net Assets) | | (% of 12/31/15 Stock Holdings) |
| | | | | | |
| | | | | Fund | | S&P 500® |
| Common Stock (U.S.) | 86.80% | | Diversified Financials | 17.19% | | 4.97% |
| Common Stock (Foreign) | 11.51% | | Information Technology | 14.54% | | 20.69% |
| Preferred Stock (Foreign) | 0.79% | | Retailing | 12.65% | | 5.52% |
| Short-Term Investments | 1.34% | | Banks | 12.14% | | 6.04% |
| Other Assets & Liabilities | (0.44)% | | Materials | 8.03% | | 2.76% |
| | 100.00% | | Health Care | 7.90% | | 15.15% |
| | | | Energy | 6.89% | | 6.50% |
| | | | Capital Goods | 4.33% | | 7.25% |
| | | | Food, Beverage & Tobacco | 3.02% | | 5.64% |
| | | | Insurance | 2.93% | | 2.71% |
| | | | Media | 2.74% | | 3.03% |
| | | | Food & Staples Retailing | 2.35% | | 2.36% |
| | | | Other | 2.01% | | 14.48% |
| | | | Consumer Services | 1.77% | | 1.90% |
| | | | Automobiles & Components | 1.51% | | 1.00% |
| | | | | 100.00% | | 100.00% |
| Top 10 Long-Term Holdings |
| (% of Fund's 12/31/15 Net Assets) |
| | | |
| Amazon.com, Inc. | Retailing | 7.79% |
| Alphabet Inc.* | Software & Services | 6.89% |
| Wells Fargo & Co. | Banks | 6.05% |
| American Express Co. | Consumer Finance | 4.67% |
| JPMorgan Chase & Co. | Banks | 4.10% |
| Berkshire Hathaway Inc., Class A | Diversified Financial Services | 3.50% |
| Bank of New York Mellon Corp. | Capital Markets | 3.48% |
| United Technologies Corp. | Capital Goods | 3.20% |
| Monsanto Co. | Materials | 3.12% |
| Texas Instruments Inc. | Semiconductors & Semiconductor Equipment | 2.77% |
| | | |
| | | |
| *Alphabet Inc. holding includes Class A and Class C | | |
| DAVIS VALUE PORTFOLIO | Fund Overview – (Continued) |
| | December 31, 2015 |
| New Positions Added (01/01/15-12/31/15) |
| (Highlighted positions are those greater than 2.00% of the Fund's 12/31/15 net assets) |
| Security | Industry | Date of 1st Purchase | % of Fund's 12/31/15 Net Assets |
| Advance Auto Parts, Inc. | Retailing | 05/15/15 | 0.56% |
| Apache Corp. | Energy | 10/13/15 | 2.66% |
| Cabot Oil & Gas Corp. | Energy | 04/28/15 | 1.18% |
| Capital One Financial Corp. | Consumer Finance | 07/24/15 | 1.01% |
| Didi Kuaidi Joint Co., Series A-17, Pfd. | Software & Services | 07/27/15 | 0.79% |
| Facebook Inc., Class A | Software & Services | 11/16/15 | 1.05% |
| Johnson Controls, Inc. | Automobiles & Components | 09/11/15 | 1.50% |
| Monsanto Co. | Materials | 08/26/15 | 3.12% |
| Occidental Petroleum Corp. | Energy | 07/24/15 | 1.56% |
| Precision Castparts Corp. | Capital Goods | 04/01/15 | – |
| Standard Chartered PLC | Banks | 06/11/15 | 0.71% |
| United Technologies Corp. | Capital Goods | 07/22/15 | 3.20% |
| Positions Closed (01/01/15-12/31/15) |
| (Gains and losses greater than $1,000,000 are highlighted) |
| Security | Industry | Date of Final Sale | | | Realized Gain (Loss) |
| Agilent Technologies, Inc. | Pharmaceuticals, Biotechnology & | | | | |
| | Life Sciences | 05/01/15 | | $ | 934,247 |
| Brookfield Asset Management Inc., Class A | Capital Markets | 05/06/15 | | | 2,386,710 |
| Experian PLC | Commercial & Professional Services | 06/08/15 | | | 39,631 |
| Fairfax Financial Holdings Ltd., 144A | Multi-line Insurance | 01/15/15 | | | 188,935 |
| Halliburton Co. | Energy | 04/06/15 | | | 535,041 |
| Hang Lung Group Ltd. | Real Estate | 03/09/15 | | | 146,285 |
| Julius Baer Group Ltd. | Capital Markets | 06/03/15 | | | 5,298,437 |
| Keysight Technologies, Inc. | Technology Hardware & Equipment | 05/08/15 | | | 382,875 |
| Netflix Inc. | Retailing | 03/19/15 | | | 1,815,316 |
| Precision Castparts Corp. | Capital Goods | 08/13/15 | | | 431,120 |
| Sysco Corp. | Food & Staples Retailing | 03/24/15 | | | 305,944 |
| Textron Inc. | Capital Goods | 02/10/15 | | | 830,974 |
As a shareholder of the Fund, you incur ongoing costs only, including advisory and administrative fees and other Fund expenses. The Expense Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Expense Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for the Fund is for the six-month period ended December 31, 2015. Please note that the Expense Example is general and does not reflect charges imposed by your insurance company's separate account or account specific costs, which may increase your total costs of investing in the Fund. If these charges or account specific costs were included in the Expense Example, the expenses would have been higher.
Actual Expenses
The information represented in the row entitled "Actual" provides information about actual account values and actual expenses. You may use the information in this row, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The information represented in the row entitled "Hypothetical" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the information in the row entitled "Hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| | Beginning Account Value (07/01/15) | | Ending Account Value (12/31/15) | | Expenses Paid During Period* (07/01/15-12/31/15) |
| | | | | | |
| Actual | $1,000.00 | | $988.88 | | $3.11 |
| Hypothetical | $1,000.00 | | $1,022.08 | | $3.16 |
Hypothetical assumes 5% annual return before expenses.
* Expenses are equal to the Fund's annualized operating expense ratio (0.62%)**, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
** The expense ratio reflects the impact, if any, of certain reimbursements from the Adviser.
| DAVIS VALUE PORTFOLIO | |
| | December 31, 2015 |
| | Shares | | Value
(Note 1) |
| COMMON STOCK – (98.31%) |
| | CONSUMER DISCRETIONARY – (19.69%) |
| | | Automobiles & Components – (1.50%) |
| | | | Johnson Controls, Inc. | | | 122,220 | | $ | 4,826,468 |
| | Consumer Durables & Apparel – (1.18%) |
| | Compagnie Financiere Richemont S.A., Unit A (Switzerland) | | | 43,800 | | | 3,152,935 |
| | Hunter Douglas N.V. (Netherlands) | | | 16,499 | | | 648,987 |
| | | | 3,801,922 |
| | Consumer Services – (1.75%) |
| | Las Vegas Sands Corp. | | | 128,420 | | | 5,629,933 |
| | Media – (2.72%) |
| | Liberty Global PLC, LiLAC Class C * | | | 10,909 | | | 469,087 |
| | Liberty Global PLC, Series C * | | | 203,020 | | | 8,277,125 |
| | | | 8,746,212 |
| | Retailing – (12.54%) |
| | Advance Auto Parts, Inc. | | | 11,900 | | | 1,791,069 |
| | Amazon.com, Inc. * | | | 37,066 | | | 25,052,539 |
| | CarMax, Inc. * | | | 100,660 | | | 5,432,620 |
| | Liberty Interactive Corp., Liberty Ventures, Series A * | | | 24,083 | | | 1,086,384 |
| | Liberty Interactive Corp., QVC Group, Series A * | | | 60,624 | | | 1,656,247 |
| | Liberty TripAdvisor Holdings Inc., Series A * | | | 12,958 | | | 393,146 |
| | Priceline Group Inc. * | | | 3,860 | | | 4,921,307 |
| | | | 40,333,312 |
| | | | Total Consumer Discretionary | | | 63,337,847 |
| | CONSUMER STAPLES – (5.32%) |
| | Food & Staples Retailing – (2.33%) |
| | Costco Wholesale Corp. | | | 46,440 | | | 7,500,060 |
| | Food, Beverage & Tobacco – (2.99%) |
| | Diageo PLC, ADR (United Kingdom) | | | 56,153 | | | 6,124,608 |
| | Heineken Holding N.V. (Netherlands) | | | 45,221 | | | 3,489,218 |
| | | | 9,613,826 |
| | Total Consumer Staples | | | 17,113,886 |
| | ENERGY – (6.83%) |
| | Apache Corp. | | | 192,180 | | | 8,546,245 |
| | Cabot Oil & Gas Corp. | | | 213,770 | | | 3,781,591 |
| | Encana Corp. (Canada) | | | 622,480 | | | 3,168,423 |
| | EOG Resources, Inc. | | | 13,350 | | | 945,046 |
| | Occidental Petroleum Corp. | | | 74,260 | | | 5,020,719 |
| | Ultra Petroleum Corp. * | | | 200,550 | | | 501,375 |
| | Total Energy | | | 21,963,399 |
| | FINANCIALS – (31.97%) |
| | Banks – (12.03%) |
| | Citizens Financial Group Inc. | | | 143,510 | | | 3,758,527 |
| | JPMorgan Chase & Co. | | | 200,008 | | | 13,206,528 |
| | Standard Chartered PLC (United Kingdom) | | | 275,058 | | | 2,285,750 |
| | Wells Fargo & Co. | | | 358,034 | | | 19,462,728 |
| | | | 38,713,533 |
| | Diversified Financials – (17.04%) |
| | Capital Markets – (5.39%) |
| | Bank of New York Mellon Corp. | | | 271,330 | | | 11,184,223 |
| DAVIS VALUE PORTFOLIO | Schedule of Investments - (Continued) |
| | December 31, 2015 |
| | Shares | | Value
(Note 1) |
| COMMON STOCK – (CONTINUED) |
| | FINANCIALS – (CONTINUED) |
| | | Diversified Financials – (Continued) |
| | | Capital Markets – (Continued) |
| | | Charles Schwab Corp. | | | 187,380 | | $ | 6,170,423 |
| | | 17,354,646 |
| | Consumer Finance – (5.68%) |
| | American Express Co. | | | 216,099 | | | 15,029,686 |
| | Capital One Financial Corp. | | | 44,840 | | | 3,236,551 |
| | | 18,266,237 |
| | Diversified Financial Services – (5.97%) |
| | Berkshire Hathaway Inc., Class A * | | | 57 | | | 11,274,600 |
| | Moody's Corp. | | | 24,730 | | | 2,481,408 |
| | Visa Inc., Class A | | | 70,060 | | | 5,433,153 |
| | | 19,189,161 |
| | | | 54,810,044 |
| | Insurance – (2.90%) |
| | Multi-line Insurance – (1.38%) |
| | Fairfax Financial Holdings Ltd. (Canada) | | | 650 | | | 306,150 |
| | Loews Corp. | | | 108,160 | | | 4,153,344 |
| | | 4,459,494 |
| | Property & Casualty Insurance – (1.52%) |
| | ACE Ltd. | | | 32,010 | | | 3,740,368 |
| | Markel Corp. * | | | 1,290 | | | 1,139,522 |
| | | 4,879,890 |
| | | | 9,339,384 |
| | | | Total Financials | | | 102,862,961 |
| | HEALTH CARE – (7.83%) |
| | Health Care Equipment & Services – (6.20%) |
| | Express Scripts Holding Co. * | | | 81,450 | | | 7,119,545 |
| | Laboratory Corp. of America Holdings * | | | 26,920 | | | 3,328,389 |
| | Quest Diagnostics Inc. | | | 52,620 | | | 3,743,387 |
| | UnitedHealth Group Inc. | | | 48,860 | | | 5,747,890 |
| | | | 19,939,211 |
| | Pharmaceuticals, Biotechnology & Life Sciences – (1.63%) |
| | Valeant Pharmaceuticals International, Inc. (Canada)* | | | 51,800 | | | 5,265,470 |
| | Total Health Care | | | 25,204,681 |
| | INDUSTRIALS – (5.11%) |
| | Capital Goods – (4.29%) |
| | Orascom Construction Ltd. (United Arab Emirates)* | | | 14,625 | | | 102,375 |
| | PACCAR Inc. | | | 44,990 | | | 2,132,526 |
| | Schneider Electric SE (France) | | | 22,180 | | | 1,266,912 |
| | United Technologies Corp. | | | 107,270 | | | 10,305,429 |
| | | | 13,807,242 |
| | Transportation – (0.82%) |
| | Kuehne + Nagel International AG (Switzerland) | | | 16,839 | | | 2,316,708 |
| | Wesco Aircraft Holdings, Inc. * | | | 25,330 | | | 303,200 |
| | | | 2,619,908 |
| | Total Industrials | | | 16,427,150 |
| DAVIS VALUE PORTFOLIO | Schedule of Investments - (Continued) |
| | December 31, 2015 |
| | Shares/Principal | | Value
(Note 1) |
| COMMON STOCK – (CONTINUED) |
| | INFORMATION TECHNOLOGY – (13.61%) |
| | | Semiconductors & Semiconductor Equipment – (2.77%) |
| | | Texas Instruments Inc. | | | 162,520 | | $ | 8,907,721 |
| | Software & Services – (10.84%) |
| | Alphabet Inc., Class A * | | | 11,530 | | | 8,970,455 |
| | Alphabet Inc., Class C * | | | 17,383 | | | 13,191,611 |
| | Facebook Inc., Class A * | | | 32,270 | | | 3,377,378 |
| | Microsoft Corp. | | | 64,730 | | | 3,591,220 |
| | Oracle Corp. | | | 76,900 | | | 2,809,157 |
| | Qihoo 360 Technology Co. Ltd., Class A, ADR (China)* | | | 21,170 | | | 1,541,388 |
| | SouFun Holdings Ltd., Class A, ADR (China) | | | 191,140 | | | 1,412,525 |
| | | | 34,893,734 |
| | | | Total Information Technology | | | 43,801,455 |
| | MATERIALS – (7.95%) |
| | Ecolab Inc. | | | 36,890 | | | 4,219,478 |
| | LafargeHolcim Ltd. (Switzerland)* | | | 102,716 | | | 5,215,194 |
| | Monsanto Co. | | | 101,750 | | | 10,024,410 |
| | OCI N.V. (Netherlands)* | | | 29,250 | | | 724,754 |
| | Praxair, Inc. | | | 52,840 | | | 5,410,816 |
| | Total Materials | | | 25,594,652 |
| | | | TOTAL COMMON STOCK – (Identified cost $217,546,880) | | | 316,306,031 |
| PREFERRED STOCK – (0.79%) |
| | INFORMATION TECHNOLOGY – (0.79%) |
| | Software & Services – (0.79%) |
| | Didi Kuaidi Joint Co., Series A-17 (China)*(a) | | | 90,931 | | | 2,548,659 |
| | TOTAL PREFERRED STOCK – (Identified cost $2,518,831) | | | 2,548,659 |
| SHORT-TERM INVESTMENTS – (1.34%) |
| | Mizuho Securities USA Inc. Joint Repurchase Agreement, 0.27%, 01/04/16, dated 12/31/15, repurchase value of $1,169,035 (collateralized by: U.S. Government agency mortgages in a pooled cash account, 3.59%-6.50%, 06/01/22-12/01/45, total market value $1,192,380) | | $ | 1,169,000 | | | 1,169,000 |
| | Nomura Securities International, Inc. Joint Repurchase Agreement, 0.34%, 01/04/16, dated 12/31/15, repurchase value of $2,444,092 (collateralized by: U.S. Government agency mortgages in a pooled cash account, 2.50%-9.50%, 07/01/17-10/20/65, total market value $2,492,880) | | | 2,444,000 | | | 2,444,000 |
| | SunTrust Robinson Humphrey, Inc. Joint Repurchase Agreement, 0.45%, 01/04/16, dated 12/31/15, repurchase value of $698,035 (collateralized by: U.S. Government agency mortgages in a pooled cash account, 2.373%-2.88%, 02/01/21-10/01/44, total market value $711,960) | | | 698,000 | | | 698,000 |
| | TOTAL SHORT-TERM INVESTMENTS – (Identified cost $4,311,000) | | | 4,311,000 |
| | Total Investments – (100.44%) – (Identified cost $224,376,711) – (b) | | | 323,165,690 |
| | Liabilities Less Other Assets – (0.44%) | | | (1,419,373) |
| | Net Assets – (100.00%) | | $ | 321,746,317 |
| |
| | ADR: American Depositary Receipt |
| DAVIS VALUE PORTFOLIO | Schedule of Investments - (Continued) |
| | December 31, 2015 |
| | * | Non-Income producing security. |
| |
| | (a) | Restricted Security – See Note 7 of the Notes to Financial Statements. |
| |
| | (b) | Aggregate cost for federal income tax purposes is $225,783,563. At December 31, 2015 unrealized appreciation (depreciation) of securities for federal income tax purposes is as follows: |
| |
| | Unrealized appreciation | | $ | 124,866,621 |
| | Unrealized depreciation | | | (27,484,494) |
| | Net unrealized appreciation | | $ | 97,382,127 |
| |
| See Notes to Financial Statements |
| DAVIS VALUE PORTFOLIO | Statement of Assets and Liabilities |
| | At December 31, 2015 |
| ASSETS: | | | | | |
| Investments in securities at value* (see accompanying Schedule of Investments) | | $ | 323,165,690 |
| Receivables: | | | |
| | Capital stock sold | | | 10,391 |
| | Dividends and interest | | | 291,196 |
| Prepaid expenses | | | 8,826 |
| | | Total assets | | | 323,476,103 |
LIABILITIES: | | | |
| Cash overdraft | | | 31,236 |
| Payables: | | | |
| | Capital stock redeemed | | | 255,633 |
| | Investment securities purchased | | | 1,240,476 |
| Accrued investment advisory fee | | | 155,940 |
| Other accrued expenses | | | 46,501 |
| | Total liabilities | | | 1,729,786 |
NET ASSETS | | $ | 321,746,317 |
SHARES OUTSTANDING | | | 33,455,076 |
NET ASSET VALUE, offering, and redemption price per share (Net assets ÷ Shares outstanding) | | $ | 9.62 |
NET ASSETS CONSIST OF: | | | |
| Par value of shares of capital stock | | $ | 33,455 |
| Additional paid-in capital | | | 219,226,279 |
| Undistributed net investment income | | | 295,710 |
| Accumulated net realized gains from investments | | | 3,412,329 |
| Net unrealized appreciation on investments and foreign currency transactions | | | 98,778,544 |
| | Net Assets | | $ | 321,746,317 |
| | | | | |
| *Including: | | | |
| | Cost of Investments | | $ | 224,376,711 |
| See Notes to Financial Statements |
| DAVIS VALUE PORTFOLIO | |
| | For the year ended December 31, 2015 |
| INVESTMENT INCOME: | | | | | | |
| Income: | | | |
| Dividends* | | $ | 5,134,157 |
| Interest | | | 12,433 |
| Net securities lending fees | | | 15,110 |
| | | Total income | | | | 5,161,700 |
Expenses: | | | |
| Investment advisory fees (Note 3) | | $ | 1,913,397 | | | |
| Custodian fees | | | 73,791 | | | |
| Transfer agent fees | | | 17,851 | | | |
| Audit fees | | | 21,840 | | | |
| Legal fees | | | 8,042 | | | |
| Accounting fees (Note 3) | | | 8,496 | | | |
| Reports to shareholders | | | 23,028 | | | |
| Directors' fees and expenses | | | 79,161 | | | |
| Registration and filing fees | | | 222 | | | |
| Miscellaneous | | | 21,266 | | | |
| | Total expenses | | | | 2,167,094 |
| Net investment income | | | 2,994,606 |
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: | | | | | | |
| Net realized gain from: | | | |
| | Investment transactions | | | 47,581,823 |
| | Foreign currency transactions | | | 4,073 |
| Net realized gain | | | 47,585,896 |
| Net decrease in unrealized appreciation | | | (44,512,888) |
| | Net realized and unrealized gain on investments and foreign currency transactions | | | | 3,073,008 |
| Net increase in net assets resulting from operations | | $ | 6,067,614 |
| | | | | | | | | |
| *Net of foreign taxes withheld as follows | | $ | 127,443 |
| See Notes to Financial Statements |
| DAVIS VALUE PORTFOLIO | Statements of Changes in Net Assets |
| | | Year ended December 31, |
| | | 2015 | | 2014 |
OPERATIONS: | | | | | | |
| Net investment income | | $ | 2,994,606 | | $ | 3,094,645 |
| Net realized gain from investments and foreign currency transactions | | | 47,585,896 | | | 75,593,880 |
Net decrease in unrealized appreciation on investments and foreign currency transactions | | | (44,512,888) | | | (56,348,187) |
| | Net increase in net assets resulting from operations | | | 6,067,614 | | | 22,340,338 |
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | | | |
| Net investment income | | | (2,634,719) | | | (3,407,176) |
Realized gains from investment transactions | | | (50,844,472) | | | (73,745,408) |
CAPITAL SHARE TRANSACTIONS: | | | | | | |
| Net increase in net assets resulting from capital share transactions (Note 4) | | | 4,032,524 | | | 23,686,496 |
| | Total decrease in net assets | | | (43,379,053) | | | (31,125,750) |
NET ASSETS: | | | | | | |
| Beginning of year | | | 365,125,370 | | | 396,251,120 |
