Our Commitment to Shareholders
• Many clients have been invested with Davis for more than two decades. We are very grateful for this loyalty and we will continue to treat these relationships with great care.
• We know that we have had a difficult five years, but we are committed to making up that ground and want those shareholders who have steadfastly remained with us to benefit from the better times we see ahead.
Our History of Outperformance Gives Us Confidence in Our Results in the Coming Years
1. Despite disappointing near-term results, our Investment Discipline has generated superior results over both bull and bear markets.
• Our near-term results have fallen short of our goal. For a detailed discussion of recent performance, please see Davis New York Venture Fund Update in the Commentary section of davisfunds.com.
• Since inception in 1969, Davis New York Venture Fund (DNYVF, Financial) has outperformed the market by 2% per year (11.7% vs. 9.7%).1
• In addition, DNYVF has outperformed the market with a greater degree of consistency than our peers: As shown by the green bars in the chart below, DNYVF outperformed the market in 73% of all five year periods since its inception. As investor holding periods increased, the likelihood of outperforming also increased, ultimately reaching 100% of periods. These results stand out compared to the average large cap fund (tan bars).
2. Recent underperformance is not unprecedented in duration or magnitude. Importantly, every previous five year period of underperformance was followed by a period where we more than made up the lost ground.
• While the consistency illustrated in the previous chart is attractive, outperforming the market over 73% of five year periods also means that we underperformed in 27% of five year periods. Periods of underperformance, though frustrating, are inevitable.
• The chart below illustrates why we adhere to our Investment Discipline in the face of poor near-term results. The red bars represent five year periods of lagging results, while the green bars show the five year periods that followed. DNYVF outperformed in every subsequent five year period by an average of nearly 8% per year.3
• What explains this pattern? Our stretches of underperformance occurred during environments where a gap had developed between stock prices and the true intrinsic value of businesses (1970s, 1990s). Despite the fact that we may have appeared out of sync with the market, we maintained our discipline and our investors benefitted as this gap between "price and value" closed.
3. The gap between "price and value" in our Portfolio today is as large as we have ever seen.
• The businesses in DNYVF today have increased their earnings by more than 40% over the past five years, despite a drop in their stock prices of −10% (for the period ending December 31, 2012).4
• Based on metrics like balance sheet strength, market share, cost structure, brand awareness, and economies of scale, many of our core holdings are actually in a stronger competitive position now than five years ago.
• The combination of growing profits, durable businesses and attractive valuations forms the basis of our confidence about future results.
4. We continue to execute our time-tested Investment Discipline.
• Our long-term performance is a result of our focus on durable, wellmanaged businesses that we can purchase at a discount to their true value and hold for the long term. Such an approach can cause us to seem out of sync with the market, but we consider it a necessary requirement for outperforming the market over time.
• Today we have the strongest and most experienced research team in our history executing our discipline.
• Davis New York Venture Fund continues to be co-managed by Chris Davis and Ken Feinberg, who ultimately make all buy/sell decisions with input from the research team.
• Davis Opportunity Fund continues to be managed by a veteran team of analysts who make buy/sell decisions.
Conclusion
• Our five year results are below our standards and expectations. Our goal is to ensure that the shareholders who have steadfastly remained with us through this difficult period will benefit from the more satisfactory times we see ahead.
• We remain committed to our Investment Discipline that has reliably compounded wealth for six decades. However, we are never satisfied and are always looking for ways to learn from our mistakes and adapt to changing times.
• Today we see a wide gap between price and the intrinsic value of many businesses.
• Though the timing is uncertain, experience has shown us that this gap should ultimately close, and that properly positioned investors should be rewarded.
• We have such confidence in our Portfolio that we have added to our more than $2 billion co-investment with shareholders.5
This material is authorized for use by existing shareholders. A current Davis New York Venture Fund and Davis Opportunity Fund prospectus must accompany or precede this material if it is distributed to prospective shareholders. You should carefully consider the Funds' investment objectives, risks, charges, and expenses before investing. Read the prospectuses carefully before you invest or send money.
