<PAGE>
SELECTED FUNDS
ANNUAL REPORT
DECEMBER 31, 1997
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[PICTURE OF A LEAF]
SELECTED
FUNDS
DAVIS SELECTED ADVISERS
<PAGE>
SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
Dear Shareholder:
MARKET OVERVIEW
While 1997 was another strong year for stocks, volatility increased markedly in
the latter part of the year. We think 1998 could be a time when money managers
will earn their money every day, every week, every month. The market has never
been up 20% for more than three years in a row. So the odds are it will be in a
trading range in 1998.
The financial turmoil in Asia has triggered concerns that the crisis will hurt
U.S. exports and corporate earnings as markets are flooded with cheap Asian
imports. Certainly the crisis will mean earnings disruptions and even
bankruptcies for companies in the Far East. But U.S. companies with a longer
view may be able to gain market share through acquisitions and joint ventures
in Southeast Asian markets with exciting growth potential over the next 20 or
30 years. So what was impossible during good times because of these countries'
closed economic systems may become possible now that Asian companies need U.S.
capital and ingenuity to get back on track.
We have enjoyed a long bull market with a lack of major corrections, and we are
entering a period when expectations should be lower. But we believe that the
bullish case for equities remains intact and that any market weakness next year
may merely be the pause that refreshes.
Investors' greatest fear should not be a correction, but a financial bubble
where stock valuations inflate to unrealistic levels and then crash, as they
did in 1973 and 1974. A long overdue market correction would allow us to buy
the same businesses at bargain prices, and that should be welcomed, not feared.
When merchandise goes on sale in stores, people are happy to buy it thinking
they are getting a bargain. But when stocks or industry groups go on sale,
people get nervous rather than using those times as buying opportunities. Most
investors should adopt a long-term perspective and make it a habit to invest
regularly every week or every month, without trying to second-guess short-term
market developments. That is the way to benefit from the power of compounding
over decades.(1)
At Davis Selected Advisers, our focus has always been on the best interest of
our shareholders, and the means by which we can accomplish this is through
thorough research. We concentrate on finding good businesses with strong
managements, and we think three years or even 30 years ahead, not 30 days or
three months ahead.
If you take a 30-year view of the market, assume a starting level of 8,000 for
the Dow and compound that figure at 7% annually--not an unreasonable growth
rate based on past performance--the Dow would be at 64,000 in three decades. If
you start that process with the Dow at 6,000 and compound that amount at 7% a
year, the Dow would reach 48,000 in 30 years.(2)
Either figure is so far ahead of where the market is today that we think it is
pointless to worry about the next 2,000 points on the Dow. That is why we
intend to remain committed owners of equities in 1998.
Sincerely,
James J. McMonagle Shelby M.C. Davis
Chairman Chief Investment Officer
February 18, 1998
<PAGE>
SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
SELECTED AMERICAN SHARES
PERFORMANCE OVERVIEW
o Selected American Shares, our large-cap growth-and-income fund enjoyed an
exceptionally strong year in 1997, outpacing the 33.35% return on the Standard
& Poor's 500.(3)
o The Fund generated a total return of 37.25% for the 12 months ended December
31, 1997, ranking it 11th among the 611 growth-and-income funds tracked by
Lipper Analytical Services.(4)
o From May 6, 1993 through December 31, 1997, the approximate period that Davis
Selected Advisers has managed Selected American Shares, it ranked number two
out of 260 funds in the Lipper category, providing an average annual total
return of 22.32%.(5)
o In addition, the Fund holds Morningstar's highest ***** (five-star) rating
for the latest three-year period and a **** (four-star) rating for the latest
five- and 10-year periods.(6)
o Christopher Davis, Portfolio Manager of Selected American Shares, was named
by Money magazine as one of "five young managers who win like old pros."
According to Money, "They're still under 40, but these stock pickers are
showing the talent to produce a lifetime of profits."(7)
AN INTERVIEW WITH CHRISTOPHER C. DAVIS, PORTFOLIO MANAGER
Q. How would you describe the market's behavior in 1997?
A. Two characteristics defined the market in 1997. The first was sloppy
thinking--that is, the belief that stocks can keep going up faster than
earnings per share because of expanding price/earning multiples...that earnings
per share can keep going up faster than revenue because of share repurchases,
margin expansion and financial engineering...that revenue can keep growing
faster than units sold because of price increases. This dynamic cannot go on
forever.
The flaws in that "new-era" thinking are apparent now. Companies clearly have
little pricing power today. Margins are near all-time highs, and long-overdue
changes in accounting for executive options may put further pressure on the
expense line. In addition, the benefits of downsizing, reengineering and
write-offs, as well as the easy benefits of international expansion and a
depreciating dollar, are largely behind us. So perhaps the "easy" gains are
behind us as the fundamentals catch up with stock market valuations.
The second defining characteristic of the market in 1997 was volatility--but,
in our mind, that can be a good thing. To quote from a story (originally
attributable to Ben Graham) that Warren Buffett recounted at the annual meeting
of Berkshire Hathaway:
"Just imagine that when you buy a stock, you've bought into a business where
you have this obliging partner who comes around every day and offers you a
price at which he'll either buy or sell....No one ever does that in a private
business....But, in the stock market, you get it. Well, that's a huge
advantage. And it's a bigger advantage if this
2
<PAGE>
SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS, PORTFOLIO MANAGER-CONTINUED
partner of yours is a heavy drinking manic depressive. In fact, the crazier he
is, the more money you you're going to make. So, as an investor, you should
love volatility."(8)
Q. What changes do you anticipate in investor focus going forward?
A. We expect to see a much greater emphasis on old-fashioned investment basics,
rather than on new-era thinking. And we intend to continue with the investment
approach that has been successfully employed by the Davis family in bull and
bear markets during the past 50 years. Most importantly, we recognize that
stocks are not merely pieces of paper but represent ownership interests in
businesses. As a result, our investment process focuses on two simple
questions: What kind of businesses do we want to own and how much should we pay
for them?
