Q: Please discuss the Chris Davis Intl Fund’s recent performance.

A: During the 12 months ending June 30, 2014, international equity markets advanced broadly with the MSCI ACWI® (All Country World Index) ex U.S. returning 21.75%. Davis International Fund outperformed the Index by a wide margin, returning 28.07% during the period.1

Over the past 12 months, our holdings in China, Switzerland and France on balance contributed to overall performance while our holdings in Brazil and Hong Kong lagged. On a sector basis, consumer discretionary, industrial and health care holdings contributed to performance while the returns from consumer staples holdings, although positive, lagged. Our allocations to particular sectors and countries are a byproduct of bottom-up stock selection.2

Chris Davis Intl Fund

Notable individual contributors to performance included Schneider Electric (French-based specialist in energy management), Compagnie Financière Richemont (Swiss-based luxury goods manufacturer), Vipshop Holdings Ltd – ADR (NYSE:VIPS) (Chinese online retailer), and Chocoladefabriken Lindt & Spruengli AG (SWX:LISN) (Swiss manufacturer of premium chocolates).3 Detractors included Brasil Pharma SA (BVMF:BPHA3) (Brazilian pharmacy chain), Experian (U.K.-based consumer credit bureau), and Valeant Pharmaceuticals (Canadian health care products company). We are encouraged by recent results and believe the businesses represented in the Portfolio are well positioned for the years ahead.

Q: Please describe Davis Advisors’ approach to international investing.

A: Davis International Fund uses the same investment philosophy and research methodology as other portfolios managed by Davis Advisors, drawing on the extensive global research from our seasoned investment professionals. What makes this Portfolio distinct is its flexibility to invest opportunistically anywhere outside the United States, in developed and emerging markets, based on rigorous bottom-up stock selection. Davis International Fund employs a focused approach to building the portfolio concentrating on approximately 30 to 40 holdings and is designed to provide a portfolio of best ideas from our skilled research team. The Fund’s objective is to maximize shareholder returns over the long term without attempting to mirror any particular market index while prudently managing risks.

Q: In what types of businesses does Chris Davis Intl Fund typically invest?

A: Davis International Fund focuses on three primary categories of businesses. The first and typically largest category is global market leaders. These are often businesses with universally known brands, operations that span the globe and strong or even fortress balance sheets. Holdings in this category provide a core foundation for the Portfolio. The next-largest category of businesses is “out-of-the-spotlight” holdings.

These are often less well-known companies that operate behind the scenes in mundane industries such as energy exploration and production, manufacturing or industrial services. The final and smallest category of holdings is headline risk or contrarian investments that are often out of favor with investors or involve controversy.4 We make these investments on a selective basis and only when we believe the market has overly discounted a company’s shares given the probable economic risk to the business’ long-term fundamentals. As with all our investments, underpinning these positions is our internal assessment that the overall risk/reward trade-off is favorable.

The investments we have made in market leaders, out-of-the-spotlight companies and headline risk businesses combine to create a Portfolio we believe is well diversified with a balance of offensive and defensive characteristics that can produce satisfactory compound returns over full market cycles.

4While we research companies subject to such contingencies, we cannot be correct every time, and a company’s stock may never recover.

Q: What are some examples of businesses Chris Davis Intl Fund owns in each of these three categories?

A: An example of a global market leader in the Portfolio is Compagnie Financière Richemont, one of the world’s leading luxury goods groups. This Swiss-based company owns some of the world’s most prestigious brands, including jewelers Cartier and Van Cleef & Arpels; watchmakers Piaget, Vacheron Constantin, Jaeger-LeCoultre, Officine Panerai, and IWC; and makers of fine writing instruments such as Montblanc. Richemont has been adding stores in flagship cities, a strategy that offers better brand control and higher margins than its wholesale channel. Its powerful brands provide pricing power and act as a barrier to competitors. Long term we believe Richemont is well positioned to benefit from the global wealth effect, particularly in fast-growing emerging markets.

Another example of a global market leader is Essilor International Cmpgn Gnl d’Opq SA (EPA:EI), the world’s leading provider of coated prescription eyeglass lenses. Based in France, the company’s reach is truly global as it operates in more than 100 countries and dominates the market on every continent. It is also an innovator with a strong global research and development effort and regularly adds to its base of more than 5,000 patents. Essilor estimates as much as two-thirds of the world’s population could be helped by corrective lenses but only about a quarter so far have corrected vision, offering the company significant growth opportunities in the years ahead.

Groupe Bruxelles Lambert SA (EBR:GBLB), an investment holding company listed on the Brussels Stock Exchange since 1956, is an example of an out-of-the-spotlight business in the Portfolio. The company, whose capitalization makes it one of the largest firms in Belgium, is an investment vehicle for Belgium businessmen Albert and Gerald Frère and the Desmarais family in Canada. Groupe Bruxelles Lambert tends to concentrate its investments in a handful of mostly European public companies it believes are undervalued industry leaders. Holdings include the integrated energy and chemicals company Total, the international utility company GDF Suez, the building materials firm Lafarge, the industrial minerals company Imerys, and the global wines and spirits company Pernod Ricard, all of which are based in France. Because the stock of Groupe Bruxelles Lambert trades at a significant discount to the market value of its investments, our ownership of this stock allows us to participate in this portfolio of businesses at a steeply discounted price.

A current contrarian investment is Kuehne+Nagel, one of the world’s leading freight forwarders, whose business is currently out of favor due to the slowdown in global trade that we believe will be a temporary headwind. This Swiss-based company works behind the scenes to arrange the transport of heavy cargo typically from a manufacturer in one part of the world to a buyer who may be thousands of miles away. Logistics businesses like Kuehne+Nagel not only play a critical role in global trade but also are essential in managing the increasingly complex supply chain of global multinationals. While trade volume is cyclical in nature over the short term, we believe that the long-term trend in global trade favors growth and Kuehne+Nagel is well positioned to benefit from this tailwind in the years ahead.

Q: What is your outlook going forward?

A: The stock market is a market of individual stocks that represent ownership interests in real businesses. Therefore, our outlook for the Portfolio is based on the long-term prospects of the businesses we own.

Through our investment process we seek to identify companies that have: 1) a capable, disciplined management team with a proven track record; 2) a business model offering a high return on invested capital; 3) sustainable competitive advantages; and 4) a reasonable valuation.5 These metrics are the key to understanding why we choose the particular businesses we own when evaluating the vast array of opportunities in international markets.

Looking five years and beyond, our outlook for the companies we have selected for our

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