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DAVIS SERIES, INC.
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Table of Contents
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Shareholder Letter
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2
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Management's Discussion of Fund Performance:
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Davis Opportunity Fund
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3
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Davis Government Bond Fund
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5
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Davis Financial Fund
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7
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Davis Appreciation & Income Fund
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9
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Davis Real Estate Fund
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11
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Fund Overview:
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Davis Opportunity Fund
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13
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Davis Government Bond Fund
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15
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Davis Government Money Market Fund
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16
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Davis Financial Fund
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17
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Davis Appreciation & Income Fund
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18
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Davis Real Estate Fund
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20
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Expense Example
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22
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Schedule of Investments:
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Davis Opportunity Fund
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25
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Davis Government Bond Fund
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29
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Davis Government Money Market Fund
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32
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Davis Financial Fund
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34
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Davis Appreciation & Income Fund
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36
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Davis Real Estate Fund
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40
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Statements of Assets and Liabilities
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43
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Statements of Operations
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45
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Statements of Changes in Net Assets
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46
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Notes to Financial Statements
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48
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Financial Highlights
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61
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Report of Independent Registered Public Accounting Firm
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67
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Federal Income Tax Information
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68
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Privacy Notice and Householding
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69
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Directors and Officers
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70
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This Annual Report is authorized for use by existing shareholders. Prospective shareholders must receive a current Davis Series, Inc. 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 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.
Portfolio Proxy Voting Policies and Procedures
The Funds have adopted Portfolio Proxy Voting Policies and Procedures under which the Funds vote proxies relating to securities held by the Funds. A description of the Funds’ Portfolio Proxy Voting Policies and Procedures is available (i) without charge, upon request, by calling the Funds toll-free at 1-800-279-0279, (ii) on the Funds’ website at www.davisfunds.com, and (iii) on the SEC’s website at www.sec.gov.
In addition, the Funds are required to file Form N-PX, with their complete proxy voting record for the 12 months ended June 30
th
, no later than August 31
st
of each year. The Funds’ Form N-PX filing is available (i) without charge, upon request, by calling the Funds toll-free at 1-800-279-0279, (ii) on the Funds’ website at www.davisfunds.com, and (iii) on the SEC’s website at www.sec.gov
.
Form N-Q and Form N-MFP
The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. In addition, Davis Government Money Market Fund files its complete schedule of portfolio holdings with the SEC for each month end on Form N-MFP. The Funds’ Form N-Q and Davis Government Money Market Fund’s Form N-MFP are available without charge, upon request, by calling 1-800-279-0279, on the Funds’ website at www.davisfunds.com, and on the SEC’s website at www.sec.gov. The Funds’ 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.
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DAVIS SERIES, INC.
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Shareholder Letter
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Dear Fellow Shareholder,
As stewards of our customers’ savings, the management team and Directors of Davis Funds recognize the importance of candid, thorough, and regular communication with our shareholders. In our Annual and Semi-Annual Reports we include all of the required quantitative information such as audited financial statements, detailed footnotes, performance reports, fund holdings, and performance attribution. Also included is a list of positions opened and closed.
In addition, we produce a Manager Commentary for certain funds, which is published semi-annually. In this commentary, we give a more qualitative perspective on fund performance, discuss our thoughts on individual holdings, and share our investment outlook. You may obtain a copy of the current Manager Commentary either on our website, www.davisfunds.com, or by calling 1-800-279-0279.
We thank you for your continued trust. We will do our best to earn it in the years ahead.
Sincerely,
Christopher C. Davis
President
February 1, 2013
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DAVIS SERIES, INC.
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Management’s Discussion of Fund Performance
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DAVIS OPPORTUNITY FUND
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Performance Overview
Davis Opportunity Fund’s Class A shares delivered a total return on net asset value of 12.18% for year ended December 31, 2012. Over the same time period, the Russell 3000
®
Index (“Index”) returned 16.42%. The Index turned in a strong performance with individual sectors
1
within the Index increasing by as much as 27% (Financials) or as little as 2% (Utilities). The sectors within the Index that turned in the strongest performance over the year were Financials and Consumer Discretionary. The sectors within the Index that turned in the weakest performance (but still positive) were Utilities and Energy.