The kinds of businesses we want to own have characteristics such as:
first-class management, high returns on capital, a lean expense structure, a
dominant or growing share in a growing market, products or services that do not
become obsolete, a strong balance sheet, and successful international
operations.
In terms of how much to pay, we want to buy stocks of those businesses for
considerably less than they are worth. No business is a good buy regardless of
the price. Almost 50 years ago, Ben Graham advised investors to buy stocks as
they buy groceries, not perfume. That means using common sense, rather than
emotion, to buy more when there is a sale and to substitute other selections
when prices rise--rather than thinking a high price enhances mystique, as many
people do when buying perfume.
We base stock valuations on the return we would expect to earn if we bought the
entire business, and we focus on the owner's cash earnings relative to the
purchase price. That is, we look at how much money we could put in our pocket
at the end of the year if we owned the whole business, after spending what was
required to maintain the business's competitive position. Then we determine
what that amount represents as a percentage of the current market
capitalization, including debt. This is also known as the earnings yield.
To our way of thinking, growth and value are two sides of the same coin. What
we are looking for is the opportunity to buy growth at value prices.
Q. Given today's slow-growth economy and a market that places huge premiums on
the shares of growing companies, how do you find growth at reasonable prices?
A. While it is difficult now to find both growth and value in the same stock,
we have identified five themes that offer the opportunity to buy when prices
are low.
The first theme we call "growth in disguise". It includes companies that are
not known as growth companies but that have been transformed into growth
companies by fundamental changes in their markets or the economy. This theme
would encompass financial services companies, which are benefiting from
favorable long-term demographic trends as baby boomers enter their peak earning
and investing years. It would also include oil services companies, which are
now emerging from a 17-year bear market.
3
<PAGE>
SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS, PORTFOLIO MANAGER-CONTINUED
The second theme is "growth under a cloud". Short-term disappointments or
controversy can mask a company's strong long-term prospects. We believe this
may be the case with McDonald's and NIKE, both of which are struggling
domestically but have dominant international brand positions.
A third theme is "restructured growth". This theme has been played across
American industry in the last 10 years, and was certainly evident with IBM and
American Express, both large holdings of ours.(9)
A fourth theme is "growth delayed". This refers to companies with the enviable
problem of having so much business that temporary bottlenecks hurt near-term
results. Burlington Northern and Boeing, for example, have been caught by
surprise at the strength of their businesses, and that has created short-term
operating problems. Hopefully, a year from now investors will realize that
these times were really buying opportunities.
The final theme is "volatile growth". Technology is truly one of the great
growth engines of our economy, with the use of technology expanding at a
staggering rate every year while its price is cut in half. Because of high
growth rates, short-term results may be volatile. But, as mentioned above,
volatility is often an investor's ally.
Q. What is your long-term outlook?
A. Fundamentally, we remain optimists, but we believe that investors must
moderate their expectations. The kind of results the market has posted in the
last three years cannot continue, based on the value of the underlying
businesses. However, this is not necessarily bad news. In fact, between 1966
and 1997, the Dow Jones Industrial Average, excluding dividends, compounded at
only 7%--a rate far below what many would guess. Yet if even this modest growth
rate were sustained for the next 30 years, the Dow would trade at 64,000. So
more moderate expectations need not be cause for despair!
SELECTED SPECIAL SHARES
PERFORMANCE OVERVIEW
o Selected Special Shares, our diversified small- and mid-cap growth fund,
scored good gains in 1997, easily outperforming its benchmarks.
o The Fund provided a total return of 26.90% for the 12 months ended December
31, 1997 versus returns of 15.04% for the Lipper Small Company Funds Index(10)
and 20.13% for the Wilshire Mid Cap Company Growth Index(11) for the same time
period.
o Unlike many small-cap funds that pursue short-term performance by
aggressively concentrating on volatile, speculative plays, Selected Special
Shares is positioned to build long-term wealth for shareholders over a
prolonged period of time while seeking to deliver less volatile returns and
avoid major losses. The Fund's three-year track record--an average annual
return of 23.98%--supports this objective.(12)
4
<PAGE>
SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
AN INTERVIEW WITH ELIZABETH R. BRAMWELL, PORTFOLIO MANAGER
Q. What were the reasons for the Fund's strong performance?
A. The environment for equities was favorable in 1997, with inflation and
interest rates both running lower than expected. In the middle of the year, the
market advance expanded to include small- and mid-cap stocks. Financial service
stocks worked particularly well for us--including Northern Trust, Charles
Schwab and TCF Financial, all of which we have owned for some time.(9)
Personnel service companies, such as Robert Half, Labor Ready and On Assignment
were also good performers, as were outsourcing companies, such as Paychex and
Computer Sciences, which generated especially good returns in the fourth
quarter. Oil services stocks did well in the first part of the year, but were
hit by profit-taking in the fourth quarter.
Q. What is the reason to own a small-cap fund?
A. A small-cap and mid-cap portfolio adds an important dimension to a
diversified investment strategy in the long run. That is because it offers the
potential for substantial gains from a part of the market that, in our opinion,
is not valued as efficiently as large-cap stocks. Selected Special Shares is
designed to be a complementary component to our large-cap fund, Selected
American Shares, in a balanced long-term investment program.
Q. Where do you see opportunities today?
A. We generally target companies growing at 15% to 30% rather than more rapidly
growing companies where risk is inherently greater. We look for companies that
are effective users of technology and companies at the forefront of innovation
so that approximately one-third of their products are new within the last three
years.
Today, we are seeing tremendous advances in medicine, communications and
computing that create their own demand and even whole new business
opportunities. For instance, use of the Internet is driving down costs in a
number of businesses. Amazon.com, the Internet bookseller, is a prime example
of the possibilities.