End of year* | | $ | 321,746,317 | | $ | 365,125,370 |
| | | | | | | | |
| *Including undistributed (overdistributed) net investment income of | | $ | 295,710 | | $ | (69,415) |
| | | | | | | | |
| See Notes to Financial Statements |
| DAVIS VALUE PORTFOLIO | Notes to Financial Statements |
| | December 31, 2015 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a separate series of Davis Variable Account Fund, Inc. (a Maryland corporation), which is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. Only insurance companies, for the purpose of funding variable annuity or variable life insurance contracts, may purchase shares of the Fund. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
Security Valuation - The Fund calculates the net asset value of its shares as of the close of the New York Stock Exchange ("Exchange"), normally 4:00 P.M. Eastern time, on each day the Exchange is open for business. Securities listed on the Exchange (and other national exchanges including NASDAQ) are valued at the last reported sales price on the day of valuation. Listed securities for which no sale was reported on that date are valued at the average of closing bid and asked prices. Securities traded on foreign exchanges are valued based upon the last sales price on the principal exchange on which the security is traded prior to the time when the Fund's assets are valued. Securities (including restricted securities) for which market quotations are not readily available or securities whose values have been materially affected by what Davis Selected Advisers, L.P. ("Davis Advisors" or "Adviser"), the Fund's investment adviser, identifies as a significant event occurring before the Fund's assets are valued, but after the close of their respective exchanges will be fair valued using a fair valuation methodology applicable to the security type or the significant event as previously approved by the Fund's Pricing Committee and Board of Directors. The Pricing Committee considers all facts it deems relevant that are reasonably available, through either public information or information available to the Adviser's portfolio management team, when determining the fair value of a security. To assess the appropriateness of security valuations, the Adviser may consider (i) comparing prior day prices and/or prices of comparable securities; (ii) comparing sale prices to the prior or current day prices and challenge those prices exceeding certain tolerance levels with the third-party pricing service or broker source; (iii) new rounds of financing; (iv) the performance of the market or the issuer's industry; (v) the liquidity of the security; (vi) the size of the holding in a fund; and/or (vii) any other appropriate information. The determination of a security's fair value price often involves the consideration of a number of subjective factors and is therefore subject to the unavoidable risk that the value assigned to a security may be higher or lower than the security's value would be if a reliable market quotation of the security was readily available. Fair value determinations are subject to review, approval, and ratification by the Fund's Board of Directors at its next regularly scheduled meeting covering the period in which the fair valuation was determined. Fair valuation methods used by the Fund may include, but are not limited to, valuing securities initially at cost (excluding commissions) and subsequently adjusting the value due to: additional transactions by the issuer, changes in company specific fundamentals and changes in the value of similar securities. Values may be further adjusted for any discounts related to security-specific resale restrictions.
Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value.
The Fund's valuation procedures are reviewed and subject to approval by the Board of Directors. There have been no significant changes to the fair valuation procedures during the period.
Fair Value Measurements - Fair value is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal market for the investment. Various inputs are used to determine the fair value of the Fund's investments. These inputs are summarized in the three broad levels listed below.
Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment
speeds, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Fund's own assumptions in determining the fair value of
investments)
The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities nor can it be assured that the Fund can obtain the fair value assigned to a security if it were to sell the security.
| DAVIS VALUE PORTFOLIO | Notes to Financial Statements – (Continued) |
| | December 31, 2015 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)
Fair Value Measurements - (Continued)
The following is a summary of the inputs used as of December 31, 2015 in valuing the Fund's investments carried at value:
| | Investments in Securities at Value |
| | Valuation Inputs |
| | | | Level 2: | | Level 3: | | |
| | | | Other Significant | | Significant | | |
| | Level 1: | | Observable | | Unobservable | | |
| | Quoted Prices | | Inputs | | Inputs | | Total |
Equity securities: | | | | | | | | | | | |
| Consumer Discretionary | $ | 63,337,847 | | $ | – | | $ | – | | $ | 63,337,847 |
| Consumer Staples | | 17,113,886 | | | – | | | – | | | 17,113,886 |
| Energy | | 21,963,399 | | | – | | | – | | | 21,963,399 |
| Financials | | 102,862,961 | | | – | | | – | | | 102,862,961 |
| Health Care | | 25,204,681 | | | – | | | – | | | 25,204,681 |
| Industrials | | 16,427,150 | | | – | | | – | | | 16,427,150 |
| Information Technology | | 43,801,455 | | | – | | | 2,548,659 | | | 46,350,114 |
| Materials | | 25,594,652 | | | – | | | – | | | 25,594,652 |
| Short-term securities | | – | | | 4,311,000 | | | – | | | 4,311,000 |
| Total Investments | $ | 316,306,031 | | $ | 4,311,000 | | $ | 2,548,659 | | $ | 323,165,690 |
| | | | | | | | | | | | |
Level 2 to Level 1 Transfers*: | | | | | | | | | | | |
| Consumer Discretionary | $ | 3,801,922 | | | | | | | | | |
| Consumer Staples | | 3,489,218 | | | | | | | | | |
| Industrials | | 3,583,620 | | | | | | | | | |
| Materials | | 724,754 | | | | | | | | | |
| Total | $ | 11,599,514 | | | | | | | | | |
*Application of fair value procedures for securities traded on foreign exchanges triggered the transfers of investments between Level 1 and Level 2 of the fair value hierarchy during the year ended December 31, 2015.
The following table reconciles the valuation of assets in which significant unobservable inputs (Level 3) were used in determining fair value during the year ended December 31, 2015:
| Investment Securities: | | | |
| Beginning balance | | $ | – |
| Cost of purchases | | | 2,518,831 |
| Increase in unrealized appreciation | | | 29,828 |
| Ending balance | | $ | 2,548,659 |
| | | | |
Increase in unrealized appreciation during the period on Level 3 securities still held at December 31, 2015 and included in the change in net assets for the year | | $ | 29,828 |
There were no transfers of investments into or out of Level 3 of the fair value hierarchy during the period. The cost of purchases may include securities received through corporate actions or exchanges. Realized and unrealized gains (losses) are included in the related amounts on investments in the Statement of Operations.
The following table is a summary of those assets in which significant unobservable inputs (Level 3), if any, were used by the Adviser in determining fair value. Note that these amounts exclude any valuations provided by a pricing service or broker.
| Assets Table |
| | | Fair Value at | | Valuation | | Unobservable | | |
| Investments at Value | | December 31, 2015 | | Technique | | Input | | Amount |
| Equity securities | | $ | 2,548,659 | | Market Approach | | Transaction Price | | $ | 28.0285 |
The significant unobservable input in the table above is attributable to a private security and includes assumptions made from a private transaction, and if changed, would affect the fair value of the Fund's investment. An increase in this input would result in a higher fair value measurement.
| DAVIS VALUE PORTFOLIO | Notes to Financial Statements – (Continued) |
| | December 31, 2015 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)
Master Repurchase Agreements - The Fund, along with other affiliated funds, may transfer uninvested cash balances into one or more master repurchase agreement accounts. These balances are invested in one or more repurchase agreements, secured by U.S. Government securities. A custodian bank holds securities pledged as collateral for repurchase agreements until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal; however, in the event of default by the other party to the agreement, retention of the collateral may be subject to legal proceedings.
Currency Translation - The market values of all assets and liabilities denominated in foreign currencies are recorded in the financial statements after translation to the U.S. Dollar based upon the mean between the bid and offered quotations of the currencies against U.S. Dollars on the date of valuation. The cost basis of such assets and liabilities is determined based upon historical exchange rates. Income and expenses are translated at average exchange rates in effect as accrued or incurred.
Foreign Currency - The Fund may enter into forward purchases or sales of foreign currencies to hedge certain foreign currency denominated assets and liabilities against declines in market value relative to the U.S. Dollar. Forward currency contracts are marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the forward currency contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the forward currency contract at the time it was opened and value at the time it was closed. Investments in forward currency contracts may expose the Fund to risks resulting from unanticipated movements in foreign currency exchange rates or failure of the counter-party to the agreement to perform in accordance with the terms of the contract.
Reported net realized foreign exchange gains or losses arise from the sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on security transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. Dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate. The Fund includes foreign currency gains and losses realized on the sales of investments together with market gains and losses on such investments in the Statement of Operations.
Federal Income Taxes - It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute substantially all of its taxable income, including any net realized gains on investments not offset by loss carryovers, to shareholders. Therefore, no provision for federal income or excise tax is required. The Adviser has analyzed the Fund's tax positions taken on federal and state income tax returns for all open tax years and has concluded that as of December 31, 2015, no provision for income tax is required in the Fund's financial statements related to these tax positions. The Fund's federal and state (Arizona) income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state department of revenue. The earliest tax year that remains subject to examination by these jurisdictions is 2012.
Securities Transactions and Related Investment Income - Securities transactions are accounted for on the trade date (date the order to buy or sell is executed) with realized gain or loss on the sale of securities being determined based upon identified cost. Dividend income is recorded on the ex-dividend date. Interest income, which includes accretion of discount and amortization of premium, is accrued as earned.
Dividends and Distributions to Shareholders - Dividends and distributions to shareholders are recorded on the ex-dividend date. Net investment income (loss), net realized gains (losses), and net unrealized appreciation (depreciation) on investments may differ for financial statement and tax purposes primarily due to differing treatments of wash sales, Directors' deferred compensation payments, and foreign currency transactions. The character of dividends and distributions made during the fiscal year from net investment income and net realized securities gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividends and distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which income or realized gain was recorded by the Fund. The Fund adjusts certain components of capital to reflect permanent differences between financial statement amounts and net income and realized gains/losses determined in accordance with income tax rules. Accordingly, during the year ended December 31, 2015, amounts have been reclassified to reflect an increase in undistributed net investment income of $5,238 and a corresponding decrease in accumulated net realized gains from investments and foreign currency transactions. The Fund's net assets have not been affected by this reclassification.
| DAVIS VALUE PORTFOLIO | Notes to Financial Statements – (Continued) |
| | December 31, 2015 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)
Dividends and Distributions to Shareholders - (Continued)
The tax character of distributions paid during the years ended December 31, 2015 and 2014 was as follows:
| | 2015 | | 2014 |
| Ordinary income | $ | 2,751,671 | | $ | 3,407,176 |
| Long-term capital gain | | 50,727,520 | | | 73,745,408 |
| Total | $ | 53,479,191 | | $ | 77,152,584 |
As of December 31, 2015, the components of distributable earnings on a tax basis were as follows:
| Undistributed net investment income | $ | 383,292 |
| Undistributed long-term capital gain | | 4,819,169 |
| Net unrealized appreciation on investments | | 97,371,692 |
| Total | $ | 102,574,153 |
Indemnification - Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, some of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims.
Use of Estimates in Financial Statements - In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.
Directors Fees and Expenses - The Fund set up a Rabbi Trust to provide for the deferred compensation plan for Independent Directors that enables them to elect to defer receipt of all or a portion of annual fees they are entitled to receive. The value of an eligible Director's account is based upon years of service and fees paid to each Director during the years of service. The amount paid to the Director by the Trust under the plan will be determined based upon the performance of the Davis Funds in which the amounts are invested.
NOTE 2 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of investment securities (excluding short-term securities) during the year ended December 31, 2015 were $90,585,589 and $125,080,306, respectively.
NOTE 3 - FEES AND OTHER TRANSACTIONS WITH SERVICE PROVIDERS (INCLUDING AFFILIATES)
Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of the Adviser, acts as sub-adviser to the Fund. DSA-NY performs research and portfolio management services for the Fund under a Sub-Advisory Agreement with the Adviser. The Fund pays no fees directly to DSA-NY.
Certain directors and officers of the Fund are also directors and officers of the general partner of the Adviser.
Investment Advisory Fees - Advisory fees are paid monthly to the Adviser at an annual rate of 0.55% of the Fund's average net assets. The Adviser is contractually committed to waive fees and/or reimburse the Fund's expenses to the extent necessary to cap total annual Fund operating expenses at 1.00%.
Accounting Fees - State Street Bank and Trust Company ("State Street Bank") is the Fund's primary accounting provider. Fees for accounting services are included in the custodian fees as State Street Bank also serves as the Fund's custodian. The Adviser is also paid for certain accounting services. The fee paid to the Adviser for these services during the year ended December 31, 2015 amounted to $8,496.
| DAVIS VALUE PORTFOLIO | Notes to Financial Statements – (Continued) |
| | December 31, 2015 |
NOTE 4 - CAPITAL STOCK
At December 31, 2015, there were 500 million shares of capital stock ($0.001 par value per share) authorized. Transactions in capital stock were as follows:
| | Year ended December 31, 2015 |
| | | Sold | | | Reinvestment of Distributions | | | Redeemed | | | Net Increase |
| | | | | | | | | | | | |
Shares: | | 570,876 | | | 5,479,425 | | | (4,838,229) | | | 1,212,072 |
| Value: | $ | 6,488,176 | | $ | 53,479,191 | | $ | (55,934,843) | | $ | 4,032,524 |
| | | | | | | | | | | | |
| |
| | Year ended December 31, 2014 |
| | | Sold | | | Reinvestment of Distributions | | | Redeemed | | | Net Increase |
| | | | | | | | | | | | |
Shares: | | 573,457 | | | 6,726,467 | | | (4,462,207) | | | 2,837,717 |
| Value: | $ | 7,836,605 | | $ | 77,152,584 | | $ | (61,302,693) | | $ | 23,686,496 |
| | | | | | | | | | | | |
NOTE 5 - BANK BORROWINGS
The Fund may borrow up to 5% of its assets from a bank to purchase portfolio securities, or for temporary and emergency purposes. The purchase of securities with borrowed funds creates leverage in the Fund. The Fund has entered into an agreement, which enables it to participate with certain other funds managed by the Adviser in an unsecured line of credit with a bank, which permits borrowings up to $50 million, collectively. Interest is charged based on its borrowings, at a rate equal to the higher of the Federal Funds Rate or the one month LIBOR Rate, plus 1.25%. The Fund had no borrowings during the year ended December 31, 2015.
