<PAGE>
THE
SELECTED FUNDS
PROSPECTUS
MAY 1, 1997
AS REVISED OCTOBER 17, 1997
[LOGO]
SELECTED
FUNDS
DAVIS DISTRIBUTORS, LLC
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary............................................................................. 2
Fund Expenses....................................................................... 3
Financial Highlights................................................................ 4
Investment Objectives............................................................... 8
Manager, Sub-Advisers and Distributor............................................... 15
Portfolio Managers.................................................................. 17
Buying Shares....................................................................... 17
Selling Shares...................................................................... 20
Exchanging Shares................................................................... 23
Fund Performance.................................................................... 24
Determining the Price of Shares--Net Asset Value.................................... 25
Dividends........................................................................... 26
Taxes............................................................................... 27
Retirement Plans.................................................................... 27
Organization of the Funds........................................................... 28
Directors and Trustees.............................................................. 28
How to Reach Us..................................................................... 29
Quality Ratings of Bonds............................................................ 29
High Yield, High Risk Debt Securities............................................... 32
</TABLE>
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<PAGE>
PROSPECTUS MAY 1, 1997
AS REVISED OCTOBER 17, 1997
THE SELECTED FUNDS
124 EAST MARCY STREET
SANTA FE, NEW MEXICO 87501
1-800-243-1575
Welcome to the Selected Funds, a family of diversified no-load mutual funds
offering a variety of investment opportunities. The Funds pay distribution fees
pursuant to distribution plans adopted in accordance with Rule 12b-1.
STOCK-ORIENTED FUNDS
Selected American Shares, Inc.--a Growth and Income Fund.
Selected Special Shares, Inc.--a Growth Fund.
BOND-ORIENTED FUND
Selected U.S. Government Income Fund--an Income Fund.
MONEY MARKET FUND
Selected Daily Government Fund--a U.S. Government Money Market Fund.
Selected Daily Government Fund and Selected U.S. Government Income Fund
are part of Selected Capital Preservation Trust.
This Prospectus concisely sets forth information about the Selected Funds
that you should know before investing. Please keep it handy for future
reference. Additional information is included in the Statements of Additional
Information of the Selected Funds dated May 1, 1997 as revised October 17, 1997,
and filed with the Securities and Exchange Commission. The Statements of
Additional Information are incorporated herein by reference. You may obtain
copies of the Statements of Additional Information without charge by writing or
calling us at the above address or phone number.
AN INVESTMENT IN THE SELECTED U.S. GOVERNMENT INCOME FUND OR SELECTED DAILY
GOVERNMENT FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE
CAN BE NO ASSURANCE THAT SELECTED DAILY GOVERNMENT FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE. SHARES IN THE FUNDS ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
SUMMARY
STOCK-ORIENTED FUNDS
Selected American Shares, Inc. ("Selected American") and Selected Special
Shares, Inc. ("Selected Special") are diversified, professionally managed
stock-oriented funds. Selected American seeks a combination of capital growth
and income and invests primarily in common stocks and other equity securities.
Selected Special seeks capital growth and invests primarily in common stocks and
securities convertible into common stocks. See "Investment Objectives."
BOND-ORIENTED FUND
Selected U.S. Government Income Fund ("Selected Government Income") seeks to
obtain current income consistent with preservation of capital by investing
primarily in debt obligations of the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities").
MONEY MARKET FUND
Selected Daily Government Fund ("Selected Daily Government") seeks to
provide a high level of current income from short-term money market securities
consistent with prudent investment management, preservation of capital and
maintenance of liquidity. It invests in U.S. Government Securities and
repurchase agreements in respect thereto.
MANAGER, SUB-ADVISERS AND DISTRIBUTOR
Davis Selected Advisers, L.P. (the "Manager") serves as the investment
manager for Selected American, Selected Special, Selected Government Income and
Selected Daily Government (individually a "Fund" or together the "Funds" or the
"Selected Funds"). Davis Distributor, LLC (the "Distributor") serves as the
principal underwriter for the Fund. The Manager has hired Bramwell Capital
Management, Inc. (the "Sub-Advisor") to provide day to day management of the
portfolio of Selected Special. The Manager has entered into a Sub-Advisory
Agreement with its wholly-owned subsidiary, Davis Selected Advisers-NY, Inc.
("DSA-NY"). DSA-NY performs research and other services for the Funds on behalf
of the Manager. There are management and Rule 12b-1 distribution fees payable by
each Fund. For more information see "Fund Expenses" and "Manager, Sub-Advisers
and Distributor."
PURCHASES AND REDEMPTIONS
Shares of the Funds are sold and redeemed at net asset value without any
sales or redemption charge. The minimum initial investment in any of the
Selected Funds is $1,000 and subsequent investments are $25 or more. Please see
"Buying Shares" for more information on how easy it is to invest. Please see
"Selling Shares" for details on how to redeem shares.
FACTORS TO CONSIDER
An investment in any of our Funds, as with any mutual fund, includes risks
that vary depending upon the Fund's investment objectives and policies. There is
no assurance that the investment objective of any Fund will be achieved. A
Fund's return and net asset value will fluctuate, although Selected Daily
Government seeks to maintain a net asset value of $1.00 per share.
2
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES:
- --------------------------------------------------------------------------------------------------------
<S> <C>
Sales Load on Purchases................................................................................. None
Redemption Fee.......................................................................................... None*
Sales Load on Reinvested Dividends...................................................................... None
Exchange Fee............................................................................................ None
Deferred Sales Load..................................................................................... None
</TABLE>
- ------------------------
* A service fee of $5 is charged for each wire redemption.
Annual fund operating expenses after any expense reimbursements, as a
percentage of average net assets:
<TABLE>
<CAPTION>
SELECTED SELECTED
SELECTED SELECTED GOV'T DAILY
AMERICAN SPECIAL INCOME*** GOV'T
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Management Fees....................................................... 0.60% 0.70% 0.50% 0.30%
12b-1 Fees**.......................................................... 0.25% 0.25% 0.25% 0.25%
Other Expenses........................................................ 0.15% 0.37% 0.72% 0.20%
----------- --------- ----------- ---------
Total Operating Expenses.............................................. 1.00% 1.32% 1.47% 0.75%
</TABLE>
- ------------------------
** The effect of a 12b-1 plan is that long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted
under applicable rules of the National Association of Securities Dealers,
Inc.
*** After contractual expense reimbursements.
The Manager agreed to absorb certain expenses for Selected Government Income
as reflected above. If the Manager had not done so, "Other Expenses" for
Selected Government Income in the table above would be 0.92%, and "Total
Operating Expenses" would be 1.67%. Please see "Manager, Sub-Advisers and
Distributor" and the Statements of Additional Information for more information
on fees.
We can illustrate these expenses with the examples below. You would pay the
following expenses on a $1,000 investment (assuming a 5% annual return and
redemption at the end of each period):
<TABLE>
<CAPTION>
SELECTED
SELECTED SELECTED GOV'T SELECTED
AMERICAN SPECIAL INCOME*** DAILY GOV'T
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
One Year............................................................... $ 10 $ 13 $ 15 $ 8
Three Years............................................................ $ 32 $ 42 $ 46 $ 24
Five Years............................................................. $ 55 $ 72 $ 80 $ 42
Ten Years.............................................................. $ 122 $ 159 $ 176 $ 93
</TABLE>
The tables are here to help you understand the various expenses that you as
an investor in a Fund will bear and are based on the Funds' expenses for the
period ended June 30, 1997, which reflect expense reimbursements in respect to
Selected Government Income as described above. The 5% rate used in the example
is only for illustration and is not intended to be indicative of the future
performance of the Funds, which may be more or less than the assumed rate.
Actual expenses may be greater or lesser than those shown.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide you with information about the history of the
Funds' shares, including periods prior to May 1, 1993 when Davis Selected
Advisers, L.P. became the Funds' Manager. The tables present the financial
highlights for a share outstanding throughout each respective period. Such
tables are included as supplementary information to the Funds' financial
statements which are included in the December 31, 1996 Annual Report to
Shareholders which may be obtained by writing or calling the Fund. The Funds'
1996 financial statements including the financial highlights for each of the
five years in the period ended December 31, 1996, have been audited by the
Funds' independent certified public accountants, whose unqualified opinion
thereon is contained in the Annual Report.
SELECTED AMERICAN
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1997 ----------------------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993(2) 1992 1991 1990
------------- ---------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Period.......... $ 21.53 $ 17.68 $ 13.09 $ 14.59 $ 17.13 $ 18.43 $ 12.79 $ 13.81
------------- ---------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income........ .08 .18 .22 .20 .24 .19 .23 .26
Net Gains or Losses on
Securities (both realized
and unrealized)............ 4.23 5.15 4.74 (.66) .70 .89 5.65 (.81)
------------- ---------- --------- --------- --------- --------- --------- ---------
Total From Investment
Operations............... 4.31 5.33 4.96 (.46) .94 1.08 5.88 (.55)
------------- ---------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends (from net
investment income)......... (.12) (.17) (.22) (.20) (.24) (.19) (.23) (.35)
Distributions (from capital
gains)..................... (.34) (1.31) (.15) (.83) (3.24) (2.19) - (.04)
Distributions in Excess of
Net Investment Income...... - - - (.01) - - (.01) (.08)
------------- ---------- --------- --------- --------- --------- --------- ---------
Total Distributions........ (.46) (1.48) (.37) (1.04) (3.48) (2.38) (.24) (.47)
------------- ---------- --------- --------- --------- --------- --------- ---------
Net Asset Value, End of
Period........................ $ 25.38 $ 21.53 $ 17.68 $ 13.09 $ 14.59 $ 17.13 $ 18.43 $ 12.79
------------- ---------- --------- --------- --------- --------- --------- ---------
------------- ---------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN................... 20.28% 30.74% 38.09% (3.20)% 5.42% 5.78% 46.37% (3.90)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted).............. $ 1,820,404 $1,376,466 $ 925,512 $ 529,404 $ 451,392 $ 580,889 $ 711,905 $ 400,597
Ratio of Expenses to Average
Net Assets................. 1.00% * 1.03% 1.09% 1.26% 1.01%(1) 1.17% 1.19% 1.35%
Ratio of Net Income to
Average Net Assets......... .71% * .87% 1.42% 1.42% 1.37% .95% 1.41% 2.04%
Portfolio Turnover Rate...... 16% 29% 27% 23% 79% 50% 21% 48%
Average Commission Rate Per
Share...................... $ .050 $ .058 $ - $ - $ - $ - $ - $ -
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1989 1988 1987
--------- --------- ---------
Net Asset Value,
<S> <C> <C> <C>
Beginning of Period.......... $ 13.67 $ 11.43 $ 12.65
--------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income........ .48 .26 .34
Net Gains or Losses on
Securities (both realized
and unrealized)............ 2.21 2.24 (.22)
--------- --------- ---------
Total From Investment
Operations............... 2.69 2.50 .12
--------- --------- ---------
LESS DISTRIBUTIONS
Dividends (from net
investment income)......... (.45) (.26) (.42)
Distributions (from capital
gains)..................... (2.10) - (.92)
Distributions in Excess of
Net Investment Income...... - - -
--------- --------- ---------
Total Distributions........ (2.55) (.26) (1.34)
--------- --------- ---------
Net Asset Value, End of
Period........................ $ 13.81 $ 13.67 $ 11.43
--------- --------- ---------
--------- --------- ---------
TOTAL RETURN................... 20.08% 21.95% .23%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted).............. $ 360,366 $ 284,719 $ 263,141
Ratio of Expenses to Average
Net Assets................. 1.08% 1.11% 1.11%
Ratio of Net Income to
Average Net Assets......... 3.06% 2.07% 2.38%
Portfolio Turnover Rate...... 46% 35% 45%
Average Commission Rate Per
Share...................... $ - $ - $ -
</TABLE>
- ----------------------------------
1 Had the former manager not absorbed certain expenses, the ratio of expenses
for the year ended December 31, 1993 would have been 1.22%.