We also expect continued personnel outsourcing and further consolidation of
fragmented industries. A number of companies are well-positioned to absorb and
consolidate other businesses, including Leggett & Platt, a manufacturer of
seating mechanisms and other components; Hon Industries in the home office
furniture area; and Illinois Tool Works.
Q. What kind of impact might the financial turmoil in Asia have on small- and
mid-cap stocks?
A. You have to evaluate that question on a company-by-company basis. But,
overall, the exposure of small- and mid-cap stocks to currency fluctuations and
other related problems is less. What we look for are companies with innovative
products and services that transcend macroeconomic trends, and we think there
are many opportunities in that category.
Furthermore, we believe that global expansion and rising standards of living
around the world are dominant long-term themes. Although the speed of change
may vary, nevertheless they are on an upward trend.
5
<PAGE>
SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
AN INTERVIEW WITH ELIZABETH R. BRAMWELL, PORTFOLIO MANAGER-CONTINUED
Even more important, market volatility and uncertainties create opportunities
to buy stocks at more favorable valuations and enhance long-term returns--a
development we welcome as long-term investors. We are big believers in
dollar-cost-averaging and the great advantage a fund enjoys in this regard.
Whereas an individual may only have the money to buy 100 or 200 shares, the
Fund has the financial resources to invest over time. We seek to work toward an
average price, rather than running the risk of investing everything at a high
price.
Q. How has your strategy positioned the Fund to benefit in the current market
environment?
A. Our estimated earnings growth rate for the Fund's portfolio for 1998 is 26%
and the price/earnings (P/E) ratio on the portfolio is 21 times. At that P/E,
the portfolio is selling at approximately 80% of its future growth rate based
on 1998 estimated earnings. On the other hand, the estimated 1998 earnings
growth rate on the S&P 500 is 5% to 7% by our calculation and the P/E on the
S&P is about 20 times 1998 projected earnings. So the S&P 500 is selling at
well over two times future growth based on our 1998 estimates for far less
growth.
We think that Selected Special Shares offers an attractively valued portfolio
and that ultimately stocks move at least in line with their earnings growth.
Furthermore, given the valuation of our portfolio, we think there is potential
for the portfolio's overall P/E ratio to expand as well, giving investors an
enhanced return.
SELECTED U.S. GOVERNMENT INCOME FUND
PERFORMANCE OVERVIEW
o The Selected U.S. Government Income Fund seeks to provide stable yet
competitive current income consistent with capital preservation by investing in
debt securities sponsored or guaranteed by the U.S. government or its
agencies.(13)
o The Fund generated a total return of 7.32% for the 12 months ended December
31, 1997 versus a return of 8.84% for Lipper Analytical Services' general U.S.
government fund category.
o The Fund's middle-of-the-road investment style emphasizes risk-adjusted
performance. It seeks to deliver competitive results with less risk or
volatility than other fixed-income funds. This cautious approach offers
downside protection in bearish bond markets but may lag somewhat in bullish
bond markets.
AN INTERVIEW WITH CAROLYN H. SPOLIDORO, PORTFOLIO MANAGER
Q. What is the Selected U.S. Government Income Fund's general strategy?
6
<PAGE>
SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
AN INTERVIEW WITH CAROLYN H. SPOLIDORO, PORTFOLIO MANAGER-CONTINUED
A. In line with the other Selected funds, we avoid market timing for the simple
reason that even the most informed investment analysts cannot accurately
predict market moves all the time. Our strategy is to create a well-diversified
portfolio in terms of types of government securities, call features, maturity
lengths and interest rate coupons so that we are positioned to benefit in
various market environments.
Currently, the Fund's portfolio is divided roughly equally between
mortgage-backed securities, including pass-through securities and
collateralized mortgage obligations (CMOs), and U.S. government agency notes,
including some issues that can be called in by the issuer before maturity and
some that cannot. Agency securities tend to offer higher yields than comparable
U.S. Treasury securities. The portfolio's duration is 4.0 years and its average
life is 6.6 years.
Q. Could you provide some perspective on the bond market's performance last
year?
A. Overall, we think investors were taken by surprise at the way the market
performed in 1997--both in the first quarter when interest rates backed up and
prices declined, and then later on by the extent of the market's rally. In our
mind, that demonstrates why diversification is so important. Because no one can
predict with certainty what markets will do, it is only prudent to be prepared
for many different possibilities.
Looking ahead, we expect that 1998 will be a favorable environment for bond
funds. Generally, we think the current financial turmoil in Asia will be
noninflationary and could actually have a stabilizing effect on the U.S.
economy. Lower inflation would help to keep interest rates down and could
result in a slower rate of economic growth that may allow that growth to
continue even longer, without rekindling inflation. However, if the Asian
crisis resolves quickly, the flight to quality could be reversed--causing
interest rates, especially short-term interest rates, to go up.
Similarly, the nation's current progress toward a balanced budget is a positive
factor that should help to hold interest rates down as long as it continues.
But setbacks regarding that objective could cause rates to rise.
While our outlook is fairly rosy, we recognize the importance of maintaining a
disciplined approach with an all-weather diversified portfolio designed to
smooth out Fund performance and provide stability in a variety of market
climates. History has shown that forecasters are not always right.
Q. Why should investors choose a government bond fund?
A. A government bond fund can help create a strong foundation for any long-term
investment portfolio. The Selected U.S. Government Income Fund provides
potentially higher monthly income than most short-term investments and can
offer investors an excellent means of balancing equity holdings with fixed
income securities of the highest credit quality.
- -----------------------------
This Annual Report is furnished to you by Davis Distributors, LLC, which acts
as the distributor for the Selected Funds. This Annual Report is authorized for
distribution only when accompanied or preceded by a current prospectus of the
Selected Funds which contains more about fees and expenses. Please read the
prospectus carefully before investing or sending money.
7
<PAGE>
SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
(1) Neither dollar cost averaging, nor any other mechanical system can
guarantee a profit. Such a plan does not protect against loss in declining
markets.