NOTE 6 - SECURITIES LOANED
The Fund has entered into a securities lending arrangement with State Street Bank. Under the terms of the agreement, the Fund receives fee income from lending transactions; in exchange for such fees, State Street Bank is authorized to loan securities on behalf of the Fund, against receipt of collateral at least equal to the value of the securities loaned. As of December 31, 2015, the Fund did not have any securities on loan. The Fund bears the risk of any deficiency in the amount of the collateral available for return to a borrower due to a loss in an approved investment.
NOTE 7 - RESTRICTED SECURITIES
Restricted securities are not registered under the Securities Act of 1933 and may have contractual restrictions on resale. They are fair valued under methods approved by the Board of Directors. The aggregate value of restricted securities amounted to $2,548,659 or 0.79% of the Fund's net assets as of December 31, 2015. Information regarding restricted securities is as follows:
| Security | | Acquisition Date | | Shares | | Cost per Share | | Valuation per Share as of December 31, 2015 |
| Didi Kuaidi Joint Co., Series A-17, Pfd. | | 07/27/15 | | 90,931 | | $ | 27.7005 | | $ | 28.0285 |
FEDERAL INCOME TAX INFORMATION
(UNAUDITED)
During the calendar year ended December 31, 2015, the Fund declared and paid long-term capital gain distributions in the amount of $50,727,520.
During the calendar year ended December 31, 2015, $2,751,671 of dividends paid by the Fund constituted income dividends for federal income tax purposes. The Fund designates $2,751,671 or 100% as income qualifying for the corporate dividends-received deduction.
| The following financial information represents selected data for each share of capital stock outstanding throughout each period: |
| | Year ended December 31, |
| | | | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| Net Asset Value, Beginning of Period | | $ | 11.32 | | $ | 13.48 | | $ | 10.93 | | $ | 10.47 | | $ | 11.97 |
Income (Loss) from Investment Operations: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Investment Income | | 0.10 | | 0.12 | | 0.12 | | 0.20 | | 0.13 |
| Net Realized and Unrealized Gains (Losses) | | 0.10 | | 0.73 | | 3.53 | | 1.16 | | (0.63) |
| | Total from Investment Operations | | 0.20 | | 0.85 | | 3.65 | | 1.36 | | (0.50) |
Dividends and Distributions: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dividends from Net Investment Income | | (0.09) | | (0.13) | | (0.12) | | (0.19) | | (0.10) |
| Distributions from Realized Gains | | (1.81) | | (2.88) | | (0.98) | | (0.71) | | (0.90) |
| | Total Dividends and Distributions | | (1.90) | | (3.01) | | (1.10) | | (0.90) | | (1.00) |
Net Asset Value, End of Period | | $ | 9.62 | | $ | 11.32 | | $ | 13.48 | | $ | 10.93 | | $ | 10.47 |
Total Returna | | 1.60 | % | | 6.06 | % | | 33.43 | % | | 13.08 | % | | (4.18) | % |
Ratios/Supplemental Data: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Assets, End of Period (in thousands) | | $ | 321,746 | | | $ | 365,125 | | | $ | 396,251 | | | $ | 345,556 | | | $ | 351,369 | |
| Ratio of Expenses to Average Net Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross | | 0.62 | % | | 0.62 | % | | 0.62 | % | | 0.64 | % | | 0.63 | % |
| | Netb | | 0.62 | % | | 0.62 | % | | 0.62 | % | | 0.64 | % | | 0.63 | % |
| Ratio of Net Investment Income to Average Net Assets | | 0.86 | % | | 0.82 | % | | 0.84 | % | | 1.63 | % | | 1.15 | % |
Portfolio Turnover Ratec | | 27 | % | | 26 | % | | 10 | % | | 10 | % | | 13 | % |
| a | Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. |
| | |
| b | The Net Ratio of Expenses to Average Net Assets reflects the impact, if any, of the reduction of expenses paid indirectly and of certain reimbursements from the Adviser. |
| | |
| c | The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. |
| |
| See Notes to Financial Statements |
| DAVIS VALUE PORTFOLIO | Report of Independent Registered Public Accounting Firm |
The Shareholders and Board of Directors
Davis Variable Account Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Davis Value Portfolio (a separate series of Davis Variable Account Fund, Inc.), including the schedule of investments, as of December 31, 2015, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two‑year period then ended, and the financial highlights for each of the years in the five‑year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2015, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Davis Value Portfolio as of December 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two‑year period then ended, and the financial highlights for each of the years in the five‑year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Denver, Colorado
February 8, 2016
For the purposes of their service as directors to the Davis Funds, the business address for each of the directors is 2949 E. Elvira Road, Suite 101, Tucson, AZ 85756. Each Director serves until their retirement, resignation, death, or removal. Subject to exceptions and exemptions, which may be granted by the Independent Directors, Directors must retire at the close of business on the last day of the calendar year in which the Director attains age seventy-four (74).
Name (birthdate) | Position(s) Held With Fund | Term of Office and Length of Time Served | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Director | Other Directorships Held by Director |
| | | | | | |
Independent Directors
| | | | | | |
Marc P. Blum (09/09/42) | Director | Director since 1986 | Chief Executive Officer, World Total Return Fund, LLLP; of Counsel to Gordon Feinblatt LLC (law firm). | 13 | Director, Rodney Trust Company (trust and asset management company). |
| | | | | | |
John S. Gates, Jr. (08/02/53) | Director | Director since 2007 | Chairman and Chief Executive Officer of PortaeCo LLC (private investment company). | 13 | Director, Care Capital Properties (REIT); Director, DCT Industrial Trust (REIT). |
| | | | | | |
Thomas S. Gayner (12/16/61) | Director/ Chairman | Director since 2004 | President and Chief Investment Officer, Markel Corp. (diversified financial holding company). | 13 | Director, Graham Holdings Company (educational and media company); Director, Colfax Corp. (engineering and manufacturer of pumps and fluid handling equipment); Director, Cable One Inc. (cable service provider). |
| | | | | | |
Samuel H. Iapalucci (07/19/52) | Director | Director since 2006 | Retired; Executive Vice President and Chief Financial Officer, CH2M- HILL Companies, Ltd. (engineering) until 2008. | 13 | Director, exp Global Inc. (engineering). |
| | | | | | |
Robert P. Morgenthau (03/22/57) | Director | Director since 2002 | Principal, Spears Abacus Advisors, LLC (investment management firm) since 2011; Chairman, NorthRoad Capital Management, LLC (investment management firm) 2002-2011. | 13 | none |
| | | | | | |
Marsha Williams (03/28/51) | Director | Director since 1999 | Retired; Senior Vice President and Chief Financial Officer, Orbitz Worldwide, Inc. (travel-services provider) 2007-2010. | 13 | Director, Modine Manufacturing Company (heat transfer technology); Director, Chicago Bridge & Iron Company, N.V. (industrial construction and engineering); Director, Fifth Third Bancorp (diversified financial services). |
| DAVIS VALUE PORTFOLIO | Directors and Officers – (Continued) |
Name (birthdate) | Position(s) Held With Fund | Term of Office and Length of Time Served | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Director | Other Directorships Held by Director |
| | | | | | |
Interested Directors*
| | | | | | |
Andrew A. Davis (06/25/63) | Director | Director since 1997 | President or Vice President of each Davis Fund and Selected Fund; President, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser. | 16 | Director, Selected Funds (consisting of two portfolios) since 1998; Trustee of Clipper Funds Trust (consisting of one portfolio) since 2014. |
| | | | | | |
Christopher C. Davis (07/13/65) | Director | Director since 1997 | President or Vice President of each Davis Fund, Selected Fund, and Clipper Fund; Chairman, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser, including sole member of the Adviser's general partner, Davis Investments, LLC; Employee of Shelby Cullom Davis & Co. (registered broker/dealer). | 16 | Director, Selected Funds (consisting of two portfolios) since 1998; Trustee of Clipper Funds Trust (consisting of one portfolio) since 2014; Director, Graham Holdings Company (educational and media company). |
* Andrew A. Davis and Christopher C. Davis own partnership units (directly, indirectly, or both) of the Adviser and are considered to be "interested persons" of the Funds as defined in the Investment Company Act of 1940. Andrew A. Davis and Christopher C. Davis are brothers.
Officers
Andrew A. Davis (born 06/25/63, Davis Funds officer since 1997). See description in the section on Interested Directors.
Christopher C. Davis (born 07/13/65, Davis Funds officer since 1997). See description in the section on Interested Directors.
Kenneth C. Eich (born 08/14/53, Davis Funds officer since 1997). Executive Vice President and Principal Executive Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Chief Operating Officer, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
Douglas A. Haines (born 03/04/71, Davis Funds officer since 2004). Vice President, Treasurer, Chief Financial Officer, Principal Financial Officer, and Principal Accounting Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President and Director of Fund Accounting, Davis Selected Advisers, L.P.
Sharra L. Haynes (born 09/25/66, Davis Funds officer since 1997). Vice President and Chief Compliance Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President and Chief Compliance Officer, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
Ryan M. Charles (born 07/25/78, Davis Funds officer since 2014). Vice President and Secretary of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President, Chief Legal Officer, and Secretary, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
| Investment Adviser |
| Davis Selected Advisers, L.P. (Doing business as "Davis Advisors") |
| 2949 East Elvira Road, Suite 101 |
| Tucson, Arizona 85756 |
| (800) 279-0279 |
| |
| Distributor |
| Davis Distributors, LLC |
| 2949 East Elvira Road, Suite 101 |
| Tucson, Arizona 85756 |
| |
| Transfer Agent |
| Boston Financial Data Services, Inc. |
| c/o The Davis Funds |
| P.O. Box 8406 |
| Boston, Massachusetts 02266-8406 |
| |
| Custodian |
| State Street Bank and Trust Co. |
| One Lincoln Street |
| Boston, Massachusetts 02111 |
| |
| Counsel |
| Greenberg Traurig, LLP |
| 77 West Wacker Drive, Suite 3100 |
| Chicago, Illinois 60601 |
| |
| Independent Registered Public Accounting Firm |
| KPMG LLP |
| 1225 Seventeenth Street, Suite 800 |
| Denver, Colorado 80202 |
For more information about Davis Value Portfolio, including management fee, charges, and expenses, see the current prospectus, which must precede or accompany this report. The Fund's Statement of Additional Information contains additional information about the Fund's Directors and is available without charge, upon request, by calling 1-800-279-0279 and on the Fund's website at www.davisfunds.com. Quarterly Fact Sheets are available on the Fund's website at www.davisfunds.com.
| DAVIS FINANCIAL PORTFOLIO | Table of Contents |
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This Annual Report is authorized for use by existing shareholders. Prospective shareholders must receive a current Davis Financial Portfolio prospectus, which contains more information about investment strategies, risks, charges, and expenses. Please read the prospectus carefully before investing or sending money.
Shares of Davis Financial Portfolio are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including possible loss of the principal amount invested.
Portfolio Proxy Voting Policies and Procedures
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under which the Fund votes proxies relating to securities held by the Fund. A description of the Fund's Portfolio Proxy Voting Policies and Procedures is available (i) without charge, upon request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.
In addition, the Fund is required to file Form N-PX, with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. The Fund's Form N-PX filing is available (i) without charge, upon request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.
Form N-Q
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q is available without charge, upon request, by calling 1-800-279-0279, on the Fund's website at www.davisfunds.com, and on the SEC's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
| DAVIS FINANCIAL PORTFOLIO | Management's Discussion of Fund Performance |
Performance Overview
Davis Financial Portfolio outperformed the Standard & Poor's 500® Index (S&P 500®) for the twelve-month period ended December 31, 2015. The Fund delivered a total return of 2.01%, versus a 1.38% return for the S&P 500®. The Fund's Financial sector1 outperformed the Index's Financial sector (up about 1%, versus down 1%).
Contributors to Performance
Insurance companies made significant contributions to performance2. The Fund's Insurance holdings were up about 13%, compared to up 2% for the S&P 500® Insurance industry group. Markel3 (up 29%) was the Fund's overall top contributor and its second-largest holding. Chubb (up 31%), Everest Re Group (up 10%), and American International Group (up 12%) were also key contributors.
The Fund held one company in the Information Technology sector, which helped returns. This strong performer was Alphabet Inc. (up 46%), a holding company for Google, Inc.
Additional contributors included Visa (up 19%), Julius Baer Group (up 8%), and Charles Schwab (up 10%), all from the Diversified Financials industry group; and JPMorgan Chase (up 8%) and Citizens Financial Group (up 7%), both from the Banking industry group.
Detractors from Performance
Diversified Financial companies represented the largest industry group in the Fund and detracted from performance. The Fund's Diversified Financial holdings were down about 3%, compared to down 6% for the S&P 500® Diversified Financials industry group. Specifically, the Consumer Finance sub-industry group produced the overall top detractor, American Express (down 24%), along with another key detractor, Capital One Financial (down 11%).
Additional detractors from the Diversified Financials industry group included Berkshire Hathaway (down 12%), Cielo (down 34%), and Goldman Sachs (down 6%).
Banking companies also hindered performance. The Fund's Bank holdings were down about 4%, compared to up 1% for the S&P 500® Banking industry group. Standard Chartered (down 48%), ICICI Bank (down 31%), U.S. Bancorp (down 3%), and DBS Group Holdings (down 5%) were weak performers.
The Fund had approximately 11% of its net assets invested in foreign securities. As a whole, the Fund's foreign holdings underperformed its domestic holdings (down 15%, versus up 5%).
Davis Financial Portfolio's investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. Davis Financial Portfolio's principal risks are: stock market risk, manager risk, common stock risk, large-capitalization companies risk, mid- and small-capitalization companies risk, headline risk, financial services risk, foreign country risk, emerging market risk, foreign currency risk, depositary receipts risk, focused portfolio risk, interest rate sensitivity risk, credit risk, and fees and expenses risk. See the prospectus for a full description of each risk.
Davis Financial Portfolio concentrates its investments in the financial sector, and it may be subject to greater risks than a fund that does not concentrate its investments in a particular sector. The Fund's investment performance, both good and bad, is expected to reflect the economic performance of the financial sector more than a fund that does not concentrate its portfolio.
Past performance does not guarantee future results, fund prices fluctuate, and the value of an investment may be worth more or less than the purchase price. Data provided in this performance overview is for the period ended December 31, 2015, unless otherwise noted. Return figures for underlying fund positions reflect the return of the security from the beginning of the year or the date of first purchase if subsequent thereto through the end of the year or the date the position is completely liquidated. The actual contribution to the Fund will vary based on a number of factors (e.g. trading activity, weighting).
1 The companies included in the Standard & Poor's 500® Index are divided into ten sectors. One or more industry groups make up a sector.
2 A company's or sector's contribution to or detraction from the Fund's performance is a product both of its appreciation or depreciation and its weighting within the Fund. For example, a 5% holding that rises 20% has twice as much impact as a 1% holding that rises 50%.
3 This Management Discussion of Fund Performance discusses a number of individual companies. The information provided in this report does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase, sell, or hold any particular security. The Schedule of Investments lists the Fund's holdings of each company discussed.
| DAVIS FINANCIAL PORTFOLIO | Management's Discussion of Fund Performance – (Continued) |
Comparison of a $10,000 investment in Davis Financial Portfolio versus the Standard & Poor's 500® Index
over 10 years for an investment made on December 31, 2005
Average Annual Total Return for periods ended December 31, 2015
| Fund & Benchmark Index | 1-Year | 5-Year | 10-Year | Since Fund's Inception (07/01/99) | Gross Expense Ratio | Net Expense Ratio |
| Davis Financial Portfolio | 2.01% | 10.57% | 4.46% | 4.94% | 0.68% | 0.68% |
Standard & Poor's 500® Index | 1.38% | 12.57% | 7.31% | 4.37% | | |
The Standard & Poor's 500® Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalizations, and represents approximately two-thirds of the total market value of all domestic common stocks. Investments cannot be made directly in the Index.
The performance data for Davis Financial Portfolio contained in this report represents past performance, assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Fund performance changes over time and current performance may be higher or lower than stated. The operating expense ratio may vary in future years. For more current information please call Davis Funds Investor Services at 1-800-279-0279.