2 Effective May 1, 1993, Davis Selected Advisers, L.P. became the investment
adviser. Until May 1, 1993, Selected Financial Services, Inc. was the
investment adviser.
* Annualized
4
<PAGE>
SELECTED SPECIAL
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1997 -----------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993(2,3) 1992(3)
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................................. $ 10.89 $ 10.80 $ 9.02 $ 10.20 $ 10.40 $ 10.16
------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................ (.03) - - (.03) - .07
Net Gains or Losses on Securities (both realized and
unrealized)........................................ 1.11 1.27 3.04 (.22) 1.10 .78
------------- --------- --------- --------- --------- ---------
Total From Investment Operations................... 1.08 1.27 3.04 (.25) 1.10 .85
------------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends (from net investment income)............... - - - - - (.07)
Distributions (from capital gains)................... (.55) (1.18) (1.26) (.93) (1.30) (.54)
------------- --------- --------- --------- --------- ---------
Total Distributions................................ (.55) (1.18) (1.26) (.93) (1.30) (.61)
------------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period......................... $ 11.42 $ 10.89 $ 10.80 $ 9.02 $ 10.20 $ 10.40
------------- --------- --------- --------- --------- ---------
------------- --------- --------- --------- --------- ---------
TOTAL RETURN........................................... 10.63% 11.86% 34.24% (2.56%) 10.81% 8.43%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000 omitted).............. $ 65,965 $ 62,435 $ 58,975 $ 47,275 $ 53,257 $ 57,605
Ratio of Expenses to Average Net Assets.............. 1.32% * 1.33% 1.48% 1.41%(1) 1.24%(1) 1.41%(1)
Ratio of Net Income to Average Net Assets............ (.58)% * (.66)% (.58)% (.27)% (.07)% .56%
Portfolio Turnover Rate.............................. 34% 98% 127% 99% 100% 41%
Average Commission Rate per share.................... $ .060 $ .060 $ - $ - $ - $ -
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1991(3) 1990(3) 1989(3) 1988(3) 1987(3)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................................. $ 9.04 $ 9.95 $ 8.52 $ 7.96 $ 8.92
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................ .12 .17 .21 .10 .09
Net Gains or Losses on Securities (both realized and
unrealized)........................................ 2.11 (.85) 2.23 1.44 (.03)
--------- --------- --------- --------- ---------
Total From Investment Operations................... 2.23 (.68) 2.44 1.54 .06
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends (from net investment income)............... (.13) (.20) (.18) (.10) (.32)
Distributions (from capital gains)................... (.98) (.03) (.83) (.88) (.70)
--------- --------- --------- --------- ---------
Total Distributions................................ (1.11) (.23) (1.01) (.98) (1.02)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period......................... $ 10.16 $ 9.04 $ 9.95 $ 8.52 $ 7.96
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN........................................... 25.53% (6.87%) 28.91% 19.51% .50%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000 omitted).............. $ 60,216 $ 50,474 $ 49,887 $ 34,903 $ 36,073
Ratio of Expenses to Average Net Assets.............. 1.39% 1.41% 1.22% 1.24% 1.10%
Ratio of Net Income to Average Net Assets............ 1.11% 1.81% 2.11% 1.09% .85%
Portfolio Turnover Rate.............................. 74% 87% 45% 71% 89%
Average Commission Rate per share.................... $ - $ - $ - $ - $ -
</TABLE>
- ----------------------------------
1 Had the Manager not absorbed certain expenses, the ratio of expenses for the
years ended December 31, 1994 and 1993 would have been 1.62% and 1.51%,
respectively. Had the former manager not absorbed certain expenses, the
ratio of expenses for the year ended December 31, 1992 would have been
1.47%.
2 Effective May 1, 1993, Davis Selected Advisers, L.P. became the investment
adviser. Until May 1, 1993, Selected Financial Services, Inc. was the
investment adviser.
3 Per share data has been restated to give effect to a 2 for 1 stock split to
shareholders of record as of the close of January 4, 1994.
* Annualized
5
<PAGE>
SELECTED GOVERNMENT INCOME
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1997 -----------------------------------------
(UNAUDITED) 1996 1995 1994 1993(2)
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 8.90 $ 9.20 $ 8.45 $ 9.20 $ 9.31
----------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment
Income............... .26 .53 .54 .50 .56
Net Gains or Losses on
Securities (both
realized and
unrealized).......... (.06) (.28) .78 (.75) .21
----------- -------- -------- -------- --------
Total From Investment
Operations......... .20 .25 1.32 (.25) .77
----------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends (from net
investment income)... (.26) (.53) (.54) (.50) (.56)
Distributions (from
capital gains)....... - (.02) (.03) - (.32)
Distributions in Excess
of Net Investment
Income............... - - - - -
----------- -------- -------- -------- --------
Total
Distributions...... (.26) (.55) (.57) (.50) (.88)
----------- -------- -------- -------- --------
Net Asset Value, End of
Period.................. $ 8.84 $ 8.90 $ 9.20 $ 8.45 $ 9.20
----------- -------- -------- -------- --------
----------- -------- -------- -------- --------
TOTAL RETURN............. 2.27% 2.85% 15.97% (2.71)% 7.99%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (000
omitted)............. $ 5,926 $ 6,934 $ 7,811 $ 10,263 $ 10,336
Ratio of Expenses to
Average Net Assets... 1.47%(1)* 1.44%(1) 1.44%(1) 1.42%(1) 1.34%(1)
Ratio of Net Income to
Average Net Assets... 5.98%* 5.96% 6.09% 5.70% 5.85%
Portfolio Turnover
Rate................. 7% 26% 76% 65% 29%
<CAPTION>
NOVEMBER
24, 1987
(COMMENCEMENT
OF
OPERATIONS)
YEAR ENDED DECEMBER 31, THROUGH
---------------------------------------------------------- DECEMBER
1992 1991 1990 1989 1988 31, 1987
-------- --------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 9.70 $ 9.22 $ 9.20 $ 9.34 $ 10.01 $ 10.00
-------- --------- --------- -------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment
Income............... .61 .60 .63 .64 .63 .06
Net Gains or Losses on
Securities (both
realized and
unrealized).......... (.13) .58 .11 .21 (.32) .02
-------- --------- --------- -------- ---------- ----------
Total From Investment
Operations......... .48 1.18 .74 .85 .31 .08
-------- --------- --------- -------- ---------- ----------
LESS DISTRIBUTIONS
Dividends (from net
investment income)... (.61) (.60) (.63) (.64) (.63) (.06)
Distributions (from
capital gains)....... (.26) - - - - (.01)
Distributions in Excess
of Net Investment
Income............... - (.10) (.09) (.35) (.35) -
-------- --------- --------- -------- ---------- ----------
Total
Distributions...... (.87) (.70) (.72) (.99) (.98) (.07)
-------- --------- --------- -------- ---------- ----------
Net Asset Value, End of
Period.................. $ 9.31 $ 9.70 $ 9.22 $ 9.20 $ 9.34 $ 10.01
-------- --------- --------- -------- ---------- ----------
-------- --------- --------- -------- ---------- ----------
TOTAL RETURN............. 5.11% 13.46% 8.53% 8.47% 2.94% 6.57%*
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (000
omitted)............. $ 13,945 $ 22,019 $ 21,153 $ 27,594 $ 14,611 $ 8,737
Ratio of Expenses to
Average Net Assets... 1.44%(1) 1.41% 1.44% 1.50%(1) 1.50%(1) 1.26%*
Ratio of Net Income to
Average Net Assets... 6.26% 6.51% 6.95% 6.70% 6.30% 4.42%*
Portfolio Turnover
Rate................. 53% 36% 29% 75% 76% -
</TABLE>
- ----------------------------------
1 Had the Manager not absorbed certain expenses, the ratio of expenses for the
six months ended June 30, 1997 and for the years ended December 31, 1996,
1995, 1994 and 1993 would have been 1.87%, 1.67%, 1.58%, 1.69% and 1.88%
respectively. Had the former manager not absorbed certain expenses, the
ratio of expenses for the years ended December 31, 1992, 1989 and 1988 would
have been 1.72%, 1.59% and 1.63%, respectively.
2 Effective May 1, 1993, Davis Selected Advisers, L.P. became the investment
adviser. Until May 1, 1993, Selected Financial Services, Inc. was the
investment adviser.