This material includes candid statements and observations regarding investment strategies, and economic and market conditions; however, there is no guarantee that these statements, opinions or forecasts will prove to be correct. These comments may also include the expression of opinions that are speculative in nature and should not be relied on as statements of fact.
Objective and Risks. Davis New York Venture Fund's investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. The Fund invests primarily in equity securities issued by large companies with market capitalizations of at least $10 billion. Some important risks of an investment in the Fund are: stock market risk: stock markets have periods of rising prices and periods of falling prices, including sharp declines; manager risk: poor security selection may cause the Fund to underperform relevant benchmarks; common stock risk: an adverse event may have a negative impact on a company and could result in a decline in the price of its common stock; financial services risk: investing a significant portion of assets in the financial services sector may cause the Fund to be more sensitive to problems affecting financial companies; foreign country risk: foreign companies may be subject to greater risk as foreign economies may not be as strong or diversified; emerging market risk: securities of issuers in emerging and developing markets may present risks not found in more mature markets; foreign currency risk: the change in value of a foreign currency against the U.S. dollar will result in a change in the U.S. dollar value of securities denominated in that foreign currency; trading markets and depositary receipts risk: depositary receipts involve higher expenses and may trade at a discount (or premium) to the underlying security; headline risk: the Fund may invest in a company when the company becomes the center of controversy. The company's stock may never recover or may become worthless; and fees and expenses risk: the Fund may not earn enough through income and capital appreciation to offset the operating expenses of the Fund. As of March 31, 2013, the Fund had approximately 14.6% of assets invested in foreign companies. See the prospectus for a complete description of the principal risks.
Objective and Risks. Davis Opportunity Fund's investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. Some important risks of an investment in the Fund are: stock market risk: stock markets have periods of rising prices and periods of falling prices, including sharp declines; manager risk: poor security selection may cause the Fund to underperform relevant benchmarks; common stock risk: an adverse event may have a negative impact on a company and could result in a decline in the price of its common stock; under $10 billion market capitalization risk: small- and mid-size companies typically involve more risk than larger, more mature companies; foreign country risk: foreign companies may be subject to greater risk as foreign economies may not be as strong or diversified; emerging market risk: securities of issuers in emerging and developing markets may present risks not found in more mature markets; foreign currency risk: the change in value of a foreign currency against the U.S. dollar will result in a change in the U.S. dollar value of securities denominated in that foreign currency; trading markets and depositary receipts risk: depositary receipts involve higher expenses and may trade at a discount (or premium) to the underlying security; headline risk: the Fund may invest in a company when the company becomes the center of controversy. The company's stock may never recover or may become worthless; and fees and expenses risk: the Fund may not earn enough through income and capital appreciation to offset the operating expenses of the Fund. As of March 31, 2013, the Fund had approximately 10.5% of assets invested in foreign companies. See the prospectus for a complete description of the principal risks.
Davis Advisors is committed to communicating with our investment partners as candidly as possible because we believe our investors benefit from understanding our investment philosophy and approach. Our views and opinions include "forward-looking statements" which may or may not be accurate over the long term. Forwardlooking statements can be identified by words like "believe," "expect," "anticipate," or similar expressions. You should not place undue reliance on forward-looking statements, which are current as of the date of this report. We disclaim any obligation to update or alter any forwardlooking statements, whether as a result of new information, future events, or otherwise. While we believe we have a reasonable basis for our appraisals and we have confidence in our opinions, actual results may differ materially from those we anticipate.
Broker-dealers and other financial intermediaries may charge Davis Advisors substantial fees for selling its funds and providing continuing support to clients and shareholders. For example, broker-dealers and other financial intermediaries may charge: sales commissions; distribution and service fees; and record-keeping fees. In addition, payments or reimbursements may be requested for: marketing support concerning Davis Advisors' products; placement on a list of offered products; access to sales meetings, sales representatives and management representatives; and participation in conferences or seminars, sales or training programs for invited registered representatives and other employees, client and investor events, and other dealer-sponsored events. Financial advisors should not consider Davis Advisors' payment(s) to a financial intermediary as a basis for recommending Davis Advisors.