Fund performance numbers are net of all Fund operating expenses, but do not include any insurance charges imposed by your insurance company's separate account. If performance included the effect of these additional charges, the return would be lower.
| DAVIS FINANCIAL PORTFOLIO | |
| | December 31, 2015 |
| Portfolio Composition | | Industry Weightings |
| (% of Fund's 12/31/15 Net Assets) | | (% of 12/31/15 Stock Holdings) |
| | | | | | | |
| | | | | Fund | | S&P 500® |
| Common Stock (U.S.) | 87.47% | | Diversified Financials | 43.13% | | 4.97% |
| Common Stock (Foreign) | 10.57% | | Insurance | 27.96% | | 2.71% |
| Short-Term Investments | 1.97% | | Banks | 25.47% | | 6.04% |
| Other Assets & Liabilities | (0.01)% | | Information Technology | 3.44% | | 20.69% |
| | 100.00% | | Health Care | – | | 15.15% |
| | | | Capital Goods | – | | 7.25% |
| | | | Energy | – | | 6.50% |
| | | | Food, Beverage & Tobacco | – | | 5.64% |
| | | | Retailing | – | | 5.52% |
| | | | Media | – | | 3.03% |
| | | | Other | – | | 22.50% |
| | | | | 100.00% | | 100.00% |
| Top 10 Long-Term Holdings |
| (% of Fund's 12/31/15 Net Assets) |
| | | |
| Wells Fargo & Co. | Banks | 8.23% |
| Markel Corp. | Property & Casualty Insurance | 7.57% |
| Bank of New York Mellon Corp. | Capital Markets | 6.06% |
| Visa Inc., Class A | Diversified Financial Services | 5.80% |
| American Express Co. | Consumer Finance | 5.66% |
| JPMorgan Chase & Co. | Banks | 5.10% |
| Berkshire Hathaway Inc., Class A | Diversified Financial Services | 4.69% |
| ACE Ltd. | Property & Casualty Insurance | 4.27% |
| Everest Re Group, Ltd. | Reinsurance | 4.19% |
| Citizens Financial Group Inc. | Banks | 3.80% |
| New Positions Added (01/01/15-12/31/15) |
| Security | Industry | Date of 1st Purchase | % of Fund's 12/31/15 Net Assets |
| DBS Group Holdings Ltd. | Banks | 09/02/15 | 1.92% |
| Standard Chartered PLC | Banks | 05/18/15 | 1.81% |
Positions Closed (01/01/15-12/31/15)
NONE
| 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 December 31, 2015. Please note that the Expense Example is general and does not reflect charges imposed by your insurance company's separate account or account specific costs, which may increase your total costs of investing in the Fund. If these charges or account specific costs were included in the Expense Example, the expenses would have been higher.
Actual Expenses
The information represented in the row entitled "Actual" provides information about actual account values and actual expenses. You may use the information in this row, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The information represented in the row entitled "Hypothetical" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the information in the row entitled "Hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| | Beginning Account Value (07/01/15) | | Ending Account Value (12/31/15) | | Expenses Paid During Period* (07/01/15-12/31/15) |
| | | | | | |
| Actual | $1,000.00 | | $989.66 | | $3.41 |
| Hypothetical | $1,000.00 | | $1,021.78 | | $3.47 |
Hypothetical assumes 5% annual return before expenses.
* Expenses are equal to the Fund's annualized operating expense ratio (0.68%)**, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
** The expense ratio reflects the impact, if any, of certain reimbursements from the Adviser.
| DAVIS FINANCIAL PORTFOLIO | |
| | December 31, 2015 |
| | Shares | | Value
(Note 1) |
| COMMON STOCK – (98.04%) |
| | FINANCIALS – (94.67%) |
| | | Banks – (24.97%) |
| | | Citizens Financial Group Inc. | | | 97,880 | | $ | 2,563,477 |
| | DBS Group Holdings Ltd. (Singapore) | | | 110,000 | | | 1,294,802 |
| | ICICI Bank Ltd., ADR (India) | | | 52,390 | | | 410,214 |
| | JPMorgan Chase & Co. | | | 52,170 | | | 3,444,785 |
| | Standard Chartered PLC (United Kingdom) | | | 147,502 | | | 1,225,751 |
| | U.S. Bancorp | | | 55,410 | | | 2,364,345 |
| | Wells Fargo & Co. | | | 102,270 | | | 5,559,397 |
| | | | 16,862,771 |
| | Diversified Financials – (42.29%) |
| | | Capital Markets – (17.40%) |
| | Bank of New York Mellon Corp. | | | 99,280 | | | 4,092,322 |
| | Brookfield Asset Management Inc., Class A (Canada) | | | 51,750 | | | 1,631,677 |
| | Charles Schwab Corp. | | | 62,830 | | | 2,068,992 |
| | Goldman Sachs Group, Inc. | | | 10,800 | | | 1,946,484 |
| | Julius Baer Group Ltd. (Switzerland) | | | 41,484 | | | 2,015,387 |
| | | 11,754,862 |
| | Consumer Finance – (9.13%) |
| | American Express Co. | | | 54,970 | | | 3,823,163 |
| | Capital One Financial Corp. | | | 32,420 | | | 2,340,076 |
| | | 6,163,239 |
| | Diversified Financial Services – (15.76%) |
| | Berkshire Hathaway Inc., Class A * | | | 16 | | | 3,164,800 |
| | Cielo S.A. (Brazil) | | | 65,828 | | | 558,904 |
| | McGraw Hill Financial Inc. | | | 14,750 | | | 1,454,055 |
| | Moody's Corp. | | | 15,460 | | | 1,551,256 |
| | Visa Inc., Class A | | | 50,500 | | | 3,916,275 |
| | | 10,645,290 |
| | | | 28,563,391 |
| | Insurance – (27.41%) |
| | Insurance Brokers – (3.22%) |
| | Marsh & McLennan Cos, Inc. | | | 39,210 | | | 2,174,195 |
| | Multi-line Insurance – (5.68%) |
| | American International Group, Inc. | | | 32,420 | | | 2,009,067 |
| | Loews Corp. | | | 47,580 | | | 1,827,072 |
| | | 3,836,139 |
| | Property & Casualty Insurance – (14.32%) |
| | ACE Ltd. | | | 24,660 | | | 2,881,521 |
| | Chubb Corp. | | | 12,670 | | | 1,680,549 |
| | Markel Corp. * | | | 5,785 | | | 5,110,180 |
| | | 9,672,250 |
| | Reinsurance – (4.19%) |
| | Everest Re Group, Ltd. | | | 15,460 | | | 2,830,571 |
| | | | 18,513,155 |
| | | | Total Financials | | | 63,939,317 |
| DAVIS FINANCIAL PORTFOLIO | Schedule of Investments – (Continued) |
| | December 31, 2015 |
| | Shares/Principal | | Value
(Note 1) |
| COMMON STOCK – (CONTINUED) |
| | INFORMATION TECHNOLOGY – (3.37%) |
| | | Software & Services – (3.37%) |
| | | | Alphabet Inc., Class A * | | | 1,480 | | $ | 1,151,455 |
| | Alphabet Inc., Class C * | | | 1,485 | | | 1,126,937 |
| | Total Information Technology | | | 2,278,392 |
| | | | TOTAL COMMON STOCK – (Identified cost $40,635,763) | | | 66,217,709 |
| SHORT-TERM INVESTMENTS – (1.97%) |
| | Mizuho Securities USA Inc. Joint Repurchase Agreement, 0.27%, 01/04/16, dated 12/31/15, repurchase value of $361,011 (collateralized by: U.S. Government agency mortgages in a pooled cash account, 3.59%-6.50%, 06/01/22-12/01/45, total market value $368,220) | | $ | 361,000 | | | 361,000 |
| | Nomura Securities International, Inc. Joint Repurchase Agreement, 0.34%, 01/04/16, dated 12/31/15, repurchase value of $755,029 (collateralized by: U.S. Government agency mortgages in a pooled cash account, 2.345%-6.50%, 10/01/18-12/20/45, total market value $770,100) | | | 755,000 | | | 755,000 |
| | SunTrust Robinson Humphrey, Inc. Joint Repurchase Agreement, 0.45%, 01/04/16, dated 12/31/15, repurchase value of $216,011 (collateralized by: U.S. Government agency mortgages in a pooled cash account, 2.27%-5.50%, 01/01/21-08/01/36, total market value $220,320) | | | 216,000 | | | 216,000 |
| | TOTAL SHORT-TERM INVESTMENTS – (Identified cost $1,332,000) | | | 1,332,000 |
| | Total Investments – (100.01%) – (Identified cost $41,967,763) – (a) | | | 67,549,709 |
| | Liabilities Less Other Assets – (0.01%) | | | (8,558) |
| | Net Assets – (100.00%) | | $ | 67,541,151 |
| |
| | ADR: American Depositary Receipt |
| |
| | * | Non-Income producing security. |
| |
| | (a) | Aggregate cost for federal income tax purposes is $41,973,918. At December 31, 2015 unrealized appreciation (depreciation) of securities for federal income tax purposes is as follows: |
| | | | | |
| | Unrealized appreciation | | $ | 26,901,954 |
| | Unrealized depreciation | | | (1,326,163) |
| | Net unrealized appreciation | | $ | 25,575,791 |
| |
| See Notes to Financial Statements |
| DAVIS FINANCIAL PORTFOLIO | Statement of Assets and Liabilities |
| | At December 31, 2015 |
| ASSETS: | | | | | |
| Investments in securities at value* (see accompanying Schedule of Investments) | | $ | 67,549,709 |
| Cash | | | 1,808 |
| Receivables: | | | |
| | Capital stock sold | | | 27,795 |
| | Dividends and interest | | | 37,886 |
| Prepaid expenses | | | 1,795 |
| | | Total assets | | | 67,618,993 |
LIABILITIES: | | | |
| Payables: | | | |
| | Capital stock redeemed | | | 16,727 |
| Accrued audit fees | | | 13,090 |
| Accrued custodian fees | | | 7,095 |
| Accrued investment advisory fee | | | 32,758 |
| Other accrued expenses | | | 8,172 |
| | Total liabilities | | | 77,842 |
NET ASSETS | | $ | 67,541,151 |
SHARES OUTSTANDING | | | 5,075,538 |
NET ASSET VALUE, offering, and redemption price per share (Net assets ÷ Shares outstanding) | | $ | 13.31 |
NET ASSETS CONSIST OF: | | | |
| Par value of shares of capital stock | | $ | 5,076 |
| Additional paid-in capital | | | 41,616,209 |
| Overdistributed net investment income | | | (16,170) |
| Accumulated net realized gains from investments | | | 354,090 |
| Net unrealized appreciation on investments and foreign currency transactions | | | 25,581,946 |
| | Net Assets | | $ | 67,541,151 |
| | | | | |
| *Including: | | | |
| | Cost of Investments | | $ | 41,967,763 |
| See Notes to Financial Statements |
| DAVIS FINANCIAL PORTFOLIO | |
| | For the year ended December 31, 2015 |
| INVESTMENT INCOME: | | | | | | |
| Income: | | | |
| Dividends* | | $ | 1,084,803 |
| Interest | | | 1,758 |
| | | Total income | | | | 1,086,561 |
Expenses: | | | |
| Investment advisory fees (Note 3) | | $ | 397,980 | | | |
| Custodian fees | | | 28,278 | | | |
| Transfer agent fees | | | 11,194 | | | |
| Audit fees | | | 19,320 | | | |
| Legal fees | | | 1,662 | | | |
| Accounting fees (Note 3) | | | 2,004 | | | |
| Reports to shareholders | | | 4,073 | | | |
| Directors' fees and expenses | | | 18,911 | | | |
| Registration and filing fees | | | 46 | | | |
| Miscellaneous | | | 10,991 | | | |
| | Total expenses | | | | 494,459 |
| Net investment income | | | 592,102 |
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS: | | | | | | |
| Net realized gain (loss) from: | | | |
| | Investment transactions | | | 7,991,339 |
| | Foreign currency transactions | | | (6,259) |
| Net realized gain | | | 7,985,080 |
| Net decrease in unrealized appreciation | | | (7,310,026) |
| | Net realized and unrealized gain on investments and foreign currency transactions | | | | 675,054 |
| Net increase in net assets resulting from operations | | $ | 1,267,156 |
| | | | | | | | | |
| *Net of foreign taxes withheld as follows | | $ | 4,815 |
| See Notes to Financial Statements |
| DAVIS FINANCIAL PORTFOLIO | Statements of Changes in Net Assets |
| | | Year ended December 31, |
| | | 2015 | | 2014 |
OPERATIONS: | | | | | | |
| Net investment income | | $ | 592,102 | | $ | 736,378 |
| Net realized gain from investments and foreign currency transactions | | | 7,985,080 | | | 8,865,413 |
Net decrease in unrealized appreciation on investments and foreign currency transactions | | | (7,310,026) | | | (436,144) |
| | Net increase in net assets resulting from operations | | | 1,267,156 | | | 9,165,647 |
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | | | |
| Net investment income | | | (605,773) | | | (909,661) |
Realized gains from investment transactions | | | (8,237,628) | | | (8,532,944) |
CAPITAL SHARE TRANSACTIONS: | | | | | | |
| Net decrease in net assets resulting from capital share transactions (Note 4) | | | (2,742,090) | | | (2,744,465) |
| | Total decrease in net assets | | | (10,318,335) | | | (3,021,423) |
NET ASSETS: | | | | | | |
| Beginning of year | | | 77,859,486 | | | 80,880,909 |
End of year* | | $ | 67,541,151 | | $ | 77,859,486 |
*Including overdistributed net investment income of | | $ | (16,170) | | $ | (11,934) |
| See Notes to Financial Statements |
| DAVIS FINANCIAL PORTFOLIO | Notes to Financial Statements |
| | December 31, 2015 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a separate series of Davis Variable Account Fund, Inc. (a Maryland corporation), which is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. Only insurance companies, for the purpose of funding variable annuity or variable life insurance contracts, may purchase shares of the Fund. The Fund concentrates its investments in the financial sector, and it may be subject to greater risks than a fund that does not concentrate its investments in a particular sector. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
Security Valuation - The Fund calculates the net asset value of its shares as of the close of the New York Stock Exchange ("Exchange"), normally 4:00 P.M. Eastern time, on each day the Exchange is open for business. Securities listed on the Exchange (and other national exchanges including NASDAQ) are valued at the last reported sales price on the day of valuation. Listed securities for which no sale was reported on that date are valued at the average of closing bid and asked prices. Securities traded on foreign exchanges are valued based upon the last sales price on the principal exchange on which the security is traded prior to the time when the Fund's assets are valued. Securities (including restricted securities) for which market quotations are not readily available or securities whose values have been materially affected by what Davis Selected Advisers, L.P. ("Davis Advisors" or "Adviser"), the Fund's investment adviser, identifies as a significant event occurring before the Fund's assets are valued, but after the close of their respective exchanges will be fair valued using a fair valuation methodology applicable to the security type or the significant event as previously approved by the Fund's Pricing Committee and Board of Directors. The Pricing Committee considers all facts it deems relevant that are reasonably available, through either public information or information available to the Adviser's portfolio management team, when determining the fair value of a security. To assess the appropriateness of security valuations, the Adviser may consider (i) comparing prior day prices and/or prices of comparable securities; (ii) comparing sale prices to the prior or current day prices and challenge those prices exceeding certain tolerance levels with the third-party pricing service or broker source; (iii) new rounds of financing; (iv) the performance of the market or the issuer's industry; (v) the liquidity of the security; (vi) the size of the holding in a fund; and/or (vii) any other appropriate information. The determination of a security's fair value price often involves the consideration of a number of subjective factors and is therefore subject to the unavoidable risk that the value assigned to a security may be higher or lower than the security's value would be if a reliable market quotation of the security was readily available. Fair value determinations are subject to review, approval, and ratification by the Fund's Board of Directors at its next regularly scheduled meeting covering the period in which the fair valuation was determined.
Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value.
The Fund's valuation procedures are reviewed and subject to approval by the Board of Directors. There have been no significant changes to the fair valuation procedures during the period.
Fair Value Measurements - Fair value is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal market for the investment. Various inputs are used to determine the fair value of the Fund's investments. These inputs are summarized in the three broad levels listed below.
Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment
speeds, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Fund's own assumptions in determining the fair value of
investments)
The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities nor can it be assured that the Fund can obtain the fair value assigned to a security if it were to sell the security.
| DAVIS FINANCIAL PORTFOLIO | Notes to Financial Statements – (Continued) |
| | December 31, 2015 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)
Fair Value Measurements - (Continued)
The following is a summary of the inputs used as of December 31, 2015 in valuing the Fund's investments carried at value:
| | Investments in Securities at Value |
| | Valuation Inputs |
| | | | Level 2: | | Level 3: | | |
| | | | Other Significant | | Significant | | |
| | Level 1: | | Observable | | Unobservable | | |
| | Quoted Prices | | Inputs | | Inputs | | Total |
Equity securities: | | | | | | | | | | | |
| Financials | $ | 63,939,317 | | $ | – | | $ | – | | $ | 63,939,317 |
| Information Technology | | 2,278,392 | | | – | | | – | | | 2,278,392 |
| Short-term securities | | – | | | 1,332,000 | | | – | | | 1,332,000 |
| Total Investments | $ | 66,217,709 | | $ | 1,332,000 | | $ | – | | $ | 67,549,709 |
| | | | | | | | | | | | |
Level 2 to Level 1 Transfers*: | | | | | | | | | | | |
| Financials | $ | 2,574,291 | | | | | | | | | |
*Application of fair value procedures for securities traded on foreign exchanges triggered the transfers of investments between Level 1 and Level 2 of the fair value hierarchy during the year ended December 31, 2015.
Master Repurchase Agreements - The Fund, along with other affiliated funds, may transfer uninvested cash balances into one or more master repurchase agreement accounts. These balances are invested in one or more repurchase agreements, secured by U.S. Government securities. A custodian bank holds securities pledged as collateral for repurchase agreements until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal; however, in the event of default by the other party to the agreement, retention of the collateral may be subject to legal proceedings.
Currency Translation - The market values of all assets and liabilities denominated in foreign currencies are recorded in the financial statements after translation to the U.S. Dollar based upon the mean between the bid and offered quotations of the currencies against U.S. Dollars on the date of valuation. The cost basis of such assets and liabilities is determined based upon historical exchange rates. Income and expenses are translated at average exchange rates in effect as accrued or incurred.