* Annualized
6
<PAGE>
SELECTED DAILY GOVERNMENT
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1997 -----------------------------------------
(UNAUDITED) 1996 1995 1994 1993(2)
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment
Income............... .023 .046 .051 .034 .023
LESS DISTRIBUTIONS
Dividends (from net
investment income)... (.023) (.046) (.051) (.034) (.023)
----------- -------- -------- -------- --------
Net Asset Value, End of
Period............... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- -------- -------- -------- --------
----------- -------- -------- -------- --------
TOTAL RETURN............. 2.35% 4.70% 5.23% 3.51% 2.34%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (000
omitted)............. $116,250 $112,674 $184,603 $121,886 $ 8,732
Ratio of Expenses to
Average Net Assets... .75%* .75% .75%(1) .75%(1) .75%(1)
Ratio of Net Income to
Average Net Assets... 4.69%* 4.62% 5.13% 3.44% 2.31%
<CAPTION>
MAY 9,
1988
(COMMENCEMENT
OF
OPERATIONS)
THROUGH
YEAR ENDED DECEMBER 31, DECEMBER
---------------------------------------------- 31,
1992 1991 1990 1989 1988
-------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- --------- --------- -------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment
Income............... .030 .054 .074 .083 .051
LESS DISTRIBUTIONS
Dividends (from net
investment income)... (.030) (.054) (.074) (.083) (.051)
-------- --------- --------- -------- ----------
Net Asset Value, End of
Period............... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- --------- --------- -------- ----------
-------- --------- --------- -------- ----------
TOTAL RETURN............. 3.07% 5.51% 7.66% 8.63% 8.17%*
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (000
omitted)............. $ 6,626 $ 30,706 $ 174,914 $100,517 $53,173
Ratio of Expenses to
Average Net Assets... .75%(1) .68% .63% .74% .70%(1)*
Ratio of Net Income to
Average Net Assets... 3.02% 5.37% 7.39% 8.28% 7.86%*
</TABLE>
- ----------------------------------
1 Had the Manager not absorbed certain expenses, the ratio of expenses for the
years ended December 31, 1995, 1994 and 1993 would have been .78%, 1.07% and
2.29%, respectively. Had the former manager not absorbed certain expenses,
the ratio of expenses for the year ended December 31, 1992 would have been
1.23% and for the period May 9, 1988 through December 31, 1988 would have
been .78% (annualized).
2 Effective May 1, 1993, Davis Selected Advisers, L.P. became the investment
adviser. Until May 1, 1993, Selected Financial Services, Inc. was the
investment adviser.
* Annualized
7
<PAGE>
INVESTMENT OBJECTIVES
You probably have a variety of goals you want to reach, and these goals will
likely change over time. For that reason we offer a variety of Funds with
different objectives. In this way, you can balance your mix of investments
within one family of Funds. Of course, no mutual fund offered by us, or by
anyone else, can guarantee that its objective will be met or that you will reach
all of your goals.
STOCK-ORIENTED FUNDS
SELECTED AMERICAN--A GROWTH AND INCOME FUND
Selected American seeks to provide its shareholders with both capital growth
and income. It invests primarily in common stocks and other equity securities
(including securities convertible into equity securities). The Fund will
normally invest at least 65% of its total assets in securities of U.S.
companies. The Fund diversifies its holdings among many companies and
industries, and although not required to do so, usually emphasizes "blue chip"
firms (companies that have market capitalizations of more than $1 billion and
long records of earnings growth and dividends). The Fund may also invest in
fixed-income securities for income or as a defensive strategy when the Manager
believes that existing economic or market conditions dictate such strategies.
Increases in interest rates tend to reduce the market value of fixed-income
securities and declines in interest rates tend to increase their value.
The Fund may invest in real estate investment trust ("REITs"). Equity REITs
invest directly in real property while mortgage REITs invest in mortgages on
real property. REITs may be subject to certain risks associated with the direct
ownership of real estate including declines in the value of real estate, risks
related to general and local economic conditions, overbuilding and increased
competition, increases in property taxes and operating expenses, and variations
in rental income. REITs pay dividends to their shareholders based upon available
funds from operations. It is quite common for these dividends to exceed the
REIT's taxable earnings and profits resulting in the excess portion of such
dividends being designated as a return of capital. The Fund intends to include
the gross dividends from such REITs in its distribution to its shareholders and,
accordingly, a portion of the Fund's distributions may also be designated as a
return of capital.
The Fund may invest in high yield, high risk debt securities (including
convertible securities) rated BBB or lower by Standard & Poor's Corporation
("S&P") or Baa or lower by Moody's Investor Services ("Moody's") or unrated
securities deemed by the Manager to be of an equivalent rating. Securities rated
BBB by S&P or Baa by Moody's have speculative characteristics; changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments. Securities rated BB or lower
by S&P and Ba or lower by Moody's are referred to in the financial community as
"junk bonds" and are considered speculative. The Fund does not intend to
purchase securities rated BB or Ba or lower if after such purchase more than 30%
of the Fund's net assets would be invested in such securities (including
downgraded securities). See "Quality Ratings of Bonds" and "High Yield, High
Risk Debt Securities." There is no other limitation on the percentage of assets
that may be invested in any particular type of security. Since Selected American
invests in common stocks and other securities that fluctuate in value, the price
of its shares will fluctuate.
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SELECTED SPECIAL--A GROWTH FUND
Selected Special seeks to provide capital growth. The Fund invests in
companies which the Sub-Adviser believes have capital growth potential because
of factors such as rapid growth of demand within their existing markets,
expansion into new markets, new products and opportunities for improving returns
on sales and investments.
The Fund invests primarily in common stocks and other equity securities
(including convertible securities). Normally at least 65% of its total assets
are invested in equity securities. Investment income is only incidental. The
Fund invests primarily in securities of domestic companies. However, the Fund
may invest in the securities of foreign companies directly or through registered
closed-end investment companies that invest primarily in foreign securities. An
investment company invests primarily in foreign securities if normally more than
50% of such company's assets are invested in foreign securities. No such
investment in other investment companies may be made if it would cause more than
10% of Selected Special's total assets to be invested in such companies. Such
other investment companies usually have their own expenses including management
costs or fees and the Fund's Manager earns its regular fee on such assets.
Generally, the Fund's holdings in equity securities are diversified in a
variety of industries and with companies of varying sizes, although the
investment emphasis is on companies with small and medium market capitalizations
(approximating $1 billion). The Fund may also invest in the same types of high
yield, high risk convertible securities as Selected American; however, Selected
Special will not invest in securities rated below investment grade if such
investment would cause more than 5% of net assets to be so invested. See "High
Yield, High Risk Debt Securities."
The price of the Fund's shares fluctuates because the value of the
securities in which the Fund invests also fluctuates. When the Sub-Adviser
believes that economic or investment conditions indicate the need for a
defensive strategy, the Fund may, to protect the interests of its shareholders,
temporarily and without limitation, hold assets other than equity securities,
including cash, U.S. Government Securities and other liquid high-grade debt
securities.
BOTH STOCK ORIENTED FUNDS
Both Selected American and Selected Special may invest in foreign
securities. Selected American will not make such an investment if it would cause
more than 35% of its total assets to be invested in foreign securities. Selected
Special does not currently have any investment restriction relative to foreign
securities. However, Selected Special's Sub-Adviser intends to limit investments
in foreign securities to 25% or less of the Fund's total assets. As of December
31, 1996, neither Fund had investments in foreign securities.
The Funds will generally invest in securities of foreign companies directly
through trades of individual securities on recognized exchanges and developed
over-the-counter markets and through American Depository Receipts ("ADRs")
covering such securities. In addition, Selected Special may invest in foreign
securities indirectly through registered closed-end investment companies
primarily investing in foreign securities.
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Investments in foreign securities may involve a higher degree of risk than
investments in domestic issuers. Foreign securities are often denominated in
foreign currencies, which means that their value will be affected by changes in
exchange rates, as well as other factors that affect securities prices. There
generally is less publicly available information about foreign securities and
securities markets, and there may be less governmental regulation and
supervision of foreign issuers and securities markets. Foreign securities and
markets are also affected by political and economic instabilities in such
countries, and may be more volatile and less liquid than domestic securities and
markets. The risks of investment may include expropriation or nationalization of
assets, confiscatory taxation, exchange controls and limitations on the use or
transfer of assets, and significant withholding taxes. Foreign economies may
differ from the United States favorably or unfavorably with respect to inflation
rates, balance of payments, capital reinvestment, gross national product
expansion, and other relevant economic issues. When there are significant
foreign investments, the operating expense ratio of a Fund may be higher than
that of investment companies investing exclusively in U.S. securities, since the
management, custodial and certain other expenses are expected to be higher.
For income purposes (which is only incidental with respect to Selected
Special) the Funds may lend portfolio securities and may write covered call
options on portfolio securities. A Fund will not engage a loan of portfolio
securities if more than 10% of its total assets would be subject to such loans.
Selected American may not write covered call options if more than 20% of its net
assets would be subject to covered call options. Selected Special may not write
covered call options if more than 10% of its net assets would be subject to
covered call options.
The Funds may not invest in commodities or futures contracts. Until this
restriction is changed by shareholder vote, the Funds will not enter into
currency exchange contracts (agreements to buy or sell foreign currency
transactions at a future date) or other hedging transactions designed to reduce
overall investment risks, including the risks of currency fluctuation with
respect to foreign investments. Such techniques depend upon a portfolio
manager's ability to predict future foreign currency values, interest rates and
other relevant investment measures. The Manager and the Sub-Adviser believe that
the use of such techniques, which are not assured to work, involves certain
risks and costs. However, the failure to use such hedging procedures may result
in greater volatility, particularly with respect to foreign currency
fluctuations, than if such procedures were successfully employed. Nevertheless,
to the extent that the Funds' foreign investments are globally diversified,
fluctuations in one particular currency may be offset by fluctuations in other
currencies in which the Funds' investments are denominated.
Selected American and Selected Special do not usually trade actively for
short-term profits. However, when the investment manager believes that it would
benefit the Funds, short-term profits may be taken.
SELECTED GOVERNMENT INCOME
The investment objective of Selected Government Income is to obtain current
income consistent with preservation of capital by investing primarily in U.S.
Government Securities. A shareholder's investment in the Fund is not insured or
guaranteed by the U.S. Government, its agencies or instrumentalities. The net
asset value of the Fund will fluctuate. A material factor in such fluctuations
is the fact that increases in interest rates tend to reduce the market value of
U.S. Government Securities owned by the Fund and declines in interest rates tend
to increase their value.
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INVESTMENTS
The Fund invests primarily in U.S. Government Securities, without limitation
on their maturities, and repurchase agreements secured by U.S. Government
Securities. Under normal market circumstances, at least 65% of the Fund's total
assets will be invested in U.S. Government Securities or repurchase agreements
related thereto.