We gather our index data from a combination of reputable sources, including, but not limited to, Thomson Financial, Lipper, and index websites. The S&P 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 an index.
Five Year Under/Outperformance. Davis New York Venture Fund's average annual total returns were compared against the returns of the S&P 500® Index for each five year period ending December 31 from 1974 to 2012. The Fund's returns assume an investment on the first day of each period with all dividends and capital gain distributions reinvested for the time period. The Fund's returns do not include a sales charge. If a sales charge were included, returns would be lower. The figures reflect past results; past performance is not a guarantee of future results. There can be no guarantee that the Fund will continue to deliver consistent investment performance. The performance presented includes periods of bear markets when performance was negative. Equity markets are volatile and an investor may lose money. Returns for other share classes will vary. Outperforming the Market. Davis New York Venture Fund's average annual total returns for Class A shares were compared against the returns of the S&P 500® Index as of the end of each quarter for all time periods shown from February 17, 1969, through March 31, 2013. The Fund's returns assume an investment in Class A shares on the first day of each period with all dividends and capital gain distributions reinvested for the time period. The returns are not adjusted for any sales charge that may be imposed. If a sales charge were imposed, the reported figures would be lower. The figures shown reflect past results; past performance is not a guarantee of future results. There can be no guarantee that the Fund will continue to deliver consistent investment performance. The performance presented includes periods of bear markets when performance was negative. Equity markets are volatile and an investor may lose money. Returns for other share classes will vary.
After July 31, 2013, this material must be accompanied by a supplement containing performance data for the most recent quarter end. Shares of the Davis Funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including possible loss of the principal amount invested.
Davis Distributors, LLC
2949 East Elvira Road, Suite”‰101, Tucson, AZ 85756
800-279-0279, davisfunds.com
Item #3809”ƒ3/13
• Many clients have been invested with Davis for more than two decades. We are very grateful for this loyalty and we will continue to treat these relationships with great care.
• We know that we have had a difficult five years, but we are committed to making up that ground and want those shareholders who have steadfastly remained with us to benefit from the better times we see ahead.
Our History of Outperformance Gives Us Confidence in Our Results in the Coming Years
1. Despite disappointing near-term results, our Investment Discipline has generated superior results over both bull and bear markets.
• Our near-term results have fallen short of our goal. For a detailed discussion of recent performance, please see Davis New York Venture Fund Update in the Commentary section of davisfunds.com.
• Since inception in 1969, Davis New York Venture Fund (DNYVF, Financial) has outperformed the market by 2% per year (11.7% vs. 9.7%).1
• In addition, DNYVF has outperformed the market with a greater degree of consistency than our peers: As shown by the green bars in the chart below, DNYVF outperformed the market in 73% of all five year periods since its inception. As investor holding periods increased, the likelihood of outperforming also increased, ultimately reaching 100% of periods. These results stand out compared to the average large cap fund (tan bars).
2. Recent underperformance is not unprecedented in duration or magnitude. Importantly, every previous five year period of underperformance was followed by a period where we more than made up the lost ground.
• While the consistency illustrated in the previous chart is attractive, outperforming the market over 73% of five year periods also means that we underperformed in 27% of five year periods. Periods of underperformance, though frustrating, are inevitable.
• The chart below illustrates why we adhere to our Investment Discipline in the face of poor near-term results. The red bars represent five year periods of lagging results, while the green bars show the five year periods that followed. DNYVF outperformed in every subsequent five year period by an average of nearly 8% per year.3
• What explains this pattern? Our stretches of underperformance occurred during environments where a gap had developed between stock prices and the true intrinsic value of businesses (1970s, 1990s). Despite the fact that we may have appeared out of sync with the market, we maintained our discipline and our investors benefitted as this gap between "price and value" closed.