(2) Total return assumes reinvestment of dividends and capital gain
distributions. Past performance is not a guarantee of future results.
Investment return and principal value will vary so that, when redeemed, an
investor's shares may be worth more or less than when purchased.
(3) The S&P 500 Index is an unmanaged index of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The index is adjusted for
dividends, weighted towards stocks with large market capitalizations and
represents approximately two-thirds of the total market value of all domestic
common stocks. Investments cannot be made directly in the S&P 500 Index.
(4) Lipper Analytical Services' rankings and comparisons are based on total
returns unadjusted for commissions.
For the one year period ended 12/31/97, Selected American Shares was ranked
11th among the 611 funds in the Lipper "Growth and Income Fund" category. For
the three year period ended 12/31/97, Selected American Shares was ranked 2nd
among the 400 funds in the Lipper "Growth and Income Fund" category. For the
five year period ended 12/31/97, Selected American Shares was ranked 22nd among
the 240 funds in the Lipper "Growth and Income Fund" category. For the ten year
period ended 12/31/97, Selected American Shares was ranked 7th among the 136
funds in the Lipper "Growth and Income Fund" category.
Lipper Analytical Services rankings are based on total return performance
unadjusted for commissions.
(5) The average annual total return for Selected American Shares for the one,
five and ten year periods ended December 31, 1997, were 37.25%, 20.39% and
18.60%, respectively
(6) Morningstar proprietary ratings reflect historical risk-adjusted performance
as of December 31, 1997. The ratings are subject to change every month,
Morningstar ratings are calculated from a fund's 3, 5 and 10 year average
annual returns (based on available track records) in excess of 90-day Treasury
bill (T-bill) returns, with appropriate fee adjustments and a risk factor that
reflects fund performance below 90-day T-bill returns. Ten percent of the funds
in an investment category receive five stars, 22.5% receive four stars, 35%
receive three stars, 22.5% receive two stars, and 10% receive one star.
Selected American Shares was rated against 2,332, 1,292 and 676 Domestic Equity
Funds for the 3, 5 and 10 year periods respectively.
(7) Source: Money, February, 1998
(8) For a transcript of Mr. Buffet's comments, we suggest subscribing to
Outstanding Investor Digest.
8
<PAGE>
SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
(9) Portfolio holdings are subject to change.
(10) The Lipper Small Company Funds Index is comprised of the 30 largest funds
that, by prospectus or portfolio practice, normally invest in companies with
market capitalizations of less than 1 billion at the time of purchase. Funds in
the index are equally weighted, and returns include the reinvestment of all
dividends and are net of expenses. Investments cannot be made directly in the
index.
(11) The Wilshire Mid Cap Company Growth Index is an unmanaged, market
capitalization-weighted index of companies with market capitalizations ranging
from $826 million to $3.0 billion and with growth characteristics screened by
sales growth, return on equity and dividend payout. Investments cannot be made
directly in the index.
(12) The average annual total return for Selected Special Shares for the one,
five and ten year periods ended December 31, 1997, were 26.90%, 15.54% and
14.93%, respectively.
(13) Shares of the Selected U.S. Government Income Fund, like all mutual funds,
are not federally insured or guaranteed.
9
<PAGE>
SELECTED AMERICAN SHARES, INC.
PORTFOLIO HOLDINGS - AT DECEMBER 31, 1997
===============================================================================
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
PORTFOLIO MAKEUP SECTOR WEIGHTINGS
(% OF FUND NET ASSETS) (% OF STOCK HOLDINGS)
- ---------------------- ---------------------
Preferred Stocks Banks and saving
1.5% and Loan
13.3%
Cash & Cash
Equivalents Energy
2.9% 10.1%
Common Stocks Building
95.6% Material
3.6%
Financial
15.3%
Food/Beverage
4.5%
Other
7.9%
Insurance
13.1%
Pharmaceutical and
Health Care
6.2%
Publishing
3.3%
Railroad
3.9%
Real Estate
6.1%
Technology
9.3%
Telecommunications
3.4%
TOP 10 HOLDINGS
STOCK SECTOR % OF FUND NET ASSETS
- -------------------------------------------------------------------------------
American Express Co. Financial 4.12%
Wells Fargo & Co. Banks & Savings & Loan
Associations 3.92%
Travelers Group Inc. Financial 3.77%
Morgan Stanley, Dean Witter,
Discover & Co. Financial 3.69%
Hewlett-Packard Company Technology 3.65%
International Business Machines
Corporation Technology 3.60%
General Re Corp. Insurance 3.00%
McDonald's Corp. Food/Beverage & Restaurant 2.74%
Halliburton Co. Energy 2.68%
BankAmerica Corp. Banks & Savings & Loan
Associations 2.46%
10
<PAGE>
SELECTED AMERICAN SHARES, INC.