Foreign Currency - The Fund may enter into forward purchases or sales of foreign currencies to hedge certain foreign currency denominated assets and liabilities against declines in market value relative to the U.S. Dollar. Forward currency contracts are marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the forward currency contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the forward currency contract at the time it was opened and value at the time it was closed. Investments in forward currency contracts may expose the Fund to risks resulting from unanticipated movements in foreign currency exchange rates or failure of the counter-party to the agreement to perform in accordance with the terms of the contract.
Reported net realized foreign exchange gains or losses arise from the sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on security transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. Dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate. The Fund includes foreign currency gains and losses realized on the sales of investments together with market gains and losses on such investments in the Statement of Operations.
| DAVIS FINANCIAL PORTFOLIO | Notes to Financial Statements – (Continued) |
| | December 31, 2015 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)
Federal Income Taxes - It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute substantially all of its taxable income, including any net realized gains on investments not offset by loss carryovers, to shareholders. Therefore, no provision for federal income or excise tax is required. The Adviser has analyzed the Fund's tax positions taken on federal and state income tax returns for all open tax years and has concluded that as of December 31, 2015, no provision for income tax is required in the Fund's financial statements related to these tax positions. The Fund's federal and state (Arizona) income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state department of revenue. The earliest tax year that remains subject to examination by these jurisdictions is 2012.
Securities Transactions and Related Investment Income - Securities transactions are accounted for on the trade date (date the order to buy or sell is executed) with realized gain or loss on the sale of securities being determined based upon identified cost. Dividend income is recorded on the ex-dividend date. Interest income, which includes accretion of discount and amortization of premium, is accrued as earned.
Dividends and Distributions to Shareholders - Dividends and distributions to shareholders are recorded on the ex-dividend date. Net investment income (loss), net realized gains (losses), and net unrealized appreciation (depreciation) on investments may differ for financial statement and tax purposes primarily due to differing treatments of wash sales, foreign currency transactions, Directors' deferred compensation payments, and partnership income. The character of dividends and distributions made during the fiscal year from net investment income and net realized securities gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividends and distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which income or realized gain was recorded by the Fund. The Fund adjusts certain components of capital to reflect permanent differences between financial statement amounts and net income and realized gains/losses determined in accordance with income tax rules. Accordingly, during the year ended December 31, 2015, amounts have been reclassified to reflect a decrease in overdistributed net investment income of $9,435 and a corresponding decrease in accumulated net realized gains from investments and foreign currency transactions. The Fund's net assets have not been affected by this reclassification.
The tax character of distributions paid during the years ended December 31, 2015 and 2014 was as follows:
| | 2015 | | 2014 |
| Ordinary income | $ | 828,407 | | $ | 1,115,882 |
| Long-term capital gain | | 8,014,994 | | | 8,326,723 |
| Total | $ | 8,843,401 | | $ | 9,442,605 |
As of December 31, 2015, the components of distributable earnings on a tax basis were as follows:
| Undistributed long-term capital gain | $ | 360,245 |
| Net unrealized appreciation on investments | | 25,575,791 |
| Total | $ | 25,936,036 |
| DAVIS FINANCIAL PORTFOLIO | Notes to Financial Statements – (Continued) |
| | December 31, 2015 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)
Indemnification - Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, some of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims.
Use of Estimates in Financial Statements - In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.
Directors Fees and Expenses - The Fund set up a Rabbi Trust to provide for the deferred compensation plan for Independent Directors that enables them to elect to defer receipt of all or a portion of annual fees they are entitled to receive. The value of an eligible Director's account is based upon years of service and fees paid to each Director during the years of service. The amount paid to the Director by the Trust under the plan will be determined based upon the performance of the Davis Funds in which the amounts are invested.
NOTE 2 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of investment securities (excluding short-term securities) during the year ended December 31, 2015 were $8,354,664 and $18,619,863, respectively.
NOTE 3 - FEES AND OTHER TRANSACTIONS WITH SERVICE PROVIDERS (INCLUDING AFFILIATES)
Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of the Adviser, acts as sub-adviser to the Fund. DSA-NY performs research and portfolio management services for the Fund under a Sub-Advisory Agreement with the Adviser. The Fund pays no fees directly to DSA-NY.
Certain directors and officers of the Fund are also directors and officers of the general partner of the Adviser.
Investment Advisory Fees - Advisory fees are paid monthly to the Adviser at an annual rate of 0.55% of the Fund's average net assets. The Adviser is contractually committed to waive fees and/or reimburse the Fund's expenses to the extent necessary to cap total annual Fund operating expenses at 1.00%.
Accounting Fees - State Street Bank and Trust Company ("State Street Bank") is the Fund's primary accounting provider. Fees for accounting services are included in the custodian fees as State Street Bank also serves as the Fund's custodian. The Adviser is also paid for certain accounting services. The fee paid to the Adviser for these services during the year ended December 31, 2015 amounted to $2,004.
| DAVIS FINANCIAL PORTFOLIO | Notes to Financial Statements – (Continued) |
| | December 31, 2015 |
NOTE 4 - CAPITAL STOCK
At December 31, 2015, there were 500 million shares of capital stock ($0.001 par value per share) authorized. Transactions in capital stock were as follows:
| | Year ended December 31, 2015 |
| | | Sold | | | Reinvestment of Distributions | | | Redeemed | | | Net Decrease |
| | | | | | | | | | | | |
Shares: | | 377,808 | | | 654,582 | | | (1,155,693) | | | (123,303) |
Value: | $ | 5,851,073 | | $ | 8,843,401 | | $ | (17,436,564) | | $ | (2,742,090) |
| | | | | | | | | | | | |
| | |
| | Year ended December 31, 2014 |
| | | Sold | | | Reinvestment of Distributions | | | Redeemed | | | Net Decrease |
| | | | | | | | | | | | |
Shares: | | 157,075 | | | 623,274 | | | (944,834) | | | (164,485) |
Value: | $ | 2,531,609 | | $ | 9,442,605 | | $ | (14,718,679) | | $ | (2,744,465) |
| | | | | | | | | | | | |
NOTE 5 - BANK BORROWINGS
The Fund may borrow up to 5% of its assets from a bank to purchase portfolio securities, or for temporary and emergency purposes. The purchase of securities with borrowed funds creates leverage in the Fund. The Fund has entered into an agreement, which enables it to participate with certain other funds managed by the Adviser in an unsecured line of credit with a bank, which permits borrowings up to $50 million, collectively. Interest is charged based on its borrowings, at a rate equal to the higher of the Federal Funds Rate or the one month LIBOR Rate, plus 1.25%. The Fund had no borrowings during the year ended December 31, 2015.
FEDERAL INCOME TAX INFORMATION
(UNAUDITED)
During the calendar year ended December 31, 2015, the Fund declared and paid long-term capital gain distributions in the amount of $8,014,994.
During the calendar year ended December 31, 2015, $828,407 of dividends paid by the Fund constituted income dividends for federal income tax purposes. The Fund designates $816,062 or 99% as income qualifying for the corporate dividends-received deduction.
| DAVIS FINANCIAL PORTFOLIO | |
| The following financial information represents selected data for each share of capital stock outstanding throughout each period: |
| | Year ended December 31, |
| | | | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| Net Asset Value, Beginning of Period | | $ | 14.98 | | $ | 15.08 | | $ | 11.55 | | $ | 9.98 | | $ | 11.00 |
Income (Loss) from Investment Operations: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Investment Income | | 0.13 | | 0.17 | | 0.13 | | 0.12 | | 0.14 |
| Net Realized and Unrealized Gains (Losses) | | 0.20 | | 1.79 | | 3.48 | | 1.75 | | (1.01) |
| | Total from Investment Operations | | 0.33 | | 1.96 | | 3.61 | | 1.87 | | (0.87) |
Dividends and Distributions: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dividends from Net Investment Income | | (0.14) | | (0.20) | | (0.08) | | (0.23) | | (0.15) |
| Distributions from Realized Gains | | (1.86) | | (1.86) | | – | | –a | | – |
| Return of Capital | | – | | – | | – | | (0.07) | | – |
| | Total Dividends and Distributions | | (2.00) | | (2.06) | | (0.08) | | (0.30) | | (0.15) |
Net Asset Value, End of Period | | $ | 13.31 | | $ | 14.98 | | $ | 15.08 | | $ | 11.55 | | $ | 9.98 |
Total Returnb | | 2.01 | % | | 12.85 | % | | 31.26 | % | | 18.83 | % | | (7.96) | % |
Ratios/Supplemental Data: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Assets, End of Period (in thousands) | | $ | 67,541 | | | $ | 77,859 | | | $ | 80,881 | | | $ | 67,255 | | | $ | 60,834 | |
| Ratio of Expenses to Average Net Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross | | 0.68 | % | | 0.68 | % | | 0.68 | % | | 0.69 | % | | 0.69 | % |
| | Netc | | 0.68 | % | | 0.68 | % | | 0.68 | % | | 0.69 | % | | 0.69 | % |
Ratio of Net Investment Income to Average Net Assets | | 0.82 | % | | 0.96 | % | | 0.90 | % | | 0.98 | % | | 0.99 | % |
Portfolio Turnover Rated | | 12 | % | | 32 | % | | 2 | % | | 16 | % | | 11 | % |
| a | Less than $0.005 per share. |
| | |
| b | Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. |
| | |
| c | The Net Ratio of Expenses to Average Net Assets reflects the impact, if any, of the reduction of expenses paid indirectly and of certain reimbursements from the Adviser. |
| | |
| d | The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. |
| |
| See Notes to Financial Statements |
| DAVIS FINANCIAL PORTFOLIO | Report of Independent Registered Public Accounting Firm |
The Shareholders and Board of Directors
Davis Variable Account Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Davis Financial Portfolio (a separate series of Davis Variable Account Fund, Inc.), including the schedule of investments, as of December 31, 2015, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two‑year period then ended, and the financial highlights for each of the years in the five‑year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2015, by correspondence with the custodian or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Davis Financial Portfolio as of December 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two‑year period then ended, and the financial highlights for each of the years in the five‑year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Denver, Colorado
February 8, 2016
| DAVIS FINANCIAL PORTFOLIO | |
For the purposes of their service as directors to the Davis Funds, the business address for each of the directors is 2949 E. Elvira Road, Suite 101, Tucson, AZ 85756. Each Director serves until their retirement, resignation, death, or removal. Subject to exceptions and exemptions, which may be granted by the Independent Directors, Directors must retire at the close of business on the last day of the calendar year in which the Director attains age seventy-four (74).
Name (birthdate) | Position(s) Held With Fund | Term of Office and Length of Time Served | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Director | Other Directorships Held by Director |
| | | | | | |
Independent Directors
| | | | | | |
Marc P. Blum (09/09/42) | Director | Director since 1986 | Chief Executive Officer, World Total Return Fund, LLLP; of Counsel to Gordon Feinblatt LLC (law firm). | 13 | Director, Rodney Trust Company (trust and asset management company). |
| | | | | | |
John S. Gates, Jr. (08/02/53) | Director | Director since 2007 | Chairman and Chief Executive Officer of PortaeCo LLC (private investment company). | 13 | Director, Care Capital Properties (REIT); Director, DCT Industrial Trust (REIT). |
| | | | | | |
Thomas S. Gayner (12/16/61) | Director/ Chairman | Director since 2004 | President and Chief Investment Officer, Markel Corp. (diversified financial holding company). | 13 | Director, Graham Holdings Company (educational and media company); Director, Colfax Corp. (engineering and manufacturer of pumps and fluid handling equipment); Director, Cable One Inc. (cable service provider). |
| | | | | | |
Samuel H. Iapalucci (07/19/52) | Director | Director since 2006 | Retired; Executive Vice President and Chief Financial Officer, CH2M- HILL Companies, Ltd. (engineering) until 2008. | 13 | Director, exp Global Inc. (engineering). |
| | | | | | |
Robert P. Morgenthau (03/22/57) | Director | Director since 2002 | Principal, Spears Abacus Advisors, LLC (investment management firm) since 2011; Chairman, NorthRoad Capital Management, LLC (investment management firm) 2002-2011. | 13 | none |
| | | | | | |
Marsha Williams (03/28/51) | Director | Director since 1999 | Retired; Senior Vice President and Chief Financial Officer, Orbitz Worldwide, Inc. (travel-services provider) 2007-2010. | 13 | Director, Modine Manufacturing Company (heat transfer technology); Director, Chicago Bridge & Iron Company, N.V. (industrial construction and engineering); Director, Fifth Third Bancorp (diversified financial services). |
| DAVIS FINANCIAL PORTFOLIO | Directors and Officers – (Continued) |
Name (birthdate) | Position(s) Held With Fund | Term of Office and Length of Time Served | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Director | Other Directorships Held by Director |
| | | | | | |
Interested Directors*
| | | | | | |
Andrew A. Davis (06/25/63) | Director | Director since 1997 | President or Vice President of each Davis Fund and Selected Fund; President, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser. | 16 | Director, Selected Funds (consisting of two portfolios) since 1998; Trustee of Clipper Funds Trust (consisting of one portfolio) since 2014. |
| | | | | | |
Christopher C. Davis (07/13/65) | Director | Director since 1997 | President or Vice President of each Davis Fund, Selected Fund, and Clipper Fund; Chairman, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser, including sole member of the Adviser's general partner, Davis Investments, LLC; Employee of Shelby Cullom Davis & Co. (registered broker/dealer). | 16 | Director, Selected Funds (consisting of two portfolios) since 1998; Trustee of Clipper Funds Trust (consisting of one portfolio) since 2014; Director, Graham Holdings Company (educational and media company). |
*Andrew A. Davis and Christopher C. Davis own partnership units (directly, indirectly, or both) of the Adviser and are considered to be "interested persons" of the Funds as defined in the Investment Company Act of 1940. Andrew A. Davis and Christopher C. Davis are brothers.
Officers
Andrew A. Davis (born 06/25/63, Davis Funds officer since 1997). See description in the section on Interested Directors.
Christopher C. Davis (born 07/13/65, Davis Funds officer since 1997). See description in the section on Interested Directors.
Kenneth C. Eich (born 08/14/53, Davis Funds officer since 1997). Executive Vice President and Principal Executive Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Chief Operating Officer, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
Douglas A. Haines (born 03/04/71, Davis Funds officer since 2004). Vice President, Treasurer, Chief Financial Officer, Principal Financial Officer, and Principal Accounting Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President and Director of Fund Accounting, Davis Selected Advisers, L.P.
Sharra L. Haynes (born 09/25/66, Davis Funds officer since 1997). Vice President and Chief Compliance Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President and Chief Compliance Officer, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
Ryan M. Charles (born 07/25/78, Davis Funds officer since 2014). Vice President and Secretary of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President, Chief Legal Officer, and Secretary, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
| DAVIS FINANCIAL PORTFOLIO |
| Investment Adviser |
| Davis Selected Advisers, L.P. (Doing business as "Davis Advisors") |
| 2949 East Elvira Road, Suite 101 |
| Tucson, Arizona 85756 |
| (800) 279-0279 |
| |
| Distributor |
| Davis Distributors, LLC |
| 2949 East Elvira Road, Suite 101 |
| Tucson, Arizona 85756 |
| |
| Transfer Agent |
| Boston Financial Data Services, Inc. |
| c/o The Davis Funds |
| P.O. Box 8406 |
| Boston, Massachusetts 02266-8406 |
| |
| Custodian |
| State Street Bank and Trust Co. |
| One Lincoln Street |
| Boston, Massachusetts 02111 |
| |
| Counsel |
| Greenberg Traurig, LLP |
| 77 West Wacker Drive, Suite 3100 |
| Chicago, Illinois 60601 |
| |
| Independent Registered Public Accounting Firm |
| KPMG LLP |
| 1225 Seventeenth Street, Suite 800 |
| Denver, Colorado 80202 |
For more information about Davis Financial Portfolio, including management fee, charges, and expenses, see the current prospectus, which must precede or accompany this report. The Fund's Statement of Additional Information contains additional information about the Fund's Directors and is available without charge, upon request, by calling 1-800-279-0279 and on the Fund's website at www.davisfunds.com. Quarterly Fact Sheets are available on the Fund's website at www.davisfunds.com.
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This Annual Report is authorized for use by existing shareholders. Prospective shareholders must receive a current Davis Real Estate Portfolio prospectus, which contains more information about investment strategies, risks, charges, and expenses. Please read the prospectus carefully before investing or sending money.
Shares of Davis Real Estate Portfolio are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including possible loss of the principal amount invested.
Portfolio Proxy Voting Policies and Procedures
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under which the Fund votes proxies relating to securities held by the Fund. A description of the Fund's Portfolio Proxy Voting Policies and Procedures is available (i) without charge, upon request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.
In addition, the Fund is required to file Form N-PX, with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. The Fund's Form N-PX filing is available (i) without charge, upon request, by calling the Fund toll-free at 1-800-279-0279, (ii) on the Fund's website at www.davisfunds.com, and (iii) on the SEC's website at www.sec.gov.
Form N-Q
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q is available without charge, upon request, by calling 1-800-279-0279, on the Fund's website at www.davisfunds.com, and on the SEC's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
| DAVIS REAL ESTATE PORTFOLIO | Management's Discussion of Fund Performance |
Performance Overview
Davis Real Estate Portfolio underperformed the Wilshire U.S. Real Estate Securities Index ("Wilshire Index") for the twelve-month period ended December 31, 2015. The Fund delivered a total return of 1.65%, versus a 4.81% return for the Wilshire Index. The sub-industries1 within the Wilshire Index that reported the weakest performance were Hotel & Resort REITs (down 24%), Hotels, Resorts & Cruise Lines (down 22%), and Health Care REITs (down 7%). The sub-industries within the Wilshire Index that reported the strongest performance were Specialized REITs (up 35%), Residential REITs (up 17%), and Retail REITs (up 5%).