Factors Impacting the Fund’s Performance
Financial companies were the most important contributor
2
to the Fund’s absolute performance, but were also the most important detractor from performance relative to the Index. The Fund’s Financial companies under-performed the corresponding sector within the Index, but benefited from a higher relative average weighting in this stronger performing sector. Wells Fargo
3
and Berkshire Hathaway were among the most important contributors to performance. CETIP was among the most important detractors from performance.
Consumer Discretionary companies contributed to the Fund’s absolute performance, but detracted from relative performance. The Fund’s Consumer Discretionary companies under-performed the corresponding sector within the Index and had an approximately equal relative average weighting in this stronger performing sector. Walt Disney, Netflix, Vipshop Holdings, and Compagnie Financiere Richemont were among the most important contributors to performance. Groupon was the single most important detractor from performance.
Information Technology companies also contributed to the Fund’s absolute performance, but detracted from relative performance. The Fund’s Information Technology companies under-performed the corresponding sector within the Index and also had a higher relative average weighting. Google was among the most important contributors to performance. Hewlett-Packard, Intel, Angie’s List, and Nokia Oyj were among the most important detractors from performance.
Energy companies were the most important contributor to relative performance. The Fund’s Energy companies out-performed the corresponding sector within the Index and also benefited from a lower relative average weighting in this weaker performing sector.
Consumer Staple companies were also an important contributor to the Fund’s performance. The Fund’s Consumer Staple companies out-performed the corresponding sector within the Index and had a higher relative average weighting. CVS Caremark was among the most important contributors to performance.
The Fund had approximately 11% of its net assets invested in foreign companies at December 31, 2012. As a whole, those companies out-performed the domestic companies held by the Fund.
Davis Opportunity Fund’s investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. Davis Opportunity Fund’s principal risks are: stock market risk, manager risk, common stock risk
,
under $10 billion market capitalization risk, foreign country risk, emerging market risk, foreign currency risk, trading markets and depositary receipts risk, headline risk, and fees and expenses risk. See the prospectus for a full description of each risk.
1
The companies included in the Russell 3000
®
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 or sell any particular security. The Schedule of Investments lists the Fund’s holdings of each company discussed.
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DAVIS SERIES, INC.
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Management’s Discussion of Fund Performance
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DAVIS OPPORTUNITY FUND - (CONTINUED)
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Comparison of a $10,000 investment in Davis Opportunity Fund Class A versus the Russell 3000
®
Index
over 10 years for an investment made on December 31, 2002
Average Annual Total Return for periods ended
December 31
, 2012
|
Fund & Benchmark Index
|
1-Year
|
5-Year
|
10-Year
|
Since
Inception
|
Inception
Date
|
Gross Expense
Ratio
|
Net Expense
Ratio
|
|
Class A -
without sales charge
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12.18%
|
(0.28)%
|
7.05%
|
9.42%
|
12/01/94
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1.02%
|
1.02%
|
|
Class A -
with sales charge
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6.83%
|
(1.25)%
|
6.54%
|
9.12%
|
12/01/94
|
1.02%
|
1.02%
|
|
Class B
†
,
**
|
7.03%
|
(1.61)%
|
6.44%
|
10.64%
|
05/01/84
|
2.01%
|
2.01%
|
|
Class C**
|
10.23%
|
(1.07)%
|
6.22%
|
4.50%
|
08/15/97
|
1.82%
|
1.82%
|
|
Class Y
|
12.40%
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0.01%
|
7.39%
|
5.27%
|
09/18/97
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0.77%
|
0.77%
|
|
Russell 3000
®
Index***
|
16.42%
|
2.04%
|
7.68%
|
8.75%
|
|
|
|
The Russell 3000
®
Index measures the performance of the 3,000 largest companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. Investments cannot be made directly in the Index.