3. The gap between "price and value" in our Portfolio today is as large as we have ever seen.
• The businesses in DNYVF today have increased their earnings by more than 40% over the past five years, despite a drop in their stock prices of −10% (for the period ending December 31, 2012).4
• Based on metrics like balance sheet strength, market share, cost structure, brand awareness, and economies of scale, many of our core holdings are actually in a stronger competitive position now than five years ago.
• The combination of growing profits, durable businesses and attractive valuations forms the basis of our confidence about future results.
4. We continue to execute our time-tested Investment Discipline.
• Our long-term performance is a result of our focus on durable, wellmanaged businesses that we can purchase at a discount to their true value and hold for the long term. Such an approach can cause us to seem out of sync with the market, but we consider it a necessary requirement for outperforming the market over time.
• Today we have the strongest and most experienced research team in our history executing our discipline.
• Davis New York Venture Fund continues to be co-managed by Chris Davis and Ken Feinberg, who ultimately make all buy/sell decisions with input from the research team.
• Davis Opportunity Fund continues to be managed by a veteran team of analysts who make buy/sell decisions.
Conclusion
• Our five year results are below our standards and expectations. Our goal is to ensure that the shareholders who have steadfastly remained with us through this difficult period will benefit from the more satisfactory times we see ahead.
• We remain committed to our Investment Discipline that has reliably compounded wealth for six decades. However, we are never satisfied and are always looking for ways to learn from our mistakes and adapt to changing times.
• Today we see a wide gap between price and the intrinsic value of many businesses.
• Though the timing is uncertain, experience has shown us that this gap should ultimately close, and that properly positioned investors should be rewarded.
• We have such confidence in our Portfolio that we have added to our more than $2 billion co-investment with shareholders.5
This material is authorized for use by existing shareholders. A current Davis New York Venture Fund and Davis Opportunity Fund prospectus must accompany or precede this material if it is distributed to prospective shareholders. You should carefully consider the Funds' investment objectives, risks, charges, and expenses before investing. Read the prospectuses carefully before you invest or send money.
This material includes candid statements and observations regarding investment strategies, and economic and market conditions; however, there is no guarantee that these statements, opinions or forecasts will prove to be correct. These comments may also include the expression of opinions that are speculative in nature and should not be relied on as statements of fact.
Objective and Risks. Davis New York Venture Fund's investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. The Fund invests primarily in equity securities issued by large companies with market capitalizations of at least $10 billion. Some important risks of an investment in the Fund are: stock market risk: stock markets have periods of rising prices and periods of falling prices, including sharp declines; manager risk: poor security selection may cause the Fund to underperform relevant benchmarks; common stock risk: an adverse event may have a negative impact on a company and could result in a decline in the price of its common stock; financial services risk: investing a significant portion of assets in the financial services sector may cause the Fund to be more sensitive to problems affecting financial companies; foreign country risk: foreign companies may be subject to greater risk as foreign economies may not be as strong or diversified; emerging market risk: securities of issuers in emerging and developing markets may present risks not found in more mature markets; foreign currency risk: the change in value of a foreign currency against the U.S. dollar will result in a change in the U.S. dollar value of securities denominated in that foreign currency; trading markets and depositary receipts risk: depositary receipts involve higher expenses and may trade at a discount (or premium) to the underlying security; headline risk: the Fund may invest in a company when the company becomes the center of controversy. The company's stock may never recover or may become worthless; and fees and expenses risk: the Fund may not earn enough through income and capital appreciation to offset the operating expenses of the Fund. As of March 31, 2013, the Fund had approximately 14.6% of assets invested in foreign companies. See the prospectus for a complete description of the principal risks.