Some U.S. Government Securities are supported by the full faith and credit
of the United States, such as Government National Mortgage Association ("GNMA")
Certificates and obligations of the Farmers Home Administration and the
Export-Import Bank. Others are supported solely by the credit of the issuing
agency or instrumentality with limited rights to borrow from the U.S. Treasury,
such as obligations of the Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC"). With respect to securities
supported only by the credit of the issuing agency or instrumentality or by an
additional line of credit with the U.S. Treasury, there is no guarantee that the
U.S. Government will provide financial support to such agencies or
instrumentalities. The government guarantee of the securities owned by the Fund
does not guarantee the yield to the Fund, the market value of the securities
owned by the Fund or the net asset value of the Fund's shares.
The Fund may purchase collateralized mortgage obligations ("CMOs"),
including residual interests. A CMO is a debt security issued by a trust,
corporation or a U.S. Government instrumentality that is backed
("collateralized") by a portfolio of mortgages, mortgage-backed securities or
U.S. Government Securities. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of securities or
mortgages. The Fund may invest only in CMOs issued by FHLMC, FNMA, or GNMA and
privately-issued CMOs that are (i) fully collateralized by mortgage-backed
securities issued by GNMA, FNMA or FHLMC and (ii) rated AAA by S&P or Aaa by
Moody's or are unrated but in the opinion of the Manager, are of comparable
quality. "Fully collateralized" means that the collateral will generate cash
flows sufficient to meet obligations to holders of the collateralized
obligations under even the most conservative prepayment and interest rate
scenario. CMOs issued by FHLMC, FNMA and GNMA are considered U.S. Government
Securities for purposes of the above described 65% test; privately issued CMOs
are not.
In the case of CMOs, payments of principal and interest on the underlying
collateral securities are not passed through directly and equally to all the
holders of the collateralized obligations. Collateralized obligations are often
issued in two or more classes with varying maturities and stated rates of
interest. The payments are directed to different classes of the CMO at unequal
rates. This results in varying maturities among the classes. This also may in
effect "strip" the interest payments from principal payments of the underlying
securities and allow for the separate purchase of either the interest or the
principal payments (sometimes called "interest only" and "principal only"
securities). Such "stripped" CMOs are currently considered by the staff of the
Securities and Exchange Commission to constitute illiquid securities and as such
are to be included in the calculation of the Fund's 10% limitation on illiquid
securities. See "All Funds--Restricted or Illiquid Securities."
Mortgage prepayments at rates which are more rapid than those rates
projected at the time mortgage related U.S. Government Securities are purchased
at a premium can be expected to result in a decline in the value of mortgage
related securities because prepayments reduce the yield to maturity on such
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securities. Conversely, the value of mortgage related securities purchased at a
discount can be expected to increase under the same circumstances. Prepayments
typically increase during periods of rapidly declining interest rates.
Investment in such securities could also subject the Fund to "maturity
extension risk" which is the possibility that rising interest rates may cause
prepayments to occur at a slower than expected rate. This particular risk may
effectively change a security which was considered a short or intermediate-term
security at the time of purchase into a long term security. Long-term securities
generally fluctuate more widely in response to changes in interest rates than
short or intermediate-term.
Since the collateralized obligations may be issued in classes with varying
maturities and interest rates, the investor may obtain varying degrees of
predictability of maturity as opposed to direct investments in mortgage-backed
securities. With respect to the interest only securities and the principal only
securities, an investor has the option to select from the pool of underlying
collateral the portion of the cash flows that most closely corresponds to the
investor's forecast of interest rate movements. These instruments tend to be
highly sensitive to prepayment rates on the underlying collateral and thus place
a premium on accurate prepayment projections by the investor.
The Fund may invest in FHLMC, FNMA and GNMA certificates, which are
mortgage-backed securities representing part ownership in a pool of mortgage
loans. These mortgages are assembled by financial institutions and, after being
approved by the government agency, are guaranteed by that agency and some are
backed by the full faith and credit of the U.S. Government. These certificates
are called "pass-through" securities, because both interest and principal
payments are passed through to the holder. As with CMOs, the Fund's ability to
maintain a portfolio of high-yielding securities will be adversely affected to
the extent that prepayments of mortgages must be reinvested in securities which
have lower yields than the mortgages. These securities may also be subject to
maturity extension risk, described above.
INVESTMENT POLICIES
Selected Government Income is managed with a view to obtaining current
income while seeking to preserve capital. Consistent with its investment
objective and policies, the Fund may invest in the full range of maturities of
U.S. Government Securities. The Manager may adjust the average maturity of the
Fund's portfolio from time to time, depending on its assessment of the relative
yields available on securities of different maturities and its assessment of
future interest rate patterns and market risk. Thus, at various times the
average maturity of the portfolio may be relatively short (from one year to five
years, for example) and at other times may be relatively long (over 10 years,
for example). Fluctuations in portfolio values and therefore fluctuations in the
net asset value of the Fund's shares are more likely to be greater when the
portfolio average maturity is longer. At times, for defensive purposes, the
portfolio may be comprised substantially of securities maturing in one year or
less.
The Fund may sell portfolio securities without regard to the length of time
they have been held in order to take advantage of new investment opportunities
or yield differentials or to preserve gains or limit losses due to changing
economic conditions. This may cause the Fund to incur a relatively high annual
rate of portfolio turnover in some years. However, there are usually no
brokerage commissions paid in connection with transactions in U.S. Government
Securities.
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The Fund may from time to time make commitments to purchase securities on a
"when-issued" or delayed delivery basis; that is, delivery and payment for the
securities normally takes place in the future. The Fund will not invest in
excess of 50% of its assets, determined at the time of investment, in "when-
issued" securities. Sometimes the purchase price of the securities is not fixed
until the date such securities are issued. The securities so purchased are
subject to market fluctuation and no interest accrues to the Fund until delivery
and payment take place. The Fund intends to make commitments to purchase
securities with the intention of actually acquiring such securities, but it may
sell the securities before the settlement date if it is advisable or necessary
as a matter of investment strategy. At the time the Fund first makes a
commitment to purchase a security, it will record the transaction and reflect
the value of the obligation in determining its net asset value. The Custodian
will maintain on a daily basis a separate Fund account consisting of cash, U.S.
Government Securities or other high grade debt securities with a value at least
equal to the amount of the commitments to purchase "when-issued" securities.
When payment is made for "when-issued" securities, the Fund will meet its
obligations from then available cash flow, sale of securities held in the
separate account, sale of other securities or, although it would normally not
expect to do so, sale of the "when-issued" securities themselves (which may have
a market value greater or lesser than the Fund's obligation). If the Fund
chooses to dispose of the right to acquire a "when-issued" security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation.
SELECTED DAILY GOVERNMENT--A U.S. GOVERNMENT MONEY MARKET FUND
Selected Daily Government seeks to provide as high a level of current income
as possible from the type of short-term investments (i.e., with maturities of
one year or less) in which it invests, consistent with prudent investment
management, stability of principal and maintenance of liquidity. Although there
can be no guarantee, Selected Daily Government seeks to maintain a share price
of $1.00 per share and has done so since inception.
Selected Daily Government may invest in U.S. Government Securities and
repurchase agreements fully collateralized by such securities. See "Selected
Government Income-Investments" for a more detailed description of U.S.
Government Securities.
Selected Daily Government may invest in securities that have interest rates
that are adjusted periodically or that float continuously in relation to an
index such as the prime rate ("variable or floating rate securities"), and in
participation interests of such securities. The value of such securities may
change when interest rates change, although the variable or floating rate nature
of these securities should reduce the degree of fluctuation in the value of
portfolio investments.
Selected Daily Government limits its investments to securities that meet the
quality and diversification requirements of Rule 2a-7 under the Investment
Company Act of 1940. See "Determining the Price of Shares--Net Asset Value" for
more information. For more information on Selected Daily Government's
investments, please see "Investments" and "Investment Restrictions" in the
Statement of Additional Information.
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ALL FUNDS
BORROWING. The Funds may borrow money from banks for temporary or emergency
purposes in an amount not exceeding 10% of the value of a Fund's total assets,
and may pledge an amount not exceeding 15% of total assets to secure such
borrowing. No Fund will purchase portfolio securities while any outstanding
borrowing exceeds 5% of such Fund's total assets.
INDUSTRY CONCENTRATION. No Fund will make any investment (other than U.S.
Government Securities) which would cause 25% or more of its total assets to be
invested in any one industry.
REPURCHASE AGREEMENTS. The Funds may enter into repurchase agreements, but
normally do not enter into repurchase agreements maturing in more than seven
days, and may make repurchase agreement transactions through a joint account
with other funds managed by the Manager. A repurchase agreement involves a sale
of securities to the Funds, with the concurrent agreement of the seller (a
member bank of the Federal Reserve System, or securities dealer, which the
Manager or Sub-Adviser determines to be financially sound at the time of the
transaction) to repurchase the securities at the same price plus an amount equal
to accrued interest at an agreed-upon interest rate, within a specified time,
usually less than one week, but, on occasion, at a later time. The repurchase
obligation of the seller is, in effect, secured by the underlying securities. In
the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Funds could experience both delays in liquidating the underlying
securities and losses, including possible decline in the value of the collateral
during the period while the Funds seek to enforce their rights, possible loss of
all or a part of the income during such period and expenses of enforcing their
rights.
RESTRICTED OR ILLIQUID SECURITIES. The Funds may invest in restricted
securities, i.e. securities which, if sold, would cause the Funds to be deemed
"underwriters" under the Securities Act of 1933 (the "1933 Act") or which are
subject to contractual restrictions on resale. No investment will be made in
illiquid securities (which may include restricted securities that are illiquid)
if such investment would cause more than 15% of the net assets of Selected
American or Selected Special or more than 10% of the net assets of Selected
Government Income or Selected Daily Government, to be so invested. In the event
that market fluctuations cause a Fund to be invested in illiquid securities
exceeding 15% of net assets, steps will be taken as soon as practicable to
reduce the amount of illiquid securities held by such Fund.