PORTFOLIO ACTIVITY - JANUARY 1, 1997 THROUGH DECEMBER 31, 1997
===============================================================================
NEW POSITIONS ADDED (1/1/97-12/31/97)
(Highlighted Positions are those greater than 0.99% of Total Net Assets)
<TABLE>
<CAPTION>
DATE OF 1ST % OF 12/31/97
SECURITY SECTOR PURCHASE FUND ASSETS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Applied Materials, Inc. Technology 12/10/97 0.20%
Baker Hughes Inc. Energy 1/8/97 --
Bristol-Meyers Squibb Company Pharmaceutical and Health Care 3/11/97 --
British Petroleum Company PLC-ADR Energy 6/5/97 0.54%
Ciba Specialty Chemicals ADR Chemicals 2/26/97 --
Crescent Operating, Inc. Real Estate 6/30/97 0.08%
Crescent Real Estate Equities Company Real Estate 4/22/97 1.33%
Fluor Corp. Energy 3/10/97 --
Molex Incorporated Electronics 6/20/97 0.08%
Motorola, Inc. Telecommunications 3/18/97 1.10%
Nabors Industries, Inc. Energy 6/24/97 0.18%
Nestles SA-ADR Food/Beverage & Restaurant 2/27/97 1.23%
Nestles SA Food/Beverage & Restaurant 9/23/97 0.24%
The News Corp. Ltd., Sponsored ADR Publishing 12/4/97 0.23%
Nike Inc. Apparel 7/16/97 0.91%
Novartis AG-ADR Pharmaceutical and Health Care 1/29/97 0.99%
Qwest Communications International, Inc. Telecommunications 9/17/97 0.14%
Roche Holding LTD. Pharmaceutical and Health Care 2/13/97 --
Rouse Company, $3.00, Conv. Pfd. Real Estate 6/10/97 0.36%
Salomon Inc. Financial 9/24/97 --
Seagate Technology, Inc. Technology 6/18/97 --
SmithKline Beecham PLC-ADR Pharmaceutical and Health Care 6/6/97 2.07%
Sun Microsystems, Inc. Technology 5/14/97 --
TCF Financial Corp. Banks & Saving & Loan Associations 3/18/97 0.06%
Texas Instruments Incorporated Electronics 10/14/97 1.68%
Tyson Foods, Inc. Food/Beverage & Restaurant 6/13/97 0.16%
</TABLE>
POSITIONS CLOSED (1/1/97-12/31/97) (Gains and losses greater than $3 million
are highlighted)
<TABLE>
<CAPTION>
SECURITY SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Applied Materials, Inc. Technology 5/2/97 5,168,779
Avalon Properties, Inc. Real Estate 5/28/97 610,713
Baker Hughes Inc. Energy 3/14/97 85,096
Barnett Banks, Inc. Banks & Saving 4/4/97 4,152,402
& Loan Associations
Capstead Mortgage Corp. Real Estate 3/20/97 1,265,284
Chevron Corp., Exchangeable Sr. Deb., Energy 4/24/97 1,509,270
6.50%, 01/15/03
Ciba Specialty Chemicals ADR Chemicals 4/24/97 621,296
Dean Witter, Discover & Co. Financial 6/2/97 1,647,309
</TABLE>
11
<PAGE>
SELECTED AMERICAN SHARES, INC.
PORTFOLIO ACTIVITY - JANUARY 1, 1997 THROUGH DECEMBER 31, 1997
===============================================================================
POSITIONS CLOSED (1/1/97-12/31/97) (Gains and losses greater than $3 million
are highlighted) - Continued
<TABLE>
<CAPTION>
SECURITY SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Donaldson, Lufkin & Jenrette, Inc. Financial 11/26/97 11,024,343
Eastman Kodak Co. Photographic 3/21/97 1,737,039
Equitable Companies Inc. Insurance 4/1/97 4,882,705
Falcon Drilling Company Energy 3/18/97 (60,181)
Federal Realty Investment Trust Real Estate 7/8/97 325,539
Fluor Corp. Energy 4/14/97 (1,450,981)
Fort Howard Corp. Paper Products 6/19/97 13,858,265
General Motors Corp. Automobiles 4/8/97 6,105,753
General Motors Corp. Class H Automobiles 1/17/97 548,471
The Gillette Co. Consumer Products 8/13/97 9,266,557
Jefferson Smurfit Corporation Paper Products 3/21/97 (463,679)
Kimberly-Clark Corp. Paper Products 4/2/97 1,908,850
Kimco Realty Corp. Real Estate 5/6/97 1,422,415
Komag Inc. Technology 8/5/97 (2,315,941)
Lilly Eli & Co. Pharmaceutical and Health Care 8/8/97 4,903,637
Morgan Stanley Group Inc. Financial 6/2/97 1,900,408
The News Corp. Ltd., Sponsored ADR Pfd. Publishing 6/12/97 (1,663,678)
Noble Drilling Corp. Energy 7/30/97 5,239,304
Public Storage, Inc. Real Estate 8/22/97 1,415,655
Roche Holding LTD. Pharmaceutical and Health Care 4/3/97 (210,551)
Saul Centers, Inc. Real Estate 5/16/97 (791,671)
Seagate Technology, Inc. Technology 7/9/97 214,786
Sizeler Property Investors Inc. Real Estate 6/4/97 697,341
State Street Corporation Banks & Saving 8/13/97 7,695,064
& Loan Associations
Sun Microsystems, Inc. Technology 10/17/97 965,611
Union Pacific Resources Energy 3/19/97 (80,339)
W.R. Berkley Corp. Insurance 9/16/97 5,418,509
The Walt Disney Co. Entertainment 8/14/97 4,629,244
Weingarten Realty Investors Real Estate 6/5/97 152,712
</TABLE>
12
<PAGE>
SELECTED AMERICAN SHARES, INC.
COMPARISON OF SELECTED AMERICAN SHARES, INC. AND STANDARD & POOR'S 500
STOCK INDEX
===============================================================================
Average Annual Total Return For the Periods ended December 31, 1997.
One Year .......................... 37.25%
Five Years......................... 20.39%
Ten Years.......................... 18.60%
$10,000 INVESTED OVER TEN YEARS. Letis say you invested $10,000 in Selected
American Shares ("SAS") on December 31, 1987. As the chart below shows, by
December 31, 1997 the value of your investment would have grown to $55,082 - a
450.82% increase on your initial investment. For comparison, the Standard &
Poor's 500 Stock Index is also presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
S&P 500 SAS
1987 10,000.00 10,000.00
1988 11,650.00 12,201.61
1989 15,330.00 14,650.93
1990 14,852.00 14,079.08
1991 19,358.00 20,591.40
1992 20,831.00 21,784.08
1993 22,921.00 22,965.36
1994 23,332.00 22,231.19
1995 31,931.00 30,698.92
1996 39,243.00 40,134.27
1997 52,317.00 55,082.47
Standard & Poor's is an unmanaged index which has no specific investment
objective. Investments cannot be made directly into the index. The index used
includes net dividends reinvested.