The performance data for Davis Opportunity Fund 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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The operating expense ratios may vary in future years. For more current information please call Davis Funds Investor Services at 1-800-279-0279.
*Reflects 4.75% front-end sales charge.
†
Because Class B shares automatically convert to Class A shares after 7 years, the “10-Year” and “Since Inception” returns for Class B reflect Class A performance for the period after conversion.
**Includes any applicable contingent deferred sales charge.
***Inception return is from 12/01/94.
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DAVIS SERIES, INC.
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Management’s Discussion of Fund Performance
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|
DAVIS GOVERNMENT BOND FUND
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Performance Overview
Davis Government Bond Fund’s Class A shares returned 0.67% on net asset value for the year ended December 31, 2012. Over the same time period, the Citigroup U.S. Treasury/Agency 1-3 Year Index (“Index”) returned 0.48%. The Fund’s investment strategy, under normal circumstances, is to invest exclusively in U.S. Government securities and repurchase agreements, collateralized by U.S. Government securities, with a weighted average maturity of three years or less.
Factors Impacting the Fund’s Performance
Mortgage-backed securities out-performed both treasuries and agencies over the year ended December 31, 2012. The Fund benefited
1
by being more heavily invested in mortgage-backed securities than the Index.
Davis Government Bond Fund’s investment objective is current income. There can be no assurance that the Fund will achieve its objective. Davis Government Bond Fund’s principal risks are: variable current income risk, interest rate sensitivity risk, extension and prepayment risk, changes in debt rating risk, and fees and expenses risk. See the prospectus for a full description of each risk.
1
A contribution to or detraction from the Fund’s performance is a product both of appreciation or depreciation and weighting within the Fund. For example, a 5% holding that rises 20% has twice as much impact as a 1% holding that rises 50%.
|
DAVIS SERIES, INC.
|
Management’s Discussion of Fund Performance
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|
DAVIS GOVERNMENT BOND FUND - (CONTINUED)
|
|
Comparison of a $10,000 investment in Davis Government Bond Fund Class A versus the Citigroup U.S. Treasury/Agency 1-3 Year Index
over 10 years for an investment made on December 31, 2002
Average Annual Total Return for periods ended
December 31
, 2012
|
Fund & Benchmark Index
|
1-Year
|
5-Year
|
10-Year
|
Since
Inception
|
Inception
Date
|
Gross Expense
Ratio
|
Net Expense
Ratio
|
|
Class A -
without sales charge
|
0.67%
|
2.47%
|
2.27%
|
4.01%
|
12/01/94
|
0.70%
|
0.70%
|
|
Class A -
with sales charge
|
(4.13)%
|
1.47%
|
1.76%
|
3.72%
|
12/01/94
|
0.70%
|
0.70%
|
|
Class B
†
,
**
|
(4.17)%
|
1.20%
|
1.74%
|
5.19%
|
05/01/84
|
1.63%
|
1.63%
|
|
Class C**
|
(1.14)%
|
1.64%
|
1.47%
|
2.63%
|
08/19/97
|
1.57%
|
1.57%
|
|
Class Y
|
1.11%
|
2.64%
|
2.43%
|
3.36%
|
09/01/98
|
0.44%
|
0.44%
|
|
Citigroup U.S. Treasury/Agency
1-3 Year Index***
|
0.48%
|
2.43%
|
2.81%
|
4.59%
|
|
|
|
The Citigroup U.S. Treasury/Agency 1-3 Year Index is a recognized unmanaged index of short-term U.S. Government securities’ performance.
Investments cannot be made directly in the Index.
The performance data for Davis Government Bond Fund 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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The operating expense ratios may vary in future years. For more current information please call Davis Funds Investor Services at 1-800-279-0279.
*Reflects 4.75% front-end sales charge.