The restricted securities which the Funds may purchase include securities
which have not been registered under the 1933 Act but are eligible for purchase
and sale pursuant to Rule 144A ("Rule 144A Securities"). This Rule permits
certain qualified institutional buyers, such as the Funds, to trade in privately
placed securities even though such securities are not registered under the 1933
Act. The Manager or Sub-Adviser will consider whether Rule 144A Securities being
purchased or held by a Fund are illiquid and thus subject to that Fund's
policies limiting investments in illiquid securities. In making this
determination, the Manager or Sub-Adviser will consider the frequency of trades
and quotes, the number of dealers and potential purchasers, dealer undertakings
to make a market, and the nature of the security and the market place trades
(for example, the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
Securities will also be monitored by the Manager or Sub-Adviser and, if as a
result of changed conditions, it is determined that a Rule 144A Security is no
longer liquid, a Fund's holding of illiquid securities will be reviewed to
determine what, if
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any, action is appropriate in light of the policy limiting investments in such
securities. There is no limitation on the percentage of a Fund's assets that can
be invested in liquid Rule 144A Securities. Investing in Rule 144A Securities
could have the effect of increasing the amount of investments in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities.
PORTFOLIO TRANSACTIONS. Subject to an overall policy to place portfolio
transactions as efficiently as possible and at favorable prices, research
services and sales of Fund shares may be considered as factors in placing
portfolio transactions for a Fund. Usually the portfolio transactions of
Selected Government Income and Selected Daily Government are principal
transactions without brokerage commissions, although a profit or loss to a
dealer may be incurred. In principal transactions the sole consideration in
determining the amount paid is efficient execution at a favorable price. Due to
differences in the investment objectives of the Funds, portfolio turnover rates
may vary. At times it could be high, which, for Selected Special and Selected
American, would require the payment of larger amounts in brokerage commissions.
Each Fund's portfolio turnover rates are set forth in "Financial Highlights."
FUNDAMENTAL POLICIES. The investment objectives of the Funds and the
restrictions set forth in the Statements of Additional Information, including
those set forth in respect to borrowing and diversification as discussed above,
are fundamental policies. The policies with respect to permissible investments
are fundamental policies of Selected Government Income and Selected Daily
Government. All other investment objectives and policies of the Selected Funds
are not fundamental and may be changed without shareholder approval.
Any percentage restrictions set forth in this Prospectus or in the
Statements of Additional Information, other than the restriction with respect to
illiquid securities, apply as of the time of investment without regard to later
increases or decreases in the values of securities or total net assets.
MANAGER, SUB-ADVISERS AND DISTRIBUTOR
Davis Selected Advisers, L.P., whose principal office is at 124 E. Marcy
Street, Santa Fe, New Mexico 87501, (the "Manager") serves as the manager for
the Selected Funds. The sole general partner of the Manager is Venture Advisers,
Inc. (the "General Partner"). Shelby M.C. Davis is the controlling shareholder
of the General Partner. Subject to the direction and supervision of the Board of
Directors/Trustees, the Manager is responsible for investment management and
administration activities for the Selected Funds. Davis Distributors, LLC (the
"Distributor") a subsidiary of the Manager serves as the distributor or
principal underwriter of the Funds' shares. As discussed below, the Manager has
hired Bramwell Capital Management, Inc. as the Sub-Adviser for Selected Special.
Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of the
Manager, performs research and other services for the Funds on behalf of the
Manager under a sub-Advisory Agreement with the Manager. This Agreement does not
affect the services provided by Bramwell Capital Management. The Manager also
acts as investment adviser and distributor of Davis New York Venture Fund, Inc.,
Davis High Income Fund, Inc., Davis Tax-Free High Income Fund, Inc., Davis
Series, Inc. and Davis International Series, Inc.
The Manager receives advisory fees monthly based upon each Fund's average
daily net assets at the following annual rates: Selected American--0.65% on the
first $500 million, 0.60% on the next $500 million, and 0.5% on amounts over $1
billion; Selected Special--0.70% on the first $50 million, 0.675% on
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the next $100 million, 0.65% on the next $100 million and 0.60% on amounts over
$250 million; Selected Government Income--0.50% on all amounts; Selected Daily
Government--0.30% on all amounts. Under the Sub-Advisory Agreement with DSA-NY,
the Manager pays all of DSA-NY's direct and indirect costs of operations. All
the fees paid to DSA-NY are paid by the Manager and not the Funds.
The Manager has agreed to absorb Fund operating expenses during 1997 to the
extent that the ratio of expenses to average net assets exceeds 1.50% for
Selected Government Income.
Bramwell Capital Management, Inc. (the "Sub-Adviser"), is the Sub-Adviser
for Selected Special. The Sub-Adviser is employed by the Manager to manage the
day to day investment operations for Selected Special subject to the Manager's
responsibility to monitor the performance and effectiveness of the Sub-Adviser.
Selected Special pays no fees directly to the Sub-Adviser. The Sub-Adviser
receives from the Manager a fee in an amount equal to 50% of the advisory fees
received by the Manager from Selected Special less 50% of any trail commissions
paid to dealers by the Manager in excess of 0.25% of the Fund's net assets per
annum, with a minimum annual fee of $150,000. The Sub-Adviser also provides
investment advisory services to individuals and institutional investors as well
as the Bramwell Funds, Inc. The Sub-Adviser's offices are located at 745 Fifth
Avenue, New York, New York 10151. Elizabeth R. Bramwell is the controlling
shareholder of the Sub-Adviser.
The shares of the Selected Funds are distributed by the Distributor. The
Distributor is paid a fee provided by Distribution Plans adopted and approved by
the Funds' Boards and shareholders in accordance with Rule 12b-1 under the
Investment Company Act of 1940. This Rule regulates the manner in which a mutual
fund may assume the costs of distributing and promoting the sale of its shares.
The Distributor provides office space and equipment, personnel, literature
distribution and advertising to promote the sale of the Funds' shares. Each Fund
pays a monthly distribution fee at the annual rate of 0.25% of average daily net
assets. In addition, the Plans provide that the Distributor, in its sole
discretion, may utilize its own resources for distributing and promoting sales
of Fund shares, including any profits from its management fees.
The Distributor has agreements with securities dealers for distributing
shares of the Funds and providing services to shareholders. The Distributor may
pay such firms service fees of up to 0.55% of the average net asset value of the
shares of Selected American and Selected Special and up to 0.25% of the average
net asset value of the shares of Selected Government Income and Selected Daily
Government in accounts for which representatives of the dealers are responsible
and provide services.
Shares of the Selected Funds may be sold through banks or bank-affiliated
dealers. If it is determined that the Glass-Steagall Act (which limits the
ability of a bank to be an underwriter of securities) prohibits banks or bank
affiliates from selling shares of the Funds, there would be no material adverse
effects on the Funds. State securities laws may require such firms to be
licensed as securities dealers in order to sell shares of the Selected Funds.
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PORTFOLIO MANAGERS
Christopher C. Davis is the portfolio manager for Selected American. He was
co-portfolio manager of Selected American, with Shelby M.C. Davis, from
December, 1994 until February 19, 1997. Prior to his responsibilities as
co-portfolio manager, Christopher C. Davis worked closely with Shelby M.C. Davis
as an assistant portfolio manager and research analyst beginning in September,
1989.
Shelby M.C. Davis is Chief Investment Officer of the Manager. As Chief
Investment Officer, he is active in providing investment themes, strategies and
individual stock selection to Selected American. He was the primary portfolio
manager for Selected American from May 1, 1993 until February 19, 1997. He is an
officer of all investment companies managed by the Manager and was the portfolio
manager of a growth fund from its inception in 1969 until February 19, 1997. He
has been a director of the Manager's general partner since 1969.
Elizabeth R. Bramwell is the primary portfolio manager of Selected Special.
Since February, 1994, Ms. Bramwell has been the Chief Executive Officer and sole
director of the Sub-Adviser. Prior to February, 1994, Ms. Bramwell was
President, Chief Investment Officer, Portfolio Manager and a Trustee of The
Gabelli Growth Fund from its inception, April 10, 1987.
Carolyn H. Spolidoro is the primary portfolio manager of Selected Government
Income and Selected Daily Government. She has been employed by the Adviser since
August, 1985. She is a Vice President of the Manager's General Partner and Vice
President of all of the investment companies managed by the Manager, except the
Selected Funds. She is also portfolio manager of the Davis Series, Inc., Davis
Government Bond Fund and Davis Government Money Market Fund.
BUYING SHARES
Shares of the Funds may be purchased through a securities dealer having a
sales agreement with the Manager (a "Qualified Dealer") or directly from the
Funds. No matter how you purchase your shares, you pay no sales load. You buy
shares at the net asset value computed after receipt of your investment in
proper form. This procedure is described below. Shares purchased through a
Qualified Dealer may be subject to administrative charges or transaction fees
imposed by the Dealer.
INITIAL INVESTMENT ($1,000 MINIMUM)
You may make an initial investment in any of the Selected Funds for $1,000
or more.
DIRECTLY BY WIRE. Opening an account directly by wire means that your money
is invested earlier than if you mail a check and will go to work for you sooner.
Shares may be purchased at any time by wiring federal funds directly to
State Street. Prior to an initial investment by wire, the shareholder should
telephone Davis Distributors, LLC at 1-800-243-1575 to advise them of the
investment and class of shares and to obtain an account number and instructions.
A completed
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Application Form should be mailed to State Street after the initial wire
purchase. To assure proper credit, the wire instructions should be made as
follows:
State Street Bank & Trust Co.
Boston, MA 02210
Attn: Mutual Fund Services
Fund Name
Shareholder Name
Shareholder Selected Account Number
Federal Routing Number 011000028
DDA 9905-325-8
We accept wires at no charge. However, your bank may charge you for this
service.
DIRECTLY BY MAIL. All it takes to open an account is a check and the
enclosed application. Once you've completed the application, mail it along with
your check to:
State Street Bank & Trust Co.
c/o Selected Funds
P.O. Box 8243
Boston, MA 02266-8243
For overnight delivery:
State Street Bank & Trust Co.
c/o Selected Funds
2 Heritage Drive 5th Floor
North Quincy, MA 02171
Please make your check payable to the Selected Funds, and do not forget to
indicate on the application the Fund(s) and amount(s) you are investing. An
investment in Selected American, Selected Special or Selected Government Income
will be effected at the next net asset value computed after your order is
received in good form. Your investment in Selected Daily Government will be
effected when your check is converted to federal funds (money credited to a
financial institution's account at a Federal Reserve Bank), which usually takes
at least two business days.