The performance data for Selected American Shares contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost
when redeemed.
13
<PAGE>
SELECTED SPECIAL SHARES, INC.
PORTFOLIO HOLDINGS - AT DECEMBER 31, 1997
===============================================================================
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
PORTFOLIO MAKEUP SECTOR WEIGHTINGS
(% OF FUND NET ASSETS) (% OF STOCK HOLDINGS)
---------------------- ---------------------
Cash & Cash Chemicals
Equivalents 2.7%
9.78%
Energy
Common Stocks 7.6%
90.22%
Entertainment/
Leisure Time
3.6%
Financial
Services
20.1%
Industrial Products
9.3%
Automotive/Heavy
Equipment
2.9%
Information
Processing
11.6%
Home/Office
Furniture
6.2%
Healthcare
8.1%
Packaging
2.3%
Retailing
8.9%
Other
5.7%
Temporary Help
11.0%
TOP 10 HOLDINGS % OF FUND
STOCK SECTOR NET ASSETS
- -------------------------------------------------------------------------------
Computer Sciences Corporation Information Processing -
Services 3.34%
Robert Half International, Inc. Temporary Help 3.28%
Washington Mutual, Inc. Financial Services 3.15%
The Charles Schwab Corporation Financial Services 2.94%
Dell Computer Corporation Information Processing -
Office Equipment 2.80%
TCF Financial Corporation Financial Services 2.72%
On Assignment, Inc. Temporary Help 2.62%
OM Group, Inc. Chemicals 2.35%
Elan Corporation, PLC ADR Healthcare 2.25%
Leggett & Platt, Inc. Home/Office Furniture 2.17%
14
<PAGE>
SELECTED SPECIAL SHARES, INC.
PORTFOLIO ACTIVITY - JANUARY 1, 1997 THROUGH DECEMBER 31, 1997
===============================================================================
NEW POSITIONS ADDED (1/1/97-12/31/97)
(Highlighted Positions are those greater than 0.99% of Total Net Assets)
<TABLE>
<CAPTION>
DATE OF 1ST % OF 12/31/97
SECURITY SECTOR PURCHASE FUND ASSETS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amazon.com, Inc. Retailing 5/23/97 0.56%
Baan Company N.V. Information Processing - Software 2/19/97 --
Camco International, Inc. Energy 1/10/97 1.70%
Cardinal Health, Inc. Healthcare 6/25/97 1.00%
Chase Manhattan Corp. Financial Services 2/4/97 --
Ciena Corporation Communications 12/17/97 0.65%
Closure Medical Corporation Healthcare 3/26/97 0.35%
Compaq Computer Corporation Information Processing - Office Equip. 1/30/97 0.75%
Costco Companies, Inc. Retailing 8/12/97 --
CVS Corporation Retailing 7/23/97 0.90%
Data Processing Resources Corporation Temporary Help 1/21/97 0.34%
Dril Quip, Inc. Industrial Products 10/22/97 --
DST Systems, Inc. Information Processing - Services 10/16/97 0.80%
Elan Corporation, PLC ADR Healthcare 6/18/97 2.25%
First Union Corporation Financial Services 2/18/97 1.37%
Focal, Inc. Healthcare 12/11/97 0.43%
Gateway 2000 Inc. Information Processing - Office Equip. 6/18/97 --
Great Plains Software, Inc. Information Processing - Software 6/20/97 0.48%
Hays Lemmerz International, Inc. Automotive/Heavy Equipment 8/20/97 0.93%
Herman Miller, Inc. Home/Office Furniture 5/27/97 1.09%
The Home Depot, Inc. Retailing 5/20/97 1.18%
HON Industries, Inc. Home/Office Furniture 10/22/97 1.34%
Kansas City Southern Industries, Inc. Transportation 10/22/97 1.14%
Knoll, Inc. Home/Office Furniture 5/28/97 0.86%
LaSalle Partners, Inc. Financial Services 7/16/97 1.24%
Leggett & Platt, Inc. Home/Office Furniture 4/10/97 2.17%
Littlefuse, Inc. Industrial Products 6/27/97 1.00%
McAfee Associates, Inc. Information Processing - Software 2/13/97 --
Microsoft Corporation Information Processing - Software 1/7/97 --
Minerals Technologies, Inc. Industrial Products 4/15/97 1.64%
Myriad Genetics, Inc. Healthcare 1/22/97 0.16%
NationsBank Corporation Financial Services 1/23/97 1.14%
Nationwide Financial Services, Inc. Financial Services 3/5/97 --
Noble Drilling Corporation Industrial Products 1/14/97 --
Quintiles Transnational Corporation Healthcare 12/17/97 1.12%
Shaw Group, Inc. Industrial Products 1/8/97 --
Star Banc Corporation Financial Services 6/12/97 1.15%
Taiwan Semiconductor Electronics 10/8/97 --
Western Digital Corporation Electronics 2/14/97 --
Westpoint Stevens, Inc. Retailing 4/10/97 --
Whole Foods Market, Inc. Retailing 10/13/97 1.71%
WorldCom, Inc. Communications 1/23/97 1.01%
Zions Bancorporation Financial Services 1/15/97 1.21%
</TABLE>
15
<PAGE>
SELECTED SPECIAL SHARES, INC.