Detractors from Performance
The Fund's holdings in the Hotel & Resort REITs sub-industry were the most significant detractor from performance2. The Fund's Hotel & Resort REITs holdings were down about 36%, compared to down 24% for the Wilshire Index. Leading detractors were DiamondRock Hospitality3 (down 32%) and Host Hotels & Resorts (down 12%). The Fund no longer owns Host Hotels & Resorts. Although the Hotel & Resort REITs sub-industry was a major detractor from performance, the Fund benefited from a lower average weighting (2%, compared to 8% for the Wilshire Index) in the weakest performing sector.
Returns from holdings in the Consumer Services industry group, which include the Hotels, Resorts & Cruise Lines sub-industry, also hurt performance. The Fund suffered from an overweight position (3%, compared to less than 1% for the Wilshire Index) in a weak performing sub-industry. The Fund's Hotels, Resorts & Cruise Lines holdings were down about 16%, compared to down 22% for the Wilshire Index. Hyatt Hotels (down 18%) was a key detractor.
The Real Estate Operating Companies sub-industry produced the Fund's overall top detractor, Brookdale Senior Living (down 37%). The Fund no longer owns Brookdale Senior Living.
Additional detractors were Corporate Office Properties Trust (down 16%) and Brandywine Realty Trust (down 15%) from the Office REITs sub-industry; and DDR (down 4%) and CBL & Associates Properties (down 25%) from the Retail REITs sub-industry. The Fund no longer owns Corporate Office Properties Trust or Brandywine Realty Trust.
Contributors to Performance
The Fund held a large position in the Residential REITs sub-industry, which made significant contributions to performance. The Fund's Residential REITs holdings were up about 12%, compared to up 17% for the Wilshire Index. Equity Residential (up 27%), AvalonBay Communities (up 16%), and Essex Property Trust (up 19%) were strong performers.
The Specialized REITs sub-industry also helped returns. The Fund's Specialized REITs holdings were up about 24%, compared to up 35% for the Wilshire Index. CyrusOne (up 41%), a data center provider, was the Fund's overall top contributor. However, the Fund suffered from a lower average weighting (8%, compared to 10% for the Wilshire Index) in this strong performing sector.
Another contributor to performance was the Fund's underweighted position (3%, compared to 12% for the Wilshire Index) in the weak performing Health Care REITs sub-industry.
Additional contributors were Simon Property Group (up 18%), the Fund's second-largest holding, and Macerich (up 19%), both from the Retail REITs sub-industry; and Forest City Enterprises (up 3%) from the Real Estate Operating Companies sub-industry.
Davis Real Estate Portfolio's investment objective is total return through a combination of growth and income. There can be no assurance that the Fund will achieve its objective. Davis Real Estate Portfolio's principal risks are: stock market risk, manager risk, common stock risk, large-capitalization companies risk, mid- and small-capitalization companies risk, headline risk, real estate risk, focused portfolio risk, variable current income risk, and fees and expenses risk. See the prospectus for a full description of each risk.
Davis Real Estate Portfolio concentrates its investments in the real estate sector, and it may be subject to greater risks than a fund that does not concentrate its investments in a particular sector. The Fund's investment performance, both good and bad, is expected to reflect the economic performance of the real estate sector much more than a fund that does not concentrate its portfolio.
Davis Real Estate Portfolio is allowed to focus its investments in fewer companies, and it may be subject to greater risks than a more diversified portfolio that is not allowed to focus its investments in a few companies. Should the portfolio manager determine that it is prudent to focus the Fund's portfolio in a few companies, the Fund's investment performance, both good and bad, is expected to reflect the economic performance of its more focused portfolio.
Past performance does not guarantee future results, fund prices fluctuate, and the value of an investment may be worth more or less than the purchase price. Data provided in this performance overview is for the period ended December 31, 2015, unless otherwise noted. Return figures for underlying fund positions reflect the return of the security from the beginning of the year or the date of first purchase if subsequent thereto through the end of the year or the date the position is completely liquidated. The actual contribution to the Fund will vary based on a number of factors (e.g. trading activity, weighting).
1 The companies included in the Wilshire U.S. Real Estate Securities Index are divided into ten sub-industries.
2 A company's or sector's contribution to or detraction from the Fund's performance is a product both of its appreciation or depreciation and its weighting within the Fund. For example, a 5% holding that rises 20% has twice as much impact as a 1% holding that rises 50%.
3 This Management Discussion of Fund Performance discusses a number of individual companies. The information provided in this report does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase, sell, or hold any particular security. The Schedule of Investments lists the Fund's holdings of each company discussed.
| DAVIS REAL ESTATE PORTFOLIO | Management's Discussion of Fund Performance – (Continued) |
Comparison of a $10,000 investment in Davis Real Estate Portfolio versus the
Standard & Poor's 500® Index and the Wilshire U.S. Real Estate Securities Index
over 10 years for an investment made on December 31, 2005
Average Annual Total Return for periods ended December 31, 2015
| Fund & Benchmark Indices | 1-Year | 5-Year | 10-Year | Since Fund's Inception (07/01/99) | Gross Expense Ratio | Net Expense Ratio |
| Davis Real Estate Portfolio | 1.65% | 10.29% | 4.49% | 8.66% | 0.85% | 0.85% |
Standard & Poor's 500® Index | 1.38% | 12.57% | 7.31% | 4.37% | | |
Wilshire U.S. Real Estate Securities Index | 4.81% | 12.44% | 7.26% | 11.12% | | |
The Standard & Poor's 500® Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalizations, and represents approximately two-thirds of the total market value of all domestic common stocks. Investments cannot be made directly in the Index.
The Wilshire U.S. Real Estate Securities Index is a broad measure of the performance of publicly traded real estate securities. It reflects no deduction for fees or expenses. Investments cannot be made directly in the Index.
The performance data for Davis Real Estate Portfolio contained in this report represents past performance, assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Fund performance changes over time and current performance may be higher or lower than stated. The operating expense ratio may vary in future years. For more current information please call Davis Funds Investor Services at 1-800-279-0279.
Fund performance numbers are net of all Fund operating expenses, but do not include any insurance charges imposed by your insurance company's separate account. If performance included the effect of these additional charges, the return would be lower.
| DAVIS REAL ESTATE PORTFOLIO | |
| | December 31, 2015 |
| Portfolio Composition | | Industry Weightings |
| (% of Fund's 12/31/15 Net Assets) | | (% of 12/31/15 Stock Holdings) |
| | | | | | |
| | | | | | Wilshire U.S. |
| | | | | | Real Estate |
| | | | | Fund | | Securities Index |
| Common Stock (U.S.) | 94.62% | | Retail REITs | 27.09% | | 23.89% |
| Common Stock (Foreign) | 1.08% | | Residential REITs | 22.20% | | 19.06% |
| Preferred Stock | 0.16% | | Office REITs | 14.40% | | 15.70% |
| Short-Term Investments | 3.87% | | Industrial REITs | 12.71% | | 4.79% |
| Other Assets & Liabilities | 0.27% | | Specialized REITs | 9.64% | | 14.32% |
| | 100.00% | | Diversified REITs | 3.52% | | 3.33% |
| | | | Diversified Real Estate Activities | 3.38% | | – |
| | | | Consumer Services | 3.03% | | 0.25% |
| | | | Information Technology | 1.12% | | – |
| | | | Health Care REITs | 1.11% | | 11.71% |
| | | | Real Estate Operating Companies | 1.02% | | 0.87% |
| | | | Hotel & Resort REITs | 0.78% | | 6.08% |
| | | | | 100.00% | | 100.00% |
| Top 10 Long-Term Holdings |
| (% of Fund's 12/31/15 Net Assets) |
| | | |
| Boston Properties, Inc. | Office REITs | 5.18% |
| Simon Property Group, Inc. | Retail REITs | 4.67% |
| Vornado Realty Trust | Office REITs | 3.95% |
| Acadia Realty Trust | Retail REITs | 3.65% |
| Kite Realty Group Trust | Retail REITs | 3.57% |
| Alexander & Baldwin Inc. | Diversified Real Estate Activities | 3.24% |
| CyrusOne Inc. | Specialized REITs | 3.16% |
| American Campus Communities, Inc. | Residential REITs | 3.03% |
| American Residential Properties, Inc. | Residential REITs | 2.86% |
| AvalonBay Communities, Inc. | Residential REITs | 2.72% |
| DAVIS REAL ESTATE PORTFOLIO | Fund Overview – (Continued) |
| | December 31, 2015 |
| New Positions Added (01/01/15-12/31/15) |
| (Highlighted positions are those greater than 2.00% of the Fund's 12/31/15 net assets) |
| Security | Industry | Date of 1st Purchase | % of Fund's 12/31/15 Net Assets |
| American Tower Corp. | Specialized REITs | 04/16/15 | – |
| Apartment Investment & Management Co., | | | |
| Class A | Residential REITs | 01/14/15 | 1.22% |
| Brixmor Property Group, Inc. | Retail REITs | 02/10/15 | 2.06% |
| Brookdale Senior Living Inc. | Real Estate Operating Companies | 01/07/15 | – |
| Camden Property Trust | Residential REITs | 01/29/15 | – |
| Campus Crest Communities Inc., Series A, | | | |
| 8.00%, Cum. Pfd. | Residential REITs | 04/01/15 | 0.11% |
| CorEnergy Infrastructure Trust, Inc. | Specialized REITs | 12/08/15 | 0.42% |
| CorEnergy Infrastructure Trust, Inc., | | | |
| Series A, 7.375%, Cum. Pfd. | Specialized REITs | 12/08/15 | 0.05% |
| Crown Castle International Corp. | Specialized REITs | 01/13/15 | 1.65% |
| CyrusOne Inc. | Specialized REITs | 01/07/15 | 3.16% |
| DiamondRock Hospitality Co. | Hotel & Resort REITs | 02/05/15 | 0.75% |
| Equinix Inc. | Office REITs | 01/08/15 | – |
| Equity Residential | Residential REITs | 06/29/15 | 2.48% |
| HCP, Inc. | Health Care REITs | 03/18/15 | – |
| Hyatt Hotels Corp., Class A | Consumer Services | 01/07/15 | 1.14% |
| InterXion Holding N.V. | Software & Services | 06/04/15 | 1.08% |
| QTS Realty Trust Inc., Class A | Specialized REITs | 03/09/15 | – |
| Retail Opportunity Investments Corp. | Retail REITs | 01/07/15 | 1.96% |
| Rexford Industrial Realty, Inc. | Industrial REITs | 09/01/15 | 0.18% |
| Starwood Hotels & Resorts Worldwide, Inc. | Consumer Services | 07/17/15 | 0.94% |
| UDR, Inc. | Residential REITs | 01/14/15 | 1.44% |
| Welltower Inc. | Health Care REITs | 03/18/15 | – |
| Windstream Holdings Inc. | Telecommunication Services | 01/13/15 | – |
| DAVIS REAL ESTATE PORTFOLIO | Fund Overview – (Continued) |
| | December 31, 2015 |
| Positions Closed (01/01/15-12/31/15) |
| (Gains and losses greater than $80,000 are highlighted) |
| Security | Industry | Date of Final Sale | | | Realized Gain (Loss) |
| American Tower Corp. | Specialized REITs | 12/04/15 | | $ | (12,562) |
| Brandywine Realty Trust | Office REITs | 12/09/15 | | | (44,852) |
| Brookdale Senior Living Inc. | Real Estate Operating Companies | 10/14/15 | | | (148,675) |
| Camden Property Trust | Residential REITs | 08/25/15 | | | (16,774) |
| Campus Crest Communities, Inc. | Residential REITs | 02/17/15 | | | 9,956 |
| Care Capital Properties, Inc. | Health Care REITs | 08/19/15 | | | 696 |
| Communications Sales & Leasing, Inc. | Specialized REITs | 06/05/15 | | | (16,345) |
| CoreSite Realty Corp. | Office REITs | 01/09/15 | | | 124,058 |
| Corporate Office Properties Trust | Office REITs | 08/12/15 | | | 26,275 |
| CubeSmart | Specialized REITs | 01/07/15 | | | 119,645 |
| Equinix Inc. | Office REITs | 04/24/15 | | | 31,943 |
| Forest City Enterprises, Inc., Conv. | | | | | |
| Sr. Notes, 5.00%, 10/15/16 | Real Estate Operating Companies | 12/04/15 | | | 50,494 |
| General Growth Properties, Inc. | Retail REITs | 08/26/15 | | | 176,388 |
| HCP, Inc. | Health Care REITs | 03/18/15 | | | 4,364 |
| Host Hotels & Resorts Inc. | Hotel & Resort REITs | 02/27/15 | | | 114,922 |
| Las Vegas Sands Corp. | Consumer Services | 04/16/15 | | | (24,392) |
| LaSalle Hotel Properties | Hotel & Resort REITs | 05/07/15 | | | 81,038 |
| Paramount Group, Inc. | Office REITs | 04/14/15 | | | 10,278 |
| Public Storage | Specialized REITs | 01/16/15 | | | 68,525 |
| QTS Realty Trust Inc., Class A | Specialized REITs | 08/13/15 | | | 17,521 |
| SBA Communications Corp., Class A | Telecommunication Services | 03/13/15 | | | 63,405 |
| SL Green Realty Corp. | Office REITs | 03/20/15 | | | 59,552 |
| Taubman Centers, Inc. | Retail REITs | 02/18/15 | | | (9,631) |
| Urban Edge Properties | Retail REITs | 02/10/15 | | | 18,788 |
| Ventas, Inc. | Health Care REITs | 11/06/15 | | | 63,046 |
| Welltower Inc. | Health Care REITs | 11/06/15 | | | (44,433) |
| Weyerhaeuser Co. | Specialized REITs | 01/14/15 | | | 85,836 |
| Windstream Holdings Inc. | Telecommunication Services | 06/04/15 | | | (16,004) |
| WP GLIMCHER, Inc. | Retail REITs | 02/10/15 | | | (1,963) |
| Wynn Resorts Ltd. | Consumer Services | 04/16/15 | | | (50,262) |
| 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 December 31, 2015. Please note that the Expense Example is general and does not reflect charges imposed by your insurance company's separate account or account specific costs, which may increase your total costs of investing in the Fund. If these charges or account specific costs were included in the Expense Example, the expenses would have been higher.
Actual Expenses
The information represented in the row entitled "Actual" provides information about actual account values and actual expenses. You may use the information in this row, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The information represented in the row entitled "Hypothetical" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the information in the row entitled "Hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| | Beginning Account Value (07/01/15) | | Ending Account Value (12/31/15) | | Expenses Paid During Period* (07/01/15-12/31/15) |
| | | | | | |
| Actual | $1,000.00 | | $1,075.43 | | $4.60 |
| Hypothetical | $1,000.00 | | $1,020.77 | | $4.48 |
Hypothetical assumes 5% annual return before expenses.