SUBSEQUENT INVESTMENTS ($25 MINIMUM)
DIRECTLY BY WIRE. Follow the instructions above for initial investments
directly by wire. There is no need to call us first. Just contact your financial
institution.
DIRECTLY BY MAIL. To add to your account by mail, please send your check or
money order with the detachable stub which you'll find at the bottom of your
most recent account statement, or you may drop us
18
<PAGE>
a note that includes the registered account name, name of the Fund, account
number, and amount you wish to invest. Please remember that purchases should be
sent to:
State Street Bank & Trust Co.
c/o Selected Funds
P.O. Box 8243
Boston, MA 02266-8243
For overnight delivery:
State Street Bank & Trust Co.
c/o Selected Funds
2 Heritage Drive 5th Floor
North Quincy, MA 02171
AUTOMATIC INVESTING THROUGH YOUR BANK
Whether you purchase through a Qualified Dealer or directly, you may arrange
for automatic monthly investing by authorizing State Street Bank & Trust Co. to
initiate a debit to your bank account of a specific amount (minimum $25) each
month to be used to purchase Fund shares. After each automatic investment, you
will receive a transaction confirmation and the debit should be reflected on
your next bank statement. You may terminate the plan at any time, and we may
modify or terminate the plan at any time. If you desire to utilize this
investment option, complete the Automatic Investment Plan portion of the
Application form enclosed with this Prospectus.
PROTOTYPE RETIREMENT PLANS
The Manager has available various types of prototype retirement plans,
including Individual Retirement Accounts ("IRAs"). See "Retirement Plans" for
more information.
GENERAL
Selected American, Selected Special and Selected Government Income do not
issue share certificates unless you specifically request one each time you make
a purchase. We don't issue certificates for Selected Daily Government shares,
for fractional shares, or to shareholders who have elected the Automatic
Withdrawals plan. Also, shares represented by certificates may not be redeemed
by wire or by telephone. See "Selling Shares" for information on how to sell
shares.
Because clearance of foreign checks generally takes longer than checks drawn
on domestic banks, shares will not be purchased until the Funds have collected
funds from checks drawn on foreign banks. Therefore, all purchases made by check
should preferably be in U.S. dollars and made payable to the Selected Funds. Any
fees involved in collecting on foreign checks will be charged to the
shareholder. Third party checks will not be accepted. When purchases are made by
check or periodic automatic investment, redemption will not be allowed until the
investment being redeemed has been in the account for 15 business days.
19
<PAGE>
SELLING SHARES
With any of our Funds, you can access all or part of your account by selling
(redeeming) your shares through your securities dealer (who may charge you a fee
for this service) or directly by using one of the methods described below. You
can sell shares at the net asset value computed after receipt of your redemption
request in proper form. Please refer to "Dividends" and "Determining the Price
of Shares-- Net Asset Value" for information on dividends and redemptions and
the price you will receive for your shares upon redemption.
To keep expenses low, we reserve the right to redeem any single Fund account
that falls below $750. Because we value you as a shareholder, before your
account is redeemed, you will be notified in writing and we will allow you 30
days to make additional share purchases to bring your account value up to the
minimum level.
You may not sell shares by wire or through the Automatic Withdrawals plan or
write checks against a Selected Daily Government account until the shares have
been on the Fund's books for at least 15 days, although there is no delay for
selling shares which have been purchased by wire.
BY WIRE OR ELECTRONIC FUNDS TRANSFER
You can sell shares by wire or electronically through the Automated Clearing
House system (ACH), if you have selected this option in your application, have
named a commercial bank or savings institution and have attached a voided check
or encoded deposit slip to which we can send your money. You will be charged a
service fee of $5 for each wire redemption. There is a $25,000 maximum for all
the Funds if you utilize ACH.
Once you elect this redemption privilege, you or any other person can make a
request to use this privilege by calling 1-800-243-1575. You may also use your
privilege by mailing to the Funds a signed request that includes the Fund name,
account number and amount you wish to have wired. The proceeds will be sent only
to the financial institution you have designated on your application. You may
terminate this redemption privilege by notifying us in writing. See "Please
Note" following "By Telephone," as the conditions set forth in the note also
apply to wire and ACH redemptions.
Changes in your bank account ownership or bank account number (including the
name of the financial institution) may be made by written notice to us with your
signature and those of the new owner(s) signature guaranteed. See "By Mail" for
signature guarantee instructions. Additional documents may be required when
shares are held by a corporation, partnership, executor, administrator, trustee
or guardian.
Requests for wire redemptions are normally paid by the next business day.
However, in the event that the Manager determines that such redemptions would
adversely affect the Funds by requiring untimely disposition of portfolio
securities, such payment may be delayed for up to seven calendar days.
AUTOMATIC WITHDRAWALS PLAN
This Plan may be appropriate if you have special income needs or recurring
major expenses and your account balance is $10,000 or more. Under the Automatic
Withdrawals Plan, you may choose to have your shares redeemed from your account
monthly, quarterly or semi-annually and a check will be sent to you or to anyone
you choose. Just let us know what the amount of the check should be, although
there is a $25
20
<PAGE>
minimum for the Plan. Withdrawals can also be processed electronically as
described in the preceding section. Any income and capital gains dividends will
be automatically reinvested in your account on the dividend reinvestment date.
Shares are redeemed and checks are issued at the end of the month of the time
period selected. Therefore, you should receive your check during the first week
of the next month.
As these withdrawals involve redemption of shares, they may result in a gain
or loss for income tax purposes (although generally no gain or loss results from
redemption of shares of Selected Daily Government). Purchases of Selected
American, Selected Special or Selected Government Income shares at the same time
you are selling shares may not be advantageous because of tax consequences. In
addition, depending upon the size of the requested payment and fluctuations in
the share price, you may exhaust your account.
BY TELEPHONE
You can sell shares by calling 1-800-243-1575 (see "How to Reach Us") and
receive a check by mail, but please keep in mind:
The check can be issued only in amounts up to a maximum $25,000;
The check can be issued only to the registered owner (who must be an
individual);
The check can be sent only to the address of record; and
Your current address of record must have been on file for 30 days.
PLEASE NOTE:
UNLESS YOU HAVE PROVIDED IN YOUR APPLICATION THAT THE TELEPHONE PRIVILEGE IS
NOT TO BE AVAILABLE, THE TELEPHONE PRIVILEGE IS AUTOMATICALLY AVAILABLE FOR
SELLING OR EXCHANGING SHARES. By exercising the telephone privilege to sell or
exchange shares, you agree that the Fund will not be liable for following
telephone instructions reasonably believed to be genuine. Reasonable procedures
will be employed to confirm that such instructions are genuine and if not
employed, the Fund may be liable for unauthorized instructions. Such procedures
will include a request for personal identification (account or social security
number) and tape recording of the instructions. You should be aware that during
unusual market conditions we may experience difficulty accepting telephone
requests, in which case you should mail your redemption request. See "By Mail"
below.
BY MAIL
Simply send your written request to redeem your shares as follows:
State Street Bank & Trust Co.
c/o Selected Funds
P.O. Box 8243
Boston, MA 02266-8243
For overnight delivery:
State Street Bank & Trust Co.
c/o Selected Funds
2 Heritage Drive 5th Floor
North Quincy, MA 02171
21
<PAGE>
This written request must: (1) be signed by all account owners exactly as
the account is registered (both parties must sign in the case of joint
accounts); (2) state the dollar amount or number of shares to be redeemed; and
(3) specify the Fund and account number from which shares are to be redeemed.
Please remember that you cannot place any conditions on your request. If any
share certificates were issued, they must also be returned duly endorsed or
accompanied by a separate stock assignment. For your protection, you should send
your share certificates by registered mail.
If the redemption proceeds are $50,000 or less and are to be paid to an
individual shareholder of record at the address of record, a signature guarantee
is not required (unless there has been an address change within 30 days). All
other redemption requests must have signatures guaranteed. Signatures may be
guaranteed by a commercial bank, trust company, savings and loan association,
federal savings bank, a member firm of a national stock exchange, credit union
or other eligible financial institution. An acknowledgment by a notary public is
not acceptable. Certain shareholders, such as corporations, trusts and estates,
may be required to submit additional documents.
Normally, payment by check is made within seven days after the redemption
request is received with all required documents in proper form. However, if you
bought your shares by check, a Fund will delay sending redemption proceeds until
it has determined that your check has cleared, which is generally within 15
days.
BY CHECK--SELECTED DAILY GOVERNMENT ONLY
If you are a shareholder in Selected Daily Government, you can also redeem
shares by check. If you choose this free check writing privilege in your account
application (or request it later), you will be provided with a supply of checks.
These checks will be imprinted with your name, the Fund name and your account
number, and can be made payable to any person with a $100 minimum. You may not
sell shares by writing checks against your Selected Daily Government account
until the shares have been on the Fund's books for at least 15 days.
When a check is presented for payment, a sufficient number of shares in your
account will be redeemed to cover the amount of the redemption check. You will
continue to earn dividends on these shares until the check clears. All checks
must be signed exactly as the account is registered so that, unless only one
signer is authorized on the account application, these redemption checks must be
signed by all account owners. You should not write a check to close your account
because the amount in your account varies daily (due to the daily declaration of
dividends). If you wish to close your account, you should do so by the other
redemption procedures described above.
IRA or other retirement plan accounts and certain accounts established
through brokers may not use the check redemption feature.
The Fund will not honor checks when the right to redeem shares has been
suspended or postponed, or whenever the account has been otherwise restricted.
22
<PAGE>
PLEASE NOTE:
The Funds reserve the right to terminate, suspend or modify the Automatic
Withdrawals plan, check-writing privilege or telephone redemption privilege. A
Fund may suspend the right of redemption or delay payment (1) during any period
when the New York Stock Exchange is closed (other than customary weekend and
holiday closings), (2) when trading in the markets that a Fund normally utilizes
is restricted, or an emergency exists, as determined by the Securities and
Exchange Commission, so that the disposal of any of a Fund's investments or the
determination of its net asset value is not reasonably practicable, or (3) for
such other periods as the Securities and Exchange Commission by order may permit
for protection of a Fund's shareholders. In case of suspension of the right of
redemption, you may either withdraw your request for redemption or, if your
request is not withdrawn, receive payment based on the next net asset value
computed after termination of the suspension.
EXCHANGING SHARES
You may exchange your shares in one Selected Fund for shares of another
Selected Fund. Please remember that you cannot place any conditions on your
request. Simply send us a written request that includes:
Your name;
Your account number;
The name of the Fund you currently own;
The name of the Fund you wish to exchange into; and
The dollar amount or number of shares you wish to exchange.