PORTFOLIO ACTIVITY - JANUARY 1, 1997 THROUGH DECEMBER 31, 1997
===============================================================================
POSITIONS CLOSED (1/1/97-12/31/97)
(Gains and losses greater than $500,000 are highlighted)
<TABLE>
<CAPTION>
SECURITY SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Acceler8 Technology Information Processing - Software 4/18/97 64,808
Affinity Technology Group, Inc. Information Processing - Software 3/13/97 (136,339)
APAC TeleServices, Inc. Information Processing - Services 8/4/97 (460,790)
Automatic Data Processing, Inc. Information Processing - Services 1/9/97 40,556
Baan Company N.V. Information Processing - Software 7/24/97 109,211
Barrett Business Services, Inc. Temporary Help 10/14/97 (91,805)
Billing Information Concepts Corporation Information Processing - Services 2/25/97 132,033
Bombardier, Inc. Class B Transportation 1/9/97 89,651
Carbo Ceramics, Inc. Energy 2/6/97 13,490
Cardiothoractic Systems, Inc. Healthcare 3/10/97 59,068
Chase Manhattan Corp. Financial Services 6/27/97 1,808
Children's Comprehensive Services, Inc. Services-Education 3/11/97 (65,511)
Cisco Systems, Inc. Communications 3/24/97 (177,455)
Claremont Technology Group, Inc. Information Processing - Services 8/4/97 (515,764)
Collective Bancorp, Inc. Financial Services 2/28/97 500,562
Computer Associates International, Inc. Information Processing - Software 1/22/97 (496,292)
Conductus, Inc. Communications 2/7/97 (64,645)
Costco Companies, Inc. Retailing 10/22/97 27,090
CYTYC Corporation Healthcare 7/25/97 5,463
Dril Quip, Inc. Industrial Products 10/23/97 6,969
Eckerd Corporation Retailing 1/24/97 693,317
Employee Solutions, Inc. Temporary Help 2/14/97 162,890
Gateway 2000 Inc. Information Processing - Office Equip. 7/10/97 24,784
Ingram Micro, Inc. Electronics 7/24/97 133,504
Intel Corporation Electronics 10/29/97 500,431
International Business Machines, Inc. Information Processing - Office Equip. 4/8/97 19,061
Just For Feet, Inc. Retailing 8/20/97 (232,698)
Landry's Seafood Restaurants, Inc. Restaurants 7/8/97 (88,883)
Loehmann's, Inc. Retailing 5/12/97 (823,891)
Lone Star Steakhouse and Saloon, Inc. Restaurants 1/15/97 (143,136)
Loral Space & Communications Ltd. Communications 1/28/97 77,782
Lucent Technologies, Inc. Communications 3/24/97 32,931
McAfee Associates, Inc. Information Processing - Software 8/18/97 (2,377)
Methode Electronics, Inc.-A Industrial Products 2/27/97 41,789
Microsoft Corporation Information Processing - Software 10/31/97 229,291
MSB Bancorp, Inc. Financial Services 10/31/97 108,128
Nationwide Financial Services, Inc. Financial Services 3/31/97 4,628
Nike Inc. Apparel 7/8/97 14,747
Noble Drilling Corporation Industrial Products 3/19/97 (133,281)
OzEmail Ltd. - ADS Communications 6/5/97 (203,183)
PETsMart, Inc. Retailing 3/3/97 (117,429)
Rockshox, Inc. Entertainment 5/16/97 59,253
</TABLE>
16
<PAGE>
SELECTED SPECIAL SHARES, INC.
PORTFOLIO ACTIVITY - JANUARY 1, 1997 THROUGH DECEMBER 31, 1997
===============================================================================
POSITIONS CLOSED (1/1/97-12/31/97) - CONTINUED
(Gains and losses greater than $500,000 are highlighted)
<TABLE>
<CAPTION>
SECURITY SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sak's Holdings, Inc. Retailing 7/24/97 (206,145)
Seachange International, Inc. Information Processing - Software 10/6/97 (183,929)
Shaw Group, Inc. Industrial Products 12/24/97 3,181
Solectron Corporation Electronics 3/18/97 (103,617)
Studio Plus Hotels, Inc. Lodging 1/17/97 42,493
Taiwan Semiconductor Electronics 10/10/97 28,295
USCS International, Inc. Information Processing - Services 4/7/97 (8,738)
Western Digital Corporation Electronics 3/3/97 (127,939)
Westpoint Stevens, Inc. Retailing 5/14/97 6,746
W.R. Berkley Corporation Insurance 2/13/97 13,345
X-Rite, Inc. Industrial Products 4/17/97 (63,644)
</TABLE>
17
<PAGE>
SELECTED SPECIAL SHARES, INC.
COMPARISON OF SELECTED SPECIAL SHARES, INC. AND STANDARD & POOR'S 500
STOCK INDEX
===============================================================================
Average Annual Total Return For the Periods ended December 31, 1997.
One Year .......................... 26.90%
Five Years......................... 15.54%
Ten Years.......................... 14.93%
$10,000 INVESTED OVER TEN YEARS. Letis say you invested $10,000 in Selected
Special Shares ("SSS") on December 31, 1987. As the chart below shows, by
December 31, 1997 the value of your investment would have grown to $40,198 - a
301.98% increase on your initial investment. For comparison, the Standard &
Poor's 500 Stock Index is also presented on the chart below.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
S&P 500 SSS
1987 10,000.00 10,000.00
1988 11,650.00 11,949.60
1989 15,330.00 15,404.56
1990 14,852.00 14,346.77
1991 19,358.00 18,000.74
1992 20,831.00 19,527.17
1993 22,921.00 21,627.23
1994 23,332.00 21,094.28
1995 31,931.00 28,316.60
1996 39,243.00 31,676.02
1997 52,317.00 40,198.44
Standard & Poor's is an unmanaged index which has no specific investment
objective. Investments cannot be made directly into the index. The index used
includes net dividends reinvested.
The performance data for Selected Special Shares contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost
when redeemed.
18
<PAGE>
SELECTED U.S. GOVERNMENT INCOME FUND
COMPARISON OF U.S. GOVERNMENT INCOME FUND AND THE LEHMAN BROTHERS INTERMEDIATE
TERM U.S. TREASURY SECURITIES INDEX
===============================================================================
Average Annual Total Return For the Periods ended December 31, 1997.