* Expenses are equal to the Fund's annualized operating expense ratio (0.88%)**, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
** The expense ratio reflects the impact, if any, of certain reimbursements from the Adviser.
| DAVIS REAL ESTATE PORTFOLIO | |
| | December 31, 2015 |
| | Shares | | Value
(Note 1) |
| COMMON STOCK – (95.70%) |
| | CONSUMER DISCRETIONARY – (2.90%) |
| | | Consumer Services – (2.90%) |
| | | Extended Stay America, Inc. | | | 9,250 | | $ | 147,075 |
| | Hyatt Hotels Corp., Class A * | | | 4,330 | | | 203,597 |
| | Starwood Hotels & Resorts Worldwide, Inc. | | | 2,440 | | | 169,043 |
| | | Total Consumer Discretionary | | | 519,715 |
| | FINANCIALS – (91.72%) |
| | Real Estate – (91.72%) |
| | | Real Estate Investment Trusts (REITs) – (87.50%) |
| | Diversified REITs – (3.38%) |
| | Cousins Properties, Inc. | | | 42,350 | | | 399,361 |
| | Liberty Property Trust | | | 6,620 | | | 205,551 |
| | | 604,912 |
| | Health Care REITs – (1.06%) |
| | National Health Investors, Inc. | | | 3,130 | | | 190,523 |
| | Hotel & Resort REITs – (0.75%) |
| | DiamondRock Hospitality Co. | | | 13,890 | | | 134,039 |
| | Industrial REITs – (12.19%) |
| | DCT Industrial Trust Inc. | | | 11,470 | | | 428,634 |
| | EastGroup Properties, Inc. | | | 7,630 | | | 424,304 |
| | First Industrial Realty Trust, Inc. | | | 17,680 | | | 391,259 |
| | Prologis, Inc. | | | 10,160 | | | 436,067 |
| | Rexford Industrial Realty, Inc. | | | 1,940 | | | 31,738 |
| | Terreno Realty Corp. | | | 20,850 | | | 471,627 |
| | | 2,183,629 |
| | Office REITs – (13.80%) |
| | Alexandria Real Estate Equities, Inc. | | | 2,760 | | | 249,393 |
| | BioMed Realty Trust, Inc. | | | 12,520 | | | 296,599 |
| | Boston Properties, Inc. | | | 7,280 | | | 928,491 |
| | Highwoods Properties, Inc. | | | 6,680 | | | 291,248 |
| | Vornado Realty Trust | | | 7,080 | | | 707,717 |
| | | 2,473,448 |
| | Residential REITs – (21.16%) |
| | American Campus Communities, Inc. | | | 13,120 | | | 542,381 |
| | American Homes 4 Rent, Class A | | | 12,910 | | | 215,081 |
| | American Residential Properties, Inc. | | | 27,120 | | | 512,568 |
| | Apartment Investment & Management Co., Class A | | | 5,470 | | | 218,964 |
| | AvalonBay Communities, Inc. | | | 2,650 | | | 487,944 |
| | Education Realty Trust, Inc. | | | 8,746 | | | 331,298 |
| | Equity Residential | | | 5,450 | | | 444,666 |
| | Essex Property Trust, Inc. | | | 1,520 | | | 363,903 |
| | Post Properties, Inc. | | | 7,060 | | | 417,670 |
| | UDR, Inc. | | | 6,870 | | | 258,106 |
| | | 3,792,581 |
| | Retail REITs – (25.97%) |
| | Acadia Realty Trust | | | 19,730 | | | 654,049 |
| | Brixmor Property Group, Inc. | | | 14,320 | | | 369,742 |
| | CBL & Associates Properties, Inc. | | | 5,870 | | | 72,612 |
| | Cedar Realty Trust Inc. | | | 58,270 | | | 412,552 |
| DAVIS REAL ESTATE PORTFOLIO | Schedule of Investments - (Continued) |
| | December 31, 2015 |
| | Shares/Principal | | Value
(Note 1) |
| COMMON STOCK – (CONTINUED) |
| | FINANCIALS – (CONTINUED) |
| | | Real Estate – (Continued) |
| | | Real Estate Investment Trusts (REITs) – (Continued) |
| | | Retail REITs – (Continued) |
| | DDR Corp. | | | 17,830 | | $ | 300,257 |
| | Federal Realty Investment Trust | | | 2,250 | | | 328,725 |
| | Kite Realty Group Trust | | | 24,649 | | | 639,149 |
| | Macerich Co. | | | 4,490 | | | 362,298 |
| | Ramco-Gershenson Properties Trust | | | 19,700 | | | 327,217 |
| | Retail Opportunity Investments Corp. | | | 19,590 | | | 350,661 |
| | Simon Property Group, Inc. | | | 4,300 | | | 836,092 |
| | | 4,653,354 |
| | Specialized REITs – (9.19%) |
| | CatchMark Timber Trust Inc., Class A | | | 36,850 | | | 416,773 |
| | CorEnergy Infrastructure Trust, Inc. | | | 5,070 | | | 75,239 |
| | Crown Castle International Corp. | | | 3,420 | | | 295,659 |
| | CyrusOne Inc. | | | 15,110 | | | 565,869 |
| | DuPont Fabros Technology Inc. | | | 9,240 | | | 293,740 |
| | | 1,647,280 |
| | | 15,679,766 |
| | Real Estate Management & Development – (4.22%) |
| | Diversified Real Estate Activities – (3.24%) |
| | Alexander & Baldwin Inc. | | | 16,450 | | | 580,849 |
| | Real Estate Operating Companies – (0.98%) |
| | Forest City Enterprises, Inc., Class A * | | | 8,020 | | | 175,879 |
| | | 756,728 |
| | | Total Financials | | | 16,436,494 |
| | INFORMATION TECHNOLOGY – (1.08%) |
| | Software & Services – (1.08%) |
| | InterXion Holding N.V. (Netherlands)* | | | 6,400 | | | 192,960 |
| | Total Information Technology | | | 192,960 |
| | | TOTAL COMMON STOCK – (Identified cost $15,903,840) | | | 17,149,169 |
| PREFERRED STOCK – (0.16%) |
| | FINANCIALS – (0.16%) |
| | Real Estate – (0.16%) |
| | Real Estate Investment Trusts (REITs) – (0.16%) |
| | Residential REITs – (0.11%) |
| | Campus Crest Communities Inc., Series A, 8.00%, Cum. Pfd. | | | 750 | | | 20,175 |
| | Specialized REITs – (0.05%) |
| | CorEnergy Infrastructure Trust, Inc., Series A, 7.375%, Cum. Pfd. | | | 480 | | | 8,741 |
| | Total Financials | | | 28,916 |
| | TOTAL PREFERRED STOCK – (Identified cost $23,955) | | | 28,916 |
| SHORT-TERM INVESTMENTS – (3.87%) |
| | Mizuho Securities USA Inc. Joint Repurchase Agreement, 0.27%, 01/04/16, dated 12/31/15, repurchase value of $189,006 (collateralized by: U.S. Government agency mortgages in a pooled cash account, 3.59%-6.50%, 06/01/22-12/01/45, total market value $192,780) | | $ | 189,000 | | | 189,000 |
| DAVIS REAL ESTATE PORTFOLIO | Schedule of Investments - (Continued) |
| | December 31, 2015 |
| | Principal | | Value
(Note 1) |
| SHORT-TERM INVESTMENTS – (CONTINUED) |
| | | Nomura Securities International, Inc. Joint Repurchase Agreement, 0.34%, 01/04/16, dated 12/31/15, repurchase value of $393,015 (collateralized by: U.S. Government agency mortgages in a pooled cash account, 2.345%-6.00%, 03/01/19-10/20/65, total market value $400,860) | | $ | 393,000 | | $ | 393,000 |
| | SunTrust Robinson Humphrey, Inc. Joint Repurchase Agreement, 0.45%, 01/04/16, dated 12/31/15, repurchase value of $112,006 (collateralized by: U.S. Government agency mortgages in a pooled cash account, 2.466%-4.50%, 04/01/25-10/01/44, total market value $114,240) | | | 112,000 | | | 112,000 |
| | | TOTAL SHORT-TERM INVESTMENTS – (Identified cost $694,000) | | | 694,000 |
| | | Total Investments – (99.73%) – (Identified cost $16,621,795) – (a) | | | 17,872,085 |
| | Other Assets Less Liabilities – (0.27%) | | | 48,634 |
| | Net Assets – (100.00%) | | $ | 17,920,719 |
| |
| | * | Non-Income producing security. |
| |
| | (a) | Aggregate cost for federal income tax purposes is $16,730,334. At December 31, 2015 unrealized appreciation (depreciation) of securities for federal income tax purposes is as follows: |
| |
| | Unrealized appreciation | | $ | 1,522,493 |
| | Unrealized depreciation | | | (380,742) |
| | Net unrealized appreciation | | $ | 1,141,751 |
| |
| See Notes to Financial Statements |
| DAVIS REAL ESTATE PORTFOLIO | Statement of Assets and Liabilities |
| | At December 31, 2015 |
| ASSETS: | | | | | |
| Investments in securities at value* (see accompanying Schedule of Investments) | | $ | 17,872,085 |
| Cash | | | 1,005 |
| Receivables: | | | |
| | Dividends and interest | | | 85,862 |
| Prepaid expenses | | | 551 |
| | | Total assets | | | 17,959,503 |
LIABILITIES: | | | |
| Payables: | | | |
| | Capital stock redeemed | | | 3,360 |
| Accrued audit fees | | | 13,090 |
| Accrued custodian fees | | | 4,500 |
| Accrued investment advisory fee | | | 10,429 |
| Other accrued expenses | | | 7,405 |
| | Total liabilities | | | 38,784 |
NET ASSETS | | $ | 17,920,719 |
SHARES OUTSTANDING | | | 1,346,706 |
NET ASSET VALUE, offering, and redemption price per share (Net assets ÷ Shares outstanding) | | $ | 13.31 |
NET ASSETS CONSIST OF: | | | |
| Par value of shares of capital stock | | $ | 1,347 |
| Additional paid-in capital | | | 17,701,925 |
| Undistributed net investment income | | | 203,816 |
| Accumulated net realized losses from investments | | | (1,236,659) |
| Net unrealized appreciation on investments | | | 1,250,290 |
| | Net Assets | | $ | 17,920,719 |
| | | | | |
| *Including: | | | |
| | Cost of Investments | | $ | 16,621,795 |
| See Notes to Financial Statements |
| DAVIS REAL ESTATE PORTFOLIO | |
| | For the year ended December 31, 2015 |
| INVESTMENT INCOME: | | | | | | |
| Income: | | | |
| Dividends | | $ | 400,961 |
| Interest | | | 4,684 |
| | | Total income | | | | 405,645 |
Expenses: | | | |
| Investment advisory fees (Note 3) | | $ | 119,206 | | | |
| Custodian fees | | | 20,637 | | | |
| Transfer agent fees | | | 6,264 | | | |
| Audit fees | | | 19,320 | | | |
| Legal fees | | | 499 | | | |
| Accounting fees (Note 3) | | | 2,004 | | | |
| Reports to shareholders | | | 24 | | | |
| Directors' fees and expenses | | | 7,869 | | | |
| Registration and filing fees | | | 16 | | | |
| Miscellaneous | | | 9,220 | | | |
| | Total expenses | | | | 185,059 |
| Net investment income | | | 220,586 |
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS: | | | | | | |
| Net realized gain from: | | | |
| | Investment transactions | | | 1,684,455 |
| Net realized gain | | | 1,684,455 |
| Net decrease in unrealized appreciation | | | (1,628,479) |
| | Net realized and unrealized gain on investments | | | | 55,976 |
| Net increase in net assets resulting from operations | | $ | 276,562 |
| See Notes to Financial Statements |
| DAVIS REAL ESTATE PORTFOLIO | Statements of Changes in Net Assets |
| | | Year ended December 31, |
| | | 2015 | | 2014 |
OPERATIONS: | | | | | | |
| Net investment income | | $ | 220,586 | | $ | 328,476 |
| Net realized gain from investments and foreign currency transactions | | | 1,684,455 | | | 2,117,203 |
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | | | (1,628,479) | | | 3,448,142 |
| | Net increase in net assets resulting from operations | | | 276,562 | | | 5,893,821 |
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | | | |
| Net investment income | | | (329,211) | | | (294,901) |
CAPITAL SHARE TRANSACTIONS: | | | | | | |
| Net decrease in net assets resulting from capital share transactions (Note 4) | | | (8,163,433) | | | (1,473,137) |
| | Total increase (decrease) in net assets | | | (8,216,082) | | | 4,125,783 |
NET ASSETS: | | | | | | |
| Beginning of year | | | 26,136,801 | | | 22,011,018 |
End of year* | | $ | 17,920,719 | | $ | 26,136,801 |
*Including undistributed net investment income of | | $ | 203,816 | | $ | 312,441 |
See Notes to Financial Statements |
DAVIS REAL ESTATE PORTFOLIO | Notes to Financial Statements |
| | December 31, 2015 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a separate series of Davis Variable Account Fund, Inc. (a Maryland corporation), which is registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management investment company. Only insurance companies, for the purpose of funding variable annuity or variable life insurance contracts, may purchase shares of the Fund. The Fund concentrates its investments in the real estate sector, and it may be subject to greater risks than a fund that does not concentrate its investments in a particular sector. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
Security Valuation - The Fund calculates the net asset value of its shares as of the close of the New York Stock Exchange ("Exchange"), normally 4:00 P.M. Eastern time, on each day the Exchange is open for business. Securities listed on the Exchange (and other national exchanges including NASDAQ) are valued at the last reported sales price on the day of valuation. Listed securities for which no sale was reported on that date are valued at the average of closing bid and asked prices. Securities traded on foreign exchanges are valued based upon the last sales price on the principal exchange on which the security is traded prior to the time when the Fund's assets are valued. Securities (including restricted securities) for which market quotations are not readily available or securities whose values have been materially affected by what Davis Selected Advisers, L.P. ("Davis Advisors" or "Adviser"), the Fund's investment adviser, identifies as a significant event occurring before the Fund's assets are valued, but after the close of their respective exchanges will be fair valued using a fair valuation methodology applicable to the security type or the significant event as previously approved by the Fund's Pricing Committee and Board of Directors. The Pricing Committee considers all facts it deems relevant that are reasonably available, through either public information or information available to the Adviser's portfolio management team, when determining the fair value of a security. To assess the appropriateness of security valuations, the Adviser may consider (i) comparing prior day prices and/or prices of comparable securities; (ii) comparing sale prices to the prior or current day prices and challenge those prices exceeding certain tolerance levels with the third-party pricing service or broker source; (iii) new rounds of financing; (iv) the performance of the market or the issuer's industry; (v) the liquidity of the security; (vi) the size of the holding in a fund; and/or (vii) any other appropriate information. The determination of a security's fair value price often involves the consideration of a number of subjective factors and is therefore subject to the unavoidable risk that the value assigned to a security may be higher or lower than the security's value would be if a reliable market quotation of the security was readily available. Fair value determinations are subject to review, approval, and ratification by the Fund's Board of Directors at its next regularly scheduled meeting covering the period in which the fair valuation was determined.
Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value.
The Fund's valuation procedures are reviewed and subject to approval by the Board of Directors. There have been no significant changes to the fair valuation procedures during the period.
Fair Value Measurements - Fair value is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal market for the investment. Various inputs are used to determine the fair value of the Fund's investments. These inputs are summarized in the three broad levels listed below.
Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment
speeds, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Fund's own assumptions in determining the fair value of
investments)
The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities nor can it be assured that the Fund can obtain the fair value assigned to a security if it were to sell the security.
| DAVIS REAL ESTATE PORTFOLIO | Notes to Financial Statements – (Continued) |
| | December 31, 2015 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)
Fair Value Measurements - (Continued)
The following is a summary of the inputs used as of December 31, 2015 in valuing the Fund's investments carried at value:
| | Investments in Securities at Value |
| | Valuation Inputs |
| | | | Level 2: | | Level 3: | | |
| | | | Other Significant | | Significant | | |
| | Level 1: | | Observable | | Unobservable | | |
| | Quoted Prices | | Inputs | | Inputs | | Total |
Equity securities: | | | | | | | | | | | |
| Consumer Discretionary | $ | 519,715 | | $ | – | | $ | – | | $ | 519,715 |
| Financials | | 16,465,410 | | | – | | | – | | | 16,465,410 |
| Information Technology | | 192,960 | | | – | | | – | | | 192,960 |
| Short-term securities | | – | | | 694,000 | | | – | | | 694,000 |
| Total Investments | $ | 17,178,085 | | $ | 694,000 | | $ | – | | $ | 17,872,085 |
There were no transfers of investments between Level 1 and Level 2 of the fair value hierarchy during the year ended December 31, 2015.
Master Repurchase Agreements - The Fund, along with other affiliated funds, may transfer uninvested cash balances into one or more master repurchase agreement accounts. These balances are invested in one or more repurchase agreements, secured by U.S. Government securities. A custodian bank holds securities pledged as collateral for repurchase agreements until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal; however, in the event of default by the other party to the agreement, retention of the collateral may be subject to legal proceedings.
Currency Translation - The market values of all assets and liabilities denominated in foreign currencies are recorded in the financial statements after translation to the U.S. Dollar based upon the mean between the bid and offered quotations of the currencies against U.S. Dollars on the date of valuation. The cost basis of such assets and liabilities is determined based upon historical exchange rates. Income and expenses are translated at average exchange rates in effect as accrued or incurred.
Foreign Currency - The Fund may enter into forward purchases or sales of foreign currencies to hedge certain foreign currency denominated assets and liabilities against declines in market value relative to the U.S. Dollar. Forward currency contracts are marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the forward currency contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the forward currency contract at the time it was opened and value at the time it was closed. Investments in forward currency contracts may expose the Fund to risks resulting from unanticipated movements in foreign currency exchange rates or failure of the counter-party to the agreement to perform in accordance with the terms of the contract.
Reported net realized foreign exchange gains or losses arise from the sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on security transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. Dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate. The Fund includes foreign currency gains and losses realized on the sales of investments together with market gains and losses on such investments in the Statement of Operations.
| DAVIS REAL ESTATE PORTFOLIO | Notes to Financial Statements – (Continued) |
| | December 31, 2015 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)
Federal Income Taxes - It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute substantially all of its taxable income, including any net realized gains on investments not offset by loss carryovers, to shareholders. Therefore, no provision for federal income or excise tax is required. The Adviser has analyzed the Fund's tax positions taken on federal and state income tax returns for all open tax years and has concluded that as of December 31, 2015, no provision for income tax is required in the Fund's financial statements related to these tax positions. The Fund's federal and state (Arizona) income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state department of revenue. The earliest tax year that remains subject to examination by these jurisdictions is 2012. At December 31, 2015, the Fund had available for federal income tax purposes unused capital loss carryforwards as follows:
| | Capital Loss Carryforwards |
Expiring | | |
| 12/31/2017 | $ | 1,128,000 |
| | | |
| Utilized in 2015 | $ | 1,778,000 |
Securities Transactions and Related Investment Income - Securities transactions are accounted for on the trade date (date the order to buy or sell is executed) with realized gain or loss on the sale of securities being determined based upon identified cost. Dividend income is recorded on the ex-dividend date. Dividend income from REIT securities may include return of capital. Upon notification from the issuer, the amount of the return of capital is reclassified to adjust dividend income, reduce the cost basis, and/or adjust realized gain/loss. Interest income, which includes accretion of discount and amortization of premium, is accrued as earned.