If you have any share certificates, you must include them with your request.
A signature guarantee is not required except in cases where shares are also
redeemed for cash at the same time. For certificate delivery and signature
guarantee instructions, please see "Selling Shares--By Mail."
You may also make exchanges by calling 1-800-243-1575 (see "How to Reach
Us"). Please remember that during unusual market conditions, we may experience
difficulty accepting telephone requests, in which case you should mail your
request. In addition, exchanges may also be made through securities dealers who
may charge you a fee for effecting an exchange. See "Please Note" following
"Selling Shares--By Telephone," as the conditions set forth in the note also
apply to exchanges.
An exchange of shares is considered a sale for federal income tax purposes.
A shareholder may realize a gain or loss depending upon whether the value of the
shares being exchanged is more or less than the adjusted cost basis. This is
usually the case except when exchanging shares of Selected Daily Government for
shares of another Selected Fund.
Since excessive trading may hurt Fund performance, disrupt portfolio
management and increase transaction costs, the Funds have decided to limit
excessive exchange activity. EXCHANGES OUT OF A FUND ARE LIMITED TO FOUR PER
CALENDAR YEAR. This exchange limitation may be terminated or amended at any time
upon such notice as is required by applicable regulatory authorities.
23
<PAGE>
Exchanges are available only in states where shares of a particular Fund
being acquired may legally be sold. The Funds reserve the right to suspend,
terminate or modify the exchange privilege at any time, but will normally give
you advance notice.
FUND PERFORMANCE
The Funds may quote information from publications including, but not limited
to, THE WALL STREET JOURNAL, MONEY MAGAZINE, FORBES, BARRON'S, NEWSWEEK, CHICAGO
TRIBUNE, THE NEW YORK TIMES, U.S. NEWS AND WORLD REPORT, USA TODAY, FORTUNE,
INVESTORS BUSINESS DAILY, FINANCIAL WORLD, SMART MONEY, NO-LOAD FUND INVESTOR
and KIPLINGER'S and may cite information from MORNINGSTAR, VALUE LINE or the
Investment Company Institute. Selected American, Selected Special and Selected
Government Income may compare their performance to the Consumer Price Index, Dow
Jones Industrial Average, Standard & Poor's 500 Stock Index, the Russell 2,000
Index or Wilshire 5,000 and to the performance of mutual fund indexes as
reported by Lipper Analytical Services, Inc. or CDA Investment Technologies,
Inc., two widely recognized independent mutual fund reporting services. We
invite you to compare the performance of the Selected Funds to the historical
returns of various investments, performance indexes or economic indicators such
as stocks, bonds, certificates of deposit, money market funds and U.S. Treasury
Bills. Some of these investments may offer fixed rates of return and guaranteed
principal and may be insured. For more information on the Funds' performance,
and performance advertising see "Performance Data" in the Statements of
Additional Information. Please remember that performance information is based
upon historical results and is not necessarily indicative of future performance.
The Funds' Annual Report contains additional performance information. Such
Annual Report will be made available upon request and without charge.
STOCK-ORIENTED FUNDS
We may advertise the performance of Selected American or Selected Special
expressed in terms of "total return" or "average annual total return." Average
annual total return (which is standardized in accordance with Securities and
Exchange Commission regulations) and total return reflect the change in the
value of an investment in a Fund over a stated period. Total return and average
annual total return measure both the net investment income from, and any
realized or unrealized appreciation of, a Fund's holdings for a stated time
period and assume that all dividends were reinvested. The average annual total
return calculation is annualized and is shown as a percentage change over the
time period. Total return represents the aggregate percentage or dollar value
change over the stated period. Performance data will generally be stated for
one, five and ten year periods, but may also be quoted for other longer or
shorter periods.
SELECTED GOVERNMENT INCOME
In addition to advertising "total return" or "average annual total return"
(see discussion under "Fund Performance--Stock-Oriented Funds"), we may also
advertise Selected Government Income's "yield." "Yield" with respect to Selected
Government Income refers to the net investment income generated by a
hypothetical investment in the Fund during a thirty day or one month period. The
income is then
24
<PAGE>
annualized by assuming the same income was generated each month for a twelve
month period, and is shown as a percentage of the investment.
SELECTED DAILY GOVERNMENT
We may, from time to time, advertise Selected Daily Government's "yield,"
and "compounded yield."
"Yield" with respect to Selected Daily Government refers to the net
investment income generated by a hypothetical investment in the Fund during a
seven-day period. The income is then annualized by assuming the same income was
generated each week during a 52-week period, and is shown as a percentage of the
investment. "Compounded yield" is determined similarly but, when annualized, the
income earned by an investment is assumed to be compounded weekly. Compounded
yield will be slightly higher than the yield because of the effects of
compounding.
The performance of Selected Daily Government may be compared to that of
other money market mutual funds tracked by Lipper or rated by Donaghue's Money
Fund Report, a money market fund reporting service. Investors may want to
compare the Fund's performance to that of various bank products as reported by
BANK RATE MONITOR-Registered Trademark-, a financial reporting service that
publishes each week average rates of bank and thrift institution money market
deposit accounts, Super N.O.W. accounts and certificates of deposit.
DETERMINING THE PRICE OF SHARES--NET ASSET VALUE
The price you pay when you buy shares in a Fund and the price you receive if
you redeem is the next net asset value computed after we receive your order to
buy or redeem in proper form. The net asset value per share of a Fund is
computed by dividing the total value of the assets of a Fund, minus its
liabilities, by the total number of its shares outstanding.
The net asset value per share is determined on each day the New York Stock
Exchange is open, at the earlier of the close of the Exchange or 4:00 p.m. New
York time. The price per share for purchases or redemptions made directly
through State Street Bank & Trust Co. is the net asset value next computed after
State Street Bank & Trust Co. receives the purchase order or redemption request.
If the purchase order or redemption request is placed with a Qualified Dealer,
then the applicable price is computed as of 4:00 p.m. New York time, provided
that the Qualified Dealer receives the order before 4:00 p.m. New York time and
the Distributor receives the order before 5:30 p.m. New York time. Otherwise the
applicable price is the next determined net asset value. It is the
responsibility of Qualified Dealers to promptly forward purchase and redemption
orders to the Distributor. Note that in the case of redemptions and repurchases
of shares owned by corporations, trusts or estates, the Transfer Agent may
require additional documents to effect the redemption and the applicable price
will be that next determined following the receipt of the required
documentation.
METHOD OF VALUATION
Selected American, Selected Special and Selected Government Income each
value their security holdings on the basis of market value which, with respect
to fixed-income securities, may be based on
25
<PAGE>
prices provided by a pricing service. If no market value is readily available,
such securities will be valued at a fair value determined by the Boards of
Directors/Trustees.
Selected Daily Government investments are normally valued at amortized cost,
which means that they are valued at acquisition cost (and adjusted for
amortization of premium or discount) rather than current market value. This
enables Selected Daily Government to maintain a stable net asset value or share
price of $1.00, although there can be no assurance that a stable price of $1.00
will always be maintained.
If a deviation of 1/2 of 1% or more were to occur between Selected Daily
Government's net asset value per share calculated at current market values and
amortized cost, or if there were any other deviations that the Board of Trustees
believed would result in a material dilution to shareholders, the Board of
Trustees would promptly consider what action, if any, should be taken. Please
see "Net Asset Value" in the Statement of Additional Information for further
discussion.
DIVIDENDS
To help keep your account growing, income and capital gains dividends from
any Fund are automatically reinvested on the payment date for you as additional
shares of that Fund, unless you request that dividends be paid by check. You may
make such an election on your account application or make such a request later.
You can make such a request by writing to the Funds. Your request will be
effective for the current dividend or distribution if it is received before the
record date. Requests received after that time will be effective beginning with
the next dividend or distribution.
If you elect to have dividends and/or distributions paid in cash, and the
U.S. Postal Service cannot deliver the check, or if it remains uncashed for six
months, it, as well as future dividends and distributions, will be reinvested in
additional shares.
STOCK-ORIENTED FUNDS
Selected American pays any income dividends quarterly and any capital gains
dividends at least annually. Selected Special pays any income and capital gains
dividends at least annually.
SELECTED GOVERNMENT INCOME
Net income dividends are accrued daily and paid monthly. Shares earn
dividends as of the day after the effective purchase date up to, but not
including, the date of redemption. Capital gains dividends, if any, are paid at
least annually.
SELECTED DAILY GOVERNMENT
Dividends from the net income of Selected Daily Government are accrued daily
and paid monthly. Shares earn dividends as of the first business day after the
effective purchase date up through the date of redemption.
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<PAGE>
ALL FUNDS
As a protection, if two of your dividend checks are returned as
undeliverable, those undelivered dividends will be invested in additional shares
at the then current net asset value, and the account will be redesignated as a
dividend reinvestment account.
TAXES
The Funds intend to continue qualifying as "regulated investment companies"
under the Internal Revenue Code (the "Code"). The Funds distribute all of their
taxable net income and net realized capital gains to shareholders so that the
Funds themselves do not pay any income taxes. You should consult your tax
adviser about the effects of federal, state and local tax laws on investments in
the Funds.
Distributions of net investment income from a Fund are taxable to
shareholders as ordinary income. A portion of the income dividends received by
the Funds from U.S. corporations may qualify for the "dividends received"
deduction available to corporate shareholders. Distributions from net long-term
capital gains are taxable as long-term capital gains regardless of how long Fund
shares are owned. Distributions from net short-term capital gains are taxable as
ordinary income. Shareholders are informed annually of the amount and nature of
any income or gain. Distributions are taxable whether received in cash or
reinvested in additional shares.
If for any reason you do not provide us with your correct Social Security or
Tax I.D. number (or certify that you are not subject to backup withholding), we
are required by the Code to withhold 31% of taxable dividends and proceeds of
certain exchanges and redemptions.
If a Fund distributes less than the amount it is required to distribute
during any year, a 4% excise tax will be imposed on the undistributed amount.
The Funds intend to declare and distribute dividends during each year sufficient
to prevent imposition of the excise tax.