Objective and Risks. Davis Opportunity Fund's investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. Some important risks of an investment in the Fund are: stock market risk: stock markets have periods of rising prices and periods of falling prices, including sharp declines; manager risk: poor security selection may cause the Fund to underperform relevant benchmarks; common stock risk: an adverse event may have a negative impact on a company and could result in a decline in the price of its common stock; under $10 billion market capitalization risk: small- and mid-size companies typically involve more risk than larger, more mature companies; foreign country risk: foreign companies may be subject to greater risk as foreign economies may not be as strong or diversified; emerging market risk: securities of issuers in emerging and developing markets may present risks not found in more mature markets; foreign currency risk: the change in value of a foreign currency against the U.S. dollar will result in a change in the U.S. dollar value of securities denominated in that foreign currency; trading markets and depositary receipts risk: depositary receipts involve higher expenses and may trade at a discount (or premium) to the underlying security; headline risk: the Fund may invest in a company when the company becomes the center of controversy. The company's stock may never recover or may become worthless; and fees and expenses risk: the Fund may not earn enough through income and capital appreciation to offset the operating expenses of the Fund. As of March 31, 2013, the Fund had approximately 10.5% of assets invested in foreign companies. See the prospectus for a complete description of the principal risks.
Davis Advisors is committed to communicating with our investment partners as candidly as possible because we believe our investors benefit from understanding our investment philosophy and approach. Our views and opinions include "forward-looking statements" which may or may not be accurate over the long term. Forwardlooking statements can be identified by words like "believe," "expect," "anticipate," or similar expressions. You should not place undue reliance on forward-looking statements, which are current as of the date of this report. We disclaim any obligation to update or alter any forwardlooking statements, whether as a result of new information, future events, or otherwise. While we believe we have a reasonable basis for our appraisals and we have confidence in our opinions, actual results may differ materially from those we anticipate.
Broker-dealers and other financial intermediaries may charge Davis Advisors substantial fees for selling its funds and providing continuing support to clients and shareholders. For example, broker-dealers and other financial intermediaries may charge: sales commissions; distribution and service fees; and record-keeping fees. In addition, payments or reimbursements may be requested for: marketing support concerning Davis Advisors' products; placement on a list of offered products; access to sales meetings, sales representatives and management representatives; and participation in conferences or seminars, sales or training programs for invited registered representatives and other employees, client and investor events, and other dealer-sponsored events. Financial advisors should not consider Davis Advisors' payment(s) to a financial intermediary as a basis for recommending Davis Advisors.
We gather our index data from a combination of reputable sources, including, but not limited to, Thomson Financial, Lipper, and index websites. The S&P 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 an index.
Five Year Under/Outperformance. Davis New York Venture Fund's average annual total returns were compared against the returns of the S&P 500® Index for each five year period ending December 31 from 1974 to 2012. The Fund's returns assume an investment on the first day of each period with all dividends and capital gain distributions reinvested for the time period. The Fund's returns do not include a sales charge. If a sales charge were included, returns would be lower. The figures reflect past results; past performance is not a guarantee of future results. There can be no guarantee that the Fund will continue to deliver consistent investment performance. The performance presented includes periods of bear markets when performance was negative. Equity markets are volatile and an investor may lose money. Returns for other share classes will vary. Outperforming the Market. Davis New York Venture Fund's average annual total returns for Class A shares were compared against the returns of the S&P 500® Index as of the end of each quarter for all time periods shown from February 17, 1969, through March 31, 2013. The Fund's returns assume an investment in Class A shares on the first day of each period with all dividends and capital gain distributions reinvested for the time period. The returns are not adjusted for any sales charge that may be imposed. If a sales charge were imposed, the reported figures would be lower. The figures shown reflect past results; past performance is not a guarantee of future results. There can be no guarantee that the Fund will continue to deliver consistent investment performance. The performance presented includes periods of bear markets when performance was negative. Equity markets are volatile and an investor may lose money. Returns for other share classes will vary.
After July 31, 2013, this material must be accompanied by a supplement containing performance data for the most recent quarter end. Shares of the Davis Funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including possible loss of the principal amount invested.
Davis Distributors, LLC
2949 East Elvira Road, Suite”‰101, Tucson, AZ 85756
800-279-0279, davisfunds.com
Item #3809”ƒ3/13