†
Because Class B shares automatically convert to Class A shares after 7 years, the “10-Year” and “Since Inception” returns for Class B reflect Class A performance for the period after conversion.
**Includes any applicable contingent deferred sales charge.
***Inception return is from 12/01/94.
|
DAVIS SERIES, INC.
|
Management’s Discussion of Fund Performance
|
|
DAVIS FINANCIAL FUND
|
|
Performance Overview
Davis Financial Fund’s Class A shares delivered a total return on net asset value of 18.15% for the year ended December 31, 2012. Over the same time period, the Standard & Poor’s 500
®
Index
(“Index”) returned 16.00%.
Factors Impacting the Fund’s Performance
The Fund’s Financial sector holdings under-performed the corresponding sector
1
within the Index, but out-performed the Index as a whole. The Financial sector was the strongest performing sector of the Index. The Fund had a limited amount of assets invested in other sectors, which contributed
2
to overall performance.
Diversified Financial companies were the largest contributor to the Fund’s performance. The Fund’s Diversified Financial
companies under-performed the corresponding industry group within the Index. American Express
3
, Visa, Bank of New York Mellon, Brookfield Asset Management, and Goldman Sachs Group were among the most important contributors to performance. Julius Baer Group and First Marblehead were among the most important detractors from performance.
Banking companies were the second largest contributor to the Fund’s performance. The Fund’s Banking companies out-performed the corresponding industry group within the Index. Wells Fargo and State Bank of India were among the most important contributors to performance.
Insurance companies were also an important contributor to the Fund’s performance. The Fund’s Insurance companies under-performed the corresponding industry group within the Index. Transatlantic Holdings and Everest Re Group were among the most important contributors to performance. Transatlantic Holdings was acquired by Alleghany in March of 2012.
Canadian Natural Resources was the single most important detractor from the Fund’s performance during the year. Sino-Forest and Bed Bath & Beyond were also among the most important detractors from the Fund’s performance. The Fund no longer owns Sino-Forest.
The Fund had approximately 21% of its net assets invested in foreign companies at December 31, 2012. As a whole, those companies under-performed the domestic companies held by the Fund.
Davis Financial Fund’s investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. Davis Financial Fund’s principal risks are: stock market risk, manager risk, common stock risk, concentrated portfolio risk, financial services risk, focused portfolio risk, foreign country risk, emerging market risk, foreign currency risk, trading markets and depositary receipts risk, under $10 billion market capitalization risk, interest rate sensitivity risk, credit risk, headline risk, and fees and expenses risk. See the prospectus for a full description of each risk.
Davis Financial 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 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.
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 or sell any particular security. The Schedule of Investments lists the Fund’s holdings of each company discussed.
|
DAVIS SERIES, INC.
|
Management’s Discussion of Fund Performance
|
|
DAVIS FINANCIAL FUND - (CONTINUED)
|
|
Comparison of a $10,000 investment in Davis Financial Fund Class A versus the Standard & Poor’s 500
®
Index
over 10 years for an investment made on December 31, 2002
Average Annual Total Return for periods ended
December 31
, 2012
|
Fund & Benchmark Index
|
1-Year
|
5-Year
|
10-Year
|
Since
Inception
|
Inception
Date
|
Gross Expense
Ratio
|
Net Expense
Ratio
|
|
Class A -
without sales charge
|
18.15%
|
(1.03)%
|
5.87%
|
11.21%
|
05/01/91
|
0.91%
|
0.91%
|
|
Class A -
with sales charge
|
12.56%
|
(1.99)%
|
5.36%
|
10.96%
|
05/01/91
|
0.91%
|
0.91%
|
|
Class B
†
,
**
|
12.81%
|
(2.43)%
|
5.18%
|
9.57%
|
12/27/94
|
2.09%
|
2.09%
|
|
Class C**
|
16.04%
|
(1.92)%
|
4.94%
|
4.16%
|
08/12/97
|
1.84%
|
1.84%
|
|
Class Y
|
18.33%
|
(0.91)%
|
6.02%
|
6.15%
|
03/10/97
|
0.72%
|
0.72%
|
|
S&P 500
®
Index***
|
16.00%
|
1.66%
|
7.10%
|
8.50%
|
|
|
|
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 Fund 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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The operating expense ratios may vary in future years. For more current information please call Davis Funds Investor Services at 1-800-279-0279.