Dividends and Distributions to Shareholders - Dividends and distributions to shareholders are recorded on the ex-dividend date. Net investment income (loss), net realized gains (losses), and net unrealized appreciation (depreciation) on investments may differ for financial statement and tax purposes primarily due to differing treatments of wash sales, Directors' deferred compensation payments, and foreign currency transactions. The character of dividends and distributions made during the fiscal year from net investment income and net realized securities gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividends and distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which income or realized gain was recorded by the Fund. The Fund adjusts certain components of capital to reflect permanent differences between financial statement amounts and net income and realized gains/losses determined in accordance with income tax rules.
The tax character of distributions paid during the years ended December 31, 2015 and 2014 was as follows:
| | 2015 | | 2014 |
| Ordinary income | $ | 329,211 | | $ | 294,901 |
As of December 31, 2015, the components of distributable earnings (accumulated losses) on a tax basis were as follows:
| Undistributed net investment income | $ | 209,269 |
| Accumulated net realized losses from investments | | (1,128,122) |
| Net unrealized appreciation on investments | | 1,141,751 |
| Total | $ | 222,898 |
| DAVIS REAL ESTATE PORTFOLIO | Notes to Financial Statements – (Continued) |
| | December 31, 2015 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (CONTINUED)
Indemnification - Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, some of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims.
Use of Estimates in Financial Statements - In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.
Directors Fees and Expenses - The Fund set up a Rabbi Trust to provide for the deferred compensation plan for Independent Directors that enables them to elect to defer receipt of all or a portion of annual fees they are entitled to receive. The value of an eligible Director's account is based upon years of service and fees paid to each Director during the years of service. The amount paid to the Director by the Trust under the plan will be determined based upon the performance of the Davis Funds in which the amounts are invested.
NOTE 2 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of investment securities (excluding short-term securities) during the year ended December 31, 2015 were $19,614,209 and $26,047,005, respectively.
NOTE 3 - FEES AND OTHER TRANSACTIONS WITH SERVICE PROVIDERS (INCLUDING AFFILIATES)
Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of the Adviser, acts as sub-adviser to the Fund. DSA-NY performs research and portfolio management services for the Fund under a Sub-Advisory Agreement with the Adviser. The Fund pays no fees directly to DSA-NY.
Certain directors and officers of the Fund are also directors and officers of the general partner of the Adviser.
Investment Advisory Fees - Advisory fees are paid monthly to the Adviser at an annual rate of 0.55% of the Fund's average net assets. The Adviser is contractually committed to waive fees and/or reimburse the Fund's expenses to the extent necessary to cap total annual Fund operating expenses at 1.00%.
Accounting Fees - State Street Bank and Trust Company ("State Street Bank") is the Fund's primary accounting provider. Fees for accounting services are included in the custodian fees as State Street Bank also serves as the Fund's custodian. The Adviser is also paid for certain accounting services. The fee paid to the Adviser for these services during the year ended December 31, 2015 amounted to $2,004.
| DAVIS REAL ESTATE PORTFOLIO | Notes to Financial Statements – (Continued) |
| | December 31, 2015 |
NOTE 4 - CAPITAL STOCK
At December 31, 2015, there were 500 million shares of capital stock ($0.001 par value per share) authorized. Transactions in capital stock were as follows:
| | Year ended December 31, 2015 |
| | | Sold | | | Reinvestment of Distributions | | | Redeemed | | | Net Decrease |
| | | | | | | | | | | | |
Shares: | | 189,766 | | | 25,059 | | | (832,198) | | | (617,373) |
Value: | $ | 2,571,044 | | $ | 329,211 | | $ | (11,063,688) | | $ | (8,163,433) |
| | | | | | | | | | | | |
| | |
| | Year ended December 31, 2014 |
| | | Sold | | | Reinvestment of Distributions | | | Redeemed | | | Net Decrease |
| | | | | | | | | | | | |
Shares: | | 374,250 | | | 24,154 | | | (518,708) | | | (120,304) |
Value: | $ | 4,421,152 | | $ | 294,901 | | $ | (6,189,190) | | $ | (1,473,137) |
| | | | | | | | | | | | |
NOTE 5 - BANK BORROWINGS
The Fund may borrow up to 5% of its assets from a bank to purchase portfolio securities, or for temporary and emergency purposes. The purchase of securities with borrowed funds creates leverage in the Fund. The Fund has entered into an agreement, which enables it to participate with certain other funds managed by the Adviser in an unsecured line of credit with a bank, which permits borrowings up to $50 million, collectively. Interest is charged based on its borrowings, at a rate equal to the higher of the Federal Funds Rate or the one month LIBOR Rate, plus 1.25%. The Fund had no borrowings during the year ended December 31, 2015.
FEDERAL INCOME TAX INFORMATION
(UNAUDITED)
During the calendar year ended December 31, 2015, $329,211 of dividends paid by the Fund constituted income dividends for federal income tax purposes. The Fund designates $11,739 or 4% as income qualifying for the corporate dividends-received deduction.
| DAVIS REAL ESTATE PORTFOLIO | |
| The following financial information represents selected data for each share of capital stock outstanding throughout each period: |
| | Year ended December 31, |
| | | | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| Net Asset Value, Beginning of Period | | $ | 13.31 | | $ | 10.56 | | $ | 10.83 | | $ | 9.34 | | $ | 8.69 |
Income (Loss) from Investment Operations: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Investment Income | | 0.14a | | 0.17 | | 0.19 | | 0.16 | | 0.14 |
| Net Realized and Unrealized Gains (Losses) | | 0.08 | | 2.73 | | (0.33) | | 1.44 | | 0.63 |
| | Total from Investment Operations | | 0.22 | | 2.90 | | (0.14) | | 1.60 | | 0.77 |
Dividends and Distributions: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dividends from Net Investment Income | | (0.22) | | (0.15) | | (0.13) | | (0.11) | | (0.12) |
| | Total Dividends and Distributions | | (0.22) | | (0.15) | | (0.13) | | (0.11) | | (0.12) |
Net Asset Value, End of Period | | $ | 13.31 | | $ | 13.31 | | $ | 10.56 | | $ | 10.83 | | $ | 9.34 |
Total Returnb | | 1.65 | % | | 27.54 | % | | (1.32) | % | | 17.15 | % | | 8.89 | % |
Ratios/Supplemental Data: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Assets, End of Period (in thousands) | | $ | 17,921 | | | $ | 26,137 | | | $ | 22,011 | | | $ | 28,068 | | | $ | 24,226 | |
| Ratio of Expenses to Average Net Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross | | 0.85 | % | | 0.81 | % | | 0.81 | % | | 0.77 | % | | 0.81 | % |
| | Netc | | 0.85 | % | | 0.81 | % | | 0.81 | % | | 0.77 | % | | 0.81 | % |
Ratio of Net Investment Income to Average Net Assets | | 1.02 | % | | 1.34 | % | | 1.52 | % | | 1.55 | % | | 1.50 | % |
Portfolio Turnover Rated | | 95 | % | | 54 | % | | 73 | % | | 51 | % | | 75 | % |
| a | Per share calculations were based on average shares outstanding for the period. |
| | |
| b | Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. |
| | |
| c | The Net Ratio of Expenses to Average Net Assets reflects the impact, if any, of the reduction of expenses paid indirectly and of certain reimbursements from the Adviser. |
| | |
| d | The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. |
| |
| See Notes to Financial Statements |
| DAVIS REAL ESTATE PORTFOLIO | Report of Independent Registered Public Accounting Firm |
The Shareholders and Board of Directors
Davis Variable Account Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Davis Real Estate Portfolio (a separate series of Davis Variable Account Fund, Inc.), including the schedule of investments, as of December 31, 2015, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two‑year period then ended, and the financial highlights for each of the years in the five‑year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2015, by correspondence with the custodian or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Davis Real Estate Portfolio as of December 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two‑year period then ended, and the financial highlights for each of the years in the five‑year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Denver, Colorado
February 8, 2016
| DAVIS REAL ESTATE PORTFOLIO | |
For the purposes of their service as directors to the Davis Funds, the business address for each of the directors is 2949 E. Elvira Road, Suite 101, Tucson, AZ 85756. Each Director serves until their retirement, resignation, death, or removal. Subject to exceptions and exemptions, which may be granted by the Independent Directors, Directors must retire at the close of business on the last day of the calendar year in which the Director attains age seventy-four (74).
Name (birthdate) | Position(s) Held With Fund | Term of Office and Length of Time Served | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Director | Other Directorships Held by Director |
| | | | | | |
Independent Directors
| | | | | | |
Marc P. Blum (09/09/42) | Director | Director since 1986 | Chief Executive Officer, World Total Return Fund, LLLP; of Counsel to Gordon Feinblatt LLC (law firm). | 13 | Director, Rodney Trust Company (trust and asset management company). |
| | | | | | |
John S. Gates, Jr. (08/02/53) | Director | Director since 2007 | Chairman and Chief Executive Officer of PortaeCo LLC (private investment company). | 13 | Director, Care Capital Properties (REIT); Director, DCT Industrial Trust (REIT). |
| | | | | | |
Thomas S. Gayner (12/16/61) | Director/ Chairman | Director since 2004 | President and Chief Investment Officer, Markel Corp. (diversified financial holding company). | 13 | Director, Graham Holdings Company (educational and media company); Director, Colfax Corp. (engineering and manufacturer of pumps and fluid handling equipment); Director, Cable One Inc. (cable service provider). |
| | | | | | |
Samuel H. Iapalucci (07/19/52) | Director | Director since 2006 | Retired; Executive Vice President and Chief Financial Officer, CH2M- HILL Companies, Ltd. (engineering) until 2008. | 13 | Director, exp Global Inc. (engineering). |
| | | | | | |
Robert P. Morgenthau (03/22/57) | Director | Director since 2002 | Principal, Spears Abacus Advisors, LLC (investment management firm) since 2011; Chairman, NorthRoad Capital Management, LLC (investment management firm) 2002-2011. | 13 | none |
| | | | | | |
Marsha Williams (03/28/51) | Director | Director since 1999 | Retired; Senior Vice President and Chief Financial Officer, Orbitz Worldwide, Inc. (travel-services provider) 2007-2010. | 13 | Director, Modine Manufacturing Company (heat transfer technology); Director, Chicago Bridge & Iron Company, N.V. (industrial construction and engineering); Director, Fifth Third Bancorp (diversified financial services). |
| DAVIS REAL ESTATE PORTFOLIO | Directors and Officers – (Continued) |
Name (birthdate) | Position(s) Held With Fund | Term of Office and Length of Time Served | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Director | Other Directorships Held by Director |
| | | | | | |
Interested Directors*
| | | | | | |
Andrew A. Davis (06/25/63) | Director | Director since 1997 | President or Vice President of each Davis Fund and Selected Fund; President, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser. | 16 | Director, Selected Funds (consisting of two portfolios) since 1998; Trustee of Clipper Funds Trust (consisting of one portfolio) since 2014. |
| | | | | | |
Christopher C. Davis (07/13/65) | Director | Director since 1997 | President or Vice President of each Davis Fund, Selected Fund, and Clipper Fund; Chairman, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser, including sole member of the Adviser's general partner, Davis Investments, LLC; Employee of Shelby Cullom Davis & Co. (registered broker/dealer). | 16 | Director, Selected Funds (consisting of two portfolios) since 1998; Trustee of Clipper Funds Trust (consisting of one portfolio) since 2014; Director, Graham Holdings Company (educational and media company). |
* Andrew A. Davis and Christopher C. Davis own partnership units (directly, indirectly, or both) of the Adviser and are considered to be "interested persons" of the Funds as defined in the Investment Company Act of 1940. Andrew A. Davis and Christopher C. Davis are brothers.
Officers
Andrew A. Davis (born 06/25/63, Davis Funds officer since 1997). See description in the section on Interested Directors.
Christopher C. Davis (born 07/13/65, Davis Funds officer since 1997). See description in the section on Interested Directors.
Kenneth C. Eich (born 08/14/53, Davis Funds officer since 1997). Executive Vice President and Principal Executive Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Chief Operating Officer, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
Douglas A. Haines (born 03/04/71, Davis Funds officer since 2004). Vice President, Treasurer, Chief Financial Officer, Principal Financial Officer, and Principal Accounting Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President and Director of Fund Accounting, Davis Selected Advisers, L.P.
Sharra L. Haynes (born 09/25/66, Davis Funds officer since 1997). Vice President and Chief Compliance Officer of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President and Chief Compliance Officer, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
Ryan M. Charles (born 07/25/78, Davis Funds officer since 2014). Vice President and Secretary of each of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one portfolio); Vice President, Chief Legal Officer, and Secretary, Davis Selected Advisers, L.P., and also serves as an executive officer of certain companies affiliated with the Adviser.
| DAVIS REAL ESTATE PORTFOLIO |
| Investment Adviser |
| Davis Selected Advisers, L.P. (Doing business as "Davis Advisors") |
| 2949 East Elvira Road, Suite 101 |
| Tucson, Arizona 85756 |
| (800) 279-0279 |
| |
| Distributor |
| Davis Distributors, LLC |
| 2949 East Elvira Road, Suite 101 |
| Tucson, Arizona 85756 |
| |
| Transfer Agent |
| Boston Financial Data Services, Inc. |
| c/o The Davis Funds |
| P.O. Box 8406 |
| Boston, Massachusetts 02266-8406 |
| |
| Custodian |
| State Street Bank and Trust Co. |
| One Lincoln Street |
| Boston, Massachusetts 02111 |
| |
| Counsel |
| Greenberg Traurig, LLP |
| 77 West Wacker Drive, Suite 3100 |
| Chicago, Illinois 60601 |
| |
| Independent Registered Public Accounting Firm |
| KPMG LLP |
| 1225 Seventeenth Street, Suite 800 |
| Denver, Colorado 80202 |
For more information about Davis Real Estate Portfolio, including management fee, charges, and expenses, see the current prospectus, which must precede or accompany this report. The Fund's Statement of Additional Information contains additional information about the Fund's Directors and is available without charge, upon request, by calling 1-800-279-0279 and on the Fund's website at www.davisfunds.com. Quarterly Fact Sheets are available on the Fund's website at www.davisfunds.com.
ITEM 2. CODE OF ETHICS
The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
A copy of the code of ethics is filed as an exhibit to this form N-CSR.
No waivers were granted to this code of ethics during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The registrant's board of directors has determined that independent trustee Marsha Williams qualifies as the "audit committee financial expert", as defined in Item 3 of form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
| (a) | Audit Fees. The aggregate Audit Fees billed by KPMP LLP ("KPMG") for professional services rendered for the audits of the audits of the financial statements, or services that are normally provided in connection with statutory and regulatory filings or engagements for the fiscal year ends December 31, 2015 and December 31, 2014 were $60,480 and $60,480, respectively. |
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| (b) | Audit-Related Fees. The aggregate Audit-Related Fees billed by KPMG for services rendered for assurance and related services that are not reasonably related to the performance of the audit or review of the fund financial statements, but not reported as Audit Fees fore fiscal year ends December 31, 2015 and December 31, 2014 were $0 and $0, respectively. |
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| (c) | Tax Fees. The aggregate Tax Fees billed by KPMG for professional services rendered for tax compliance, tax advice and tax planning for the fiscal year ends December 31, 2015 and December 31, 2014 were $24,255 and $20,845, respectively. Fees included in the Tax Fee category comprise all services performed by professional staff in the independent accountant's tax division except those services related to the audit. These services include preparation of tax returns, tax advice related to mergers and a review of the fund income and capital gain distributions. |
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| (d) | All Other Fees. The aggregate Other Fees billed by KPMG for all other non-audit services rendered to the fund for the fiscal year ends December 31, 2015 and December 31, 2014 were $0 and $0, respectively. |
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| (e)(1) | Audit Committee Pre-Approval Policies and Procedures. The fund Audit Committee must pre-approve all audit and non-audit services provided by the independent accountant relating to the operations or financial reporting of the funds. Prior to the commencement of any audit or non-audit services to a fund, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law. The fund Audit Committee has adopted a policy whereby audit and non-audit services performed by the fund independent accountant require pre-approval in advance at regularly scheduled Audit Committee meetings. If such a service is required between regularly scheduled Audit Committee meetings, pre-approval may be authorized by the Audit Committee Chairperson with ratification at the next scheduled audit committee meeting. |
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| (2) | No services included in (b) – (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
| (f) | Not applicable |
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| (g) | The Funds' independent accountant did not provide any services to the investment advisor or any affiliate for the fiscal years ended December 31, 2015 and December 31, 2014. The fund has not paid any fees for non-audit not previously disclosed in items 4 (b) – (d). |
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| (h) | The registrant's audit committee of the board of trustees has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. No such services were rendered. |
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not Applicable
ITEM 6. SCHEDULE OF INVESTMENTS
Not Applicable. The complete Schedule of Investments is included in Item 1 of this for N-CSR
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not Applicable
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not Applicable
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANIES AND AFFILIATED PURCHASERS
Not Applicable
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no changes to the procedure by which shareholders may recommend nominees to the registrant's Board of Trustees.
ITEM 11. CONTROLS AND PROCUDURES
| (a) | The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3 (c) under the Investment Company Act of 1940, as amended) are effective as of a date within 90 days of the filing date of this report. |
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| (b) | There have been no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls. |
ITEM 12. EXHIBITS
| (a)(1) | The registrant's code of ethics pursuant to Item 2 of Form N-CSR is filed as an exhibit to this form N-CSR. |
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| (a)(2) | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are attached. |
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| (a)(3) | Not applicable |
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| (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 |
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| Date: January 25, 2017 |
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 |
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| Date: January 25, 2017 |
| By | /s/ Douglas A. Haines |
| | Douglas A. Haines |
| | Principal Financial Officer |
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| Date: January 25, 2017 |