RETIREMENT PLANS
The Selected Funds offer prototype retirement plans (e.g. 401(k), profit
sharing, money purchase, Simplified Employee Pension ("SEP") plans, model 403(b)
and 457 plans for charitable, educational and governmental entities) for
corporations and self-employed individuals and prototype Individual Retirement
Account ("IRA") plans and SIMPLE IRA plans for both individuals and employers.
These plans utilize the shares of the Selected Funds as their investment
vehicle. State Street acts as custodian or trustee for the plans and charges the
participant $10 to establish each account and an annual maintenance fee of $10
per Social Security number. Such fees will be redeemed automatically at year end
from your account, unless you elect to pay the fee directly.
The Funds' custodian, State Street Bank and Trust Co., acts as the trustee
or custodian under the IRA, SEP and 403(b) plans and may act as trustee or
custodian under the other plans. For information, please call 1-800-243-1575, or
write us at Selected Funds, P.O. Box 8243, Boston, MA 02266-8243.
Please do not use the application included with this prospectus to open your
retirement plan account. Instead, call 1-800-243-1575 for a retirement plan
account application. Please consult your tax adviser to determine the effect of
any of the plans on your financial picture.
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<PAGE>
ORGANIZATION OF THE FUNDS
STOCK-ORIENTED FUNDS
Selected American, organized in 1933, and Selected Special, organized in
1939, are Maryland corporations and are both diversified, open-end management
investment companies. Selected American and Selected Special each issue one
series of common stock. Shares when issued are fully paid, non-assessable, and
freely transferable. Shares of each Fund have equal non-cumulative voting rights
and equal rights with respect to dividends, assets and liquidation.
SELECTED GOVERNMENT INCOME AND SELECTED DAILY GOVERNMENT
Selected Government Income and Selected Daily Government are each separate
series of Selected Capital Preservation Trust. The Trust is a diversified
open-end management investment company organized as a business trust under the
laws of Ohio in 1987. Shares of the Trust when issued are fully paid, non-
assessable and freely transferable.
Shares of each series have equal voting rights with other shares of that
series and each share is entitled to one vote at a shareholder meeting. On
certain matters, such as election of the Board of Trustees and ratification of
the selection of independent auditors, all series vote together. However, on
certain matters affecting a particular series, such as changes in investment
restrictions, the shares of that series vote separately.
ALL FUNDS
The Funds do not have annual shareholder meetings but do have special
shareholder meetings when the Boards believe it is necessary or when required by
law. A Fund will have a special meeting when requested in writing by the holders
of at least 10% of the shares entitled to vote at a meeting.
In the opinion of the staff of the Securities and Exchange Commission, the
use of this combined Prospectus may make each Fund liable for any misstatement
or omission in this Prospectus regardless of the particular Fund to which it
pertains.
DIRECTORS AND TRUSTEES
The management and affairs of the Funds are under the direction and
supervision of the Boards of Directors and Trustees.
The following persons serve as Directors and Trustees of the Selected Funds:
<TABLE>
<S> <C>
William P. Barr Katherine L. MacWilliams
Floyd A. Brown James J. McMonagle
William G. Cole Richard C. O'Brien
Shelby M.C. Davis Larry Robinson
Robert J. Greenebaum Marsha Williams
Jerome E. Hass
</TABLE>
More information concerning the Directors and Trustees is contained in the
Statements of Additional Information.
28
<PAGE>
HOW TO REACH US
You can have your questions answered about any of the Selected Funds or the
status of your account simply by calling 1-800-243-1575 Monday through Friday
from 7:00 a.m. to 4:00 p.m. Mountain time. The Funds are closed on days on which
the New York Stock Exchange is closed. Whenever you want to contact us by mail,
please write to us at:
State Street Bank & Trust Co.
c/o Selected Funds
P.O. Box 8243
Boston, MA 02266-8243
For overnight delivery:
State Street Bank & Trust Co.
c/o Selected Funds
2 Heritage Drive 5th Floor
North Quincy, MA 02171
29
<PAGE>
PORTFOLIO COMPOSITION OF SELECTED AMERICAN BY QUALITY RATING
AS A PERCENTAGE OF TOTAL ASSETS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
FUND'S ASSESSMENT OF
MOODY'S/S&P RATING CATEGORY PERCENTAGE UNRATED SECURITIES GENERAL DEFINITION OF BOND QUALITY
- --------------------------------------- ------------ ----------------------- ---------------------------------------
<S> <C> <C> <C>
Aaa/AAA................................ -- -- Highest quality
Aa/AA.................................. -- -- High quality
A/A.................................... 0.24 -- Upper medium grade
Baa/BBB................................ 0.44 -- Medium grade
Ba/BB.................................. -- -- Some speculative elements
B/B.................................... -- -- Speculative
Caa/CCC................................ -- -- More speculative
Ca, C/CC, C, D......................... -- -- Very speculative, may be in default
Not Rated.............................. -- -- Not rated by Moody's or S&P
Common and Preferred Stock............. 98.4 --
Short-term Investments................. 0.92 --
------ ---
100.00% 0.00%
</TABLE>
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk. Interest payments are protected by
a large or an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat greater than Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e. they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics, as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate
30
<PAGE>
and thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any longer period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative to
a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard and Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or
BB&rating.
CCC--CC--C--is regarded as having predominantly speculative characteristics
with respect to capacity to pay interest and repay principal. C indicates the
highest degree of speculation. While such debt will likely have some quality and
protective characteristics, these are out-weighed by large uncertainties or
major exposures to adverse conditions.
31
<PAGE>
D--This rating indicates that the issue is either in default as to payment
of interest and/or repayment of principal or is expected to be in default upon
maturity.
HIGH YIELD, HIGH RISK DEBT SECURITIES
Selected American and Selected Special may invest in debt securities,
including securities convertible into common stocks. Investments may be made in
convertible securities to provide an opportunity for appreciation as the value
of the common stock appreciates. However, convertible securities are often
viewed by the issuer as future common stock subordinated to other debt and carry
a lower rating than the issuer's non-convertible debt obligations.
The debt securities (including convertible securities) in which the Funds
may invest include securities rated BB or lower by S&P or Ba or lower by Moody's
or, if unrated, deemed by management to be comparable to such ratings.
Securities rated BB or Ba or lower are referred to in the financial community as
"junk bonds." While likely to have some quality and protective characteristics,
such securities, whether or not convertible into common stock, usually involve
increased risk as to payment of principal and interest. Such securities are
subject to greater price volatility than higher rated securities, tend to
decline in price more steeply than higher rated securities in periods of
economic difficulty or accelerating interest rates and are subject to greater
risk of non-payment in adverse economic times. There may be a thin trading
market for such securities. This may have an adverse impact on market price and
the ability of the Funds to dispose of particular issues and may cause the Funds
to incur special securities registration responsibilities, liabilities and costs
and liquidity and valuation difficulties. Unexpected net redemptions may force
the Funds to sell high yield, high risk debt securities without regard to
investment merit, thereby possibly reducing return rates. Such securities may be
subject to redemptions or call provisions which, if exercised when investment
rates are declining, could result in the replacement of such securities with
lower yielding securities, resulting in a decreased return. To the extent that
the Funds invest in bonds that are original issue discount, zero coupon,
pay-in-kind or deferred interest bonds, the Funds may have taxable interest
income in excess of the cash actually received on these issues. In order to
avoid taxation to the Funds, the Funds may have to sell portfolio securities to
meet taxable distribution requirements.
See the Statements of Additional Information for more detailed information
on high yield, high risk debt securities.
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INFORMATION CONCERNING THE DRAFTS USED FOR THE SELECTED
DAILY GOVERNMENT FUND CHECK WRITING PRIVILEGE:
1. Your Selected Daily Government Fund drafts are paid from an account at
State Street Bank & Trust Company ("State Street").
2. I connection with this account, you will have the same rights and duties
with respect to stop payment orders, "stale" drafts, unauthorized signatures,
alterations, and unauthorized endorsements as bank checking account customers do
under the Massachusetts Uniform Commercial Code. All notices with regard to
those rights and duties must be given to State Street.
3. Stop payment instructions must be given to State Street by calling their
service telephone number for the Selected Funds, (800) 243-1575, or by writing
to State Street Bank & Trust Company, c/o The Selected Funds.
4. These rules may be amended from time to time.
SELECTED DAILY GOVERNMENT CHECK WRITING PRIVILEGE:
[ ] If you wish to use this privilege please check the box to the left and
complete the signature card below.
THE SELECTED DAILY GOVERNMENT FUND SIGNATURE CARD (TYPE OR PRINT)
Account number _________________________________________________________________
Shareholder Name _______________________________________________________________
Co-Shareholder Name ____________________________________________________________
BY SIGNING THIS SIGNATURE CARD THE UNDERSIGNED AGREE(S) TO BE SUBJECT TO THE
INSTRUCTIONS AND RULES, AS NOW IN EFFECT AND AS AMENDED FROM TIME TO TIME, OF
THE SELECTED DAILY GOVERNMENT FUND, THAT PERTAIN TO THE USE OF REDEMPTION
CHECKS. (SOME OF THE CURRENT RULES APPEAR ABOVE.) EACH SIGNATORY GUARANTEES THE
OTHER'S SIGNATURE.
(Signature) ____________________________________________________________________
(Signature of Co-Shareholder) __________________________________________________
[ ] Check here if both signatures are required on checks.
[ ] Check here if only one signature is required on checks.
If neither box is checked, all checks will require both signatures.
<PAGE>
DAVIS SELECTED ADVISERS, L.P.
GROUP OF FUNDS
Selected American Shares
Selected Special Shares
Selected U.S. Government Income Fund
Selected Daily Government Fund
INVESTMENT ADVISER
Davis Selected Advisers, L.P.
124 E. Marcy Street
Santa Fe, NM 87501
DISTRIBUTOR
Davis Distributors, LLC
124 E. Marcy Street
Santa Fe, NM 87501
TRANSFER AGENT AND CUSTODIAN
State Street Bank & Trust Co.
c/o Selected Funds
P.O. Box 8243
Boston, MA 02266-8243
LEGAL COUNSEL
D'Ancona & Pflaum
30 North LaSalle Street
Chicago, IL 60602-2502
AUDITORS
Tait, Weller and Baker
Two Penn Center, Suite 700
Philadelphia, PA 19102-1707
THE
SELECTED FUNDS
PROSPECTUS
MAY 1, 1997
AS REVISED OCTOBER 17, 1997
[LOGO]
SELECTED
FUNDS
DAVIS DISTRIBUTORS, LLC