*Reflects 4.75% front-end sales charge.
†
Because Class B shares automatically convert to Class A shares after 7 years, the “10-Year” and “Since Inception” returns for Class B reflect Class A performance for the period after conversion.
**Includes any applicable contingent deferred sales charge.
***Inception return is from 05/01/91.
|
DAVIS SERIES, INC.
|
Management’s Discussion of Fund Performance
|
|
DAVIS APPRECIATION & INCOME FUND
|
|
Performance Overview
Davis Appreciation & Income Fund’s Class A shares delivered a total return on net asset value of 8.44% for the year ended December 31, 2012. Over the same time period, the Standard & Poor’s 500
®
Index
(“Index”) returned 16.00%. Common and preferred stocks strongly out-performed fixed income investments and this accounted for the majority of the Fund’s under-performance versus the Index. The sectors
1
within the Index that turned in the strongest performance over the year were Financials and Consumer Discretionary. The sectors within the Index that turned in the weakest performance (but still positive) were Utilities and Energy.
Factors Impacting the Fund’s Performance
The Fund’s common and preferred stock holdings were the most important contributor
2
to the Fund’s performance although, on balance, they lagged behind the Index. Financial and Industrial companies were the two most important contributors to the Fund’s performance. The Fund’s Financial and Industrial companies both out-performed the corresponding sectors within the Index. The Fund’s stock holdings in Bank of America
3
, Citigroup, Quanta Services, and Masco were among the most important contributors to performance.
Among the Fund’s common and preferred stock holdings, Material and Energy companies were the two most important detractors from the Fund’s performance. The Fund’s Material and Energy companies both under-performed the corresponding sectors within the Index. The Fund’s common stock holdings in Molycorp, Nabors Industries, and Devon Energy were among the most important detractors from performance.
The Fund’s corporate and convertible bond holdings contributed to the Fund’s performance, but under-performed the Index. Among the most important contributors to performance were convertible bond holdings in Forest City Enterprises and United Rentals. Among the most important detractors from performance were convertible bond holdings in Allegheny Technologies, School Specialty, Tyson Foods, Molycorp, and Intel.
Other important contributors to the Fund’s performance included common stock holdings in News Corp., Whole Foods Market, Valeant Pharmaceuticals International, and Universal Health Services. Other important detractors from performance included the Fund’s common stock holdings in Kohl’s and School Specialty.
Davis Appreciation & Income Fund’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 Appreciation & Income Fund’s principal risks are: stock market risk, manager risk, common stock risk, convertible securities risk, under $10 billion market capitalization risk, foreign country risk, headline risk, fees and expenses risk, interest rate sensitivity risk, extension and prepayment risk, credit risk, changes in debt rating risk, variable current income risk, overburdened issuers risk, priority risk, and difficult to resell risk. See the prospectus for a full description of each risk.
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 or sell any particular security. The Schedule of Investments lists the Fund’s holdings of each company discussed.
|
DAVIS SERIES, INC.
|
Management’s Discussion of Fund Performance
|
|
DAVIS APPRECIATION & INCOME FUND - (CONTINUED)
|
Comparison of a $10,000 investment in Davis Appreciation & Income Fund Class A versus the Standard & Poor’s 500
®
Index
over 10 years for an investment made on December 31, 2002
Average Annual Total Return for periods ended
December 31
, 2012
|
Fund & Benchmark Index
|
1-Year
|
5-Year
|
10-Year
|
Since
Inception
|
Inception
Date
|
Gross Expense
Ratio
|
Net Expense
Ratio
|
|
Class A -
without sales charge
|
8.44%
|
1.15%
|
6.54%
|
8.03%
|
05/01/92
|
0.95%
|
0.95%
|
|
Class A -
with sales charge
|
3.30%
|
0.17%
|
6.03%
|
7.77%
|
05/01/92
|
0.95%
|
0.95%
|
|
Class B
†
,
**
|
3.39%
|
(0.15)%
|
5.87%
|
7.48%
|
02/03/95
|
1.89%
|
1.89%
|
|
Class C**
|
6.54%
|
0.34%
|
5.65%
|
3.84%
|
08/12/97
|
1.75%
|
1.75%
|
|
Class Y
|
8.62%
|
1.38%
|
6.78%
|
6.35%
|
11/13/96
|
0.75%
|
0.75%
|
|
S&P 500
®
Index***
|
16.00%
|
1.66%
|
7.10%
|
8.34%
|
|
|
|
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 capitalization, 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 Appreciation & Income Fund 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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The operating expense ratios may vary in future years. For more current information please call Davis Funds Investor Services at 1-800-279-0279.
*Reflects 4.75% front-end sales charge.
†
Because Class B shares automatically convert to Class A shares after 7 years, the “10-Year” and “Since Inception” returns for Class B reflect Class A performance for the period after conversion.
**Includes any applicable contingent deferred sales charge.
***Inception return is from 05/01/92.
|
DAVIS SERIES, INC.
|
Management’s Discussion of Fund Performance
|
|
DAVIS REAL ESTATE FUND
|
Performance Overview
Davis Real Estate Fund’s Class A shares delivered a total return on net asset value of 16.86% for the year ended December 31, 2012. Over the same time period, the Wilshire U.S. Real Estate Securities Index
(“Index”) returned 17.55%. The Index’s sub-industries
1
turned in a strong performance, increasing by as much as 30% (Industrial REITs) or as little as 2% (Hotels, Resorts & Cruises Lines). Industrial REITs and Retail REITs turned in the strongest performances while Hotels, Resorts & Cruise Lines and Residential REITs turned in the weakest (but still positive) performances.
Factors Impacting the Fund’s Performance
Retail REITs were the most important contributor
2
to the Fund’s absolute performance. The Fund’s Retail REITs performed in-line with the corresponding sub-industry within the Index, but a lower relative average weighting in this stronger performing sub-industry detracted from performance relative to the Index. Simon Property Group
3
and DDR were among the most important contributors to performance. Taubman Centers was among the weakest performers, turning in a small positive performance.
The Fund had more invested in Office REITs than in any other sub-industry and they were another important contributor to the Fund’s absolute performance. The Fund’s Office REITs out-performed the corresponding sub-industry within the Index, but a higher relative average weighting compared to the Index detracted from relative performance. Coresite Realty, Alexandria Real Estate Equities, and Brandywine Realty Trust were among the most important contributors to performance. DuPont Fabros Technology was among the most important detractors from performance. The Fund no longer owns Coresite Realty.
Other important contributors to the Fund’s performance were Forest City Enterprises, Weyerhaeuser, and DCT Industrial Trust. HCP and LaSalle Hotel Properties detracted from the Fund’s performance. The Fund no longer owns Weyerhaeuser.
Davis Real Estate Fund’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 Fund’s principal risks are: stock market risk, manager risk, common stock risk, concentrated portfolio risk, real estate risk, focused portfolio risk, foreign country risk, under $10 billion market capitalization risk, variable current income risk, headline risk, and fees and expenses risk. See the prospectus for a full description of each risk.
Davis Real Estate 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 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 Fund is allowed to focus its investments in fewer companies, and it may be subject to greater risks than a more diversified fund 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.
1
The companies included in the Wilshire U.S. Real Estate Securities Index are divided into eight 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 or sell any particular security. The Schedule of Investments lists the Fund’s holdings of each company discussed.
|
DAVIS SERIES, INC.
|
Management’s Discussion of Fund Performance
|
|
DAVIS REAL ESTATE FUND - (CONTINUED)
|
Comparison of a $10,000 investment in Davis Real Estate Fund Class A 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, 2002
Average Annual Total Return for periods ended
December 31
, 2012
|
Fund & Benchmark Indices
|
1-Year
|
5-Year
|
10-Year
|
Since
Inception
|
Inception
Date
|
Gross Expense
Ratio
|
Net Expense
Ratio
|
|
Class A -
without sales charge
|
16.86%
|
1.49%
|
9.81%
|
10.00%
|
01/03/94
|
1.01%
|
1.01%
|
|
Class A -
with sales charge
|
11.31%
|
0.51%
|
9.27%
|
9.72%
|
01/03/94
|
1.01%
|
1.01%
|
|
Class B
†
,
**
|
11.60%
|
0.03%
|
9.17%
|
9.76%
|
12/27/94
|
2.11%
|
2.11%
|
|
Class C**
|
14.90%
|
0.66%
|
8.96%
|
6.83%
|
08/13/97
|
1.86%
|
1.86%
|
|
Class Y
|
17.14%
|
1.82%
|
10.19%
|
9.26%
|
11/08/96
|
0.76%
|
0.76%
|
|
S&P 500
®
Index***
|
16.00%
|
1.66%
|
7.10%
|
8.13%
|
|
|
|
|
Wilshire U.S. Real Estate Securities Index***
|
17.55%
|
5.08%
|
11.65%
|
10.58%
|
|
|
|
The Standard & Poor’s 500
®
Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalization, 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 Fund 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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The operating expense ratios may vary in future years. For more current information please call Davis Funds Investor Services at 1-800-279-0279.
*Reflects 4.75% front-end sales charge.
†
Because Class B shares automatically convert to Class A shares after 7 years, the “10-Year” and “Since Inception” returns for Class B reflect Class A performance for the period after conversion.
**Includes any applicable contingent deferred sales charge.
***Inception return is from 01/03/94.
|
DAVIS SERIES, INC.
|
Fund Overview
|
|
DAVIS OPPORTUNITY FUND
|
December 31, 2012
|
|
Portfolio Composition
|
|
Industry Weightings
|
|
(% of Fund’s 12/31/12 Net Assets)
|
|
(% of 12/31/12 Stock Holdings)
|
|
|
|
|
|
Fund
|
Russell 3000
®
|
|
Common Stock (U.S.)
|
82.45%
|
|
Information Technology
|
22.45%
|
18.12%
|
|
Common Stock (Foreign)
|
11.43%
|
|
Insurance
|
8.99%
|
3.80%
|
|
Stock Warrants
|
0.62%
|
|
Capital Goods
|
7.73%
|
8.27%
|
|
Short-Term Investments
|
6.50%
|
|
Retailing
|
7.27%
|
4.21%
|
|
Other Assets & Liabilities
|
(1.00)%
|
|
Health Care
|
6.64%
|
12.08%
|
|
|
100.00%
|
|
Food, Beverage & Tobacco
|
5.70%
|
5.19%
|
|
|
|
|
Diversified Financials
|
5.63%
|
5.93%
|
|
|
|
|
Banks
|
5.45%
|
3.31%
|
|
|
|
|
Food & Staples Retailing
|
5.29%
|
2.02%
|
|
|
|
|
Transportation
|
5.12%
|
1.84%
|
|
|
|
|
Media
|
4.55%
|
3.61%
|
|
|
|
|
Other
|
4.54%
|
16.56%
|
|
|
|
|
Energy
|
4.43%
|
9.91%
|
|
|
|
|
Materials
|
3.47%
|
4.06%
|
|
|
|
|
Commercial & Professional Services
|
2.74%
|
1.09%
|
|
|
|
|
|
100.00%
|
100.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|