One Year .......................... 7.32%
Five Years......................... 6.09%
Ten Years.......................... 6.88%
$10,000 INVESTED OVER THE LIFE OF THE FUND. Letis say you invested $10,000 in
U.S. Government Income Fund ("SUSGIF") on December 31, 1987. As the chart below
shows, by December 31, 1997 the value of your investment would have grown to
$19,465 - an 94.65% increase on your initial investment. For comparison, the
Lehman Brothers Intermediate Term U.S. Treasury Securities Index is also
presented on the chart below.
LEHMAN INDEX SUSGIF
1987 10,000.00 10,000.00
1988 10,640.00 10,294.95
1989 11,989.15 11,166.77
1990 13,135.31 12,119.66
1991 14,993.13 13,765.23
1992 16,038.27 14,478.36
1993 17,362.27 15,624.07
1994 17,006.82 15,200.89
1995 19,469.81 17,634.70
1996 20,242.20 18,137.03
1997 21,793.99 19,464.68
The Lehman Brothers Intermediate Term U.S. Treasury Securities Index is an
unmanaged index which has no specific investment objective. Investments cannot
be made directly into the index.
The performance data for Selected U.S. Government Income Fund contained in this
report represents past performance and assumes that all distributions were
reinvested, and should not be considered as an indication of future performance
from an investment in the Fund today. The investment return and principal value
will fluctuate so that shares may be worth more or less than their original
cost when redeemed.
19
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS At December 31, 1997
SELECTED AMERICAN SHARES, INC.
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
=======================================================================================================================
<S> <C> <C>
COMMON STOCK - (95.61%)
AEROSPACE - (0.66%)
300,000 Boeing Co............................................................................... $ 14,681,250
-------------
AGRICULTURE - (1.21%)
1,236,375 Archer-Daniels-Midland Co............................................................... 26,813,883
-------------
APPAREL - (0.91%)
513,000 Nike Inc................................................................................ 20,135,250
-------------
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (12.62)
332,500 Banc One Corp........................................................................... 18,058,906
750,000 BankAmerica Corp........................................................................ 54,750,000
390,465 Citicorp................................................................................ 49,369,418
153,800 Golden West Financial Corp.............................................................. 15,043,563
40,000 TCF Financial Corp...................................................................... 1,357,500
488,434 U.S. Bancorp............................................................................ 54,674,081
256,656 Wells Fargo & Co......................................................................... 87,118,671
-------------
280,372,139
-------------
BUILDING MATERIALS - (3.49%)
700,600 Martin Marietta Materials, Inc.......................................................... 25,615,688
1,020,000 Masco Corporation....................................................................... 51,892,500
-------------
77,508,188
-------------
CONSUMER PRODUCTS - (2.29%)
1,125,000 Philip Morris Cos., Inc. ............................................................... 50,976,563
-------------
ELECTRONICS - (1.77%)
58,750 Molex Incorporated...................................................................... 1,887,344
830,000 Texas Instruments Incorporated.......................................................... 37,350,000
-------------
39,237,344
-------------
ENERGY - (9.86%)
151,097 British Petroleum Company PLC - ADR..................................................... 12,040,542
761,200 Burlington Resources, Inc............................................................... 34,111,275
570,000 Cooper Cameron Corp.*................................................................... 34,770,000
1,148,000 Halliburton Co.......................................................................... 59,624,245
130,000 Nabors Industries, Inc.*................................................................ 4,086,875
415,985 Noble Affiliates, Inc................................................................... 14,663,471
420,000 Schlumberger Limited.................................................................... 33,810,000
421,900 Smith International, Inc.*.............................................................. 25,894,113
-------------
219,000,521
-------------
FINANCIAL - (14.85%)
1,025,000 American Express Co..................................................................... 91,481,250
</TABLE>
20
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS At December 31, 1997
SELECTED AMERICAN SHARES, INC. - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
=======================================================================================================================
<S> <C> <C>
COMMON STOCK - CONTINUED
FINANCIAL - CONTINUED
1,100,000 Freddie Mac............................................................................. $ 46,131,250
235,000 J.P. Morgan & Co., Inc.................................................................. 26,525,625
1,387,432 Morgan Stanley, Dean Witter, Discover & Co.............................................. 82,031,917
1,555,933 Travelers Group Inc..................................................................... 83,825,890
-------------
329,995,932
-------------
FOOD/BEVERAGE & RESTAURANT - (4.37%)
1,275,000 McDonald's Corp......................................................................... 60,881,250
364,000 Nestle SA - ADR......................................................................... 27,314,633
3,600 Nestle SA............................................................................... 5,393,102
170,000 Tyson Foods, Inc........................................................................ 3,485,000
-------------
97,073,985
-------------
INSURANCE - (12.76%)
582,514 The Allstate Corp....................................................................... 52,935,960
337,500 American International Group, Inc....................................................... 36,703,125
450,400 Chubb Corp.............................................................................. 34,061,500
314,700 General Re Corp......................................................................... 66,716,400
255,000 Progressive Corp. (Ohio)................................................................ 30,568,125
1,124,356 SunAmerica, Inc......................................................................... 48,066,219
202,500 Transatlantic Holdings, Inc............................................................. 14,478,750
-------------
283,530,079
-------------
PHARMACEUTICAL AND HEALTH CARE - (5.97%)
170,000 Johnson & Johnson....................................................................... 11,198,750
80,000 Merck & Co., Inc........................................................................ 8,500,000
272,000 Novartis AG - ADR....................................................................... 22,098,640
600,000 Pfizer Inc.............................................................................. 44,737,500
895,600 SmithKline Beecham PLC - ADR............................................................ 46,067,425
-------------
132,602,315
-------------
PUBLISHING - (3.17%)
400,000 Gannett Co., Inc........................................................................ 24,725,000
286,000 Harcourt General, Inc................................................................. 15,658,500
230,000 The News Corp. Ltd., Sponsored ADR.................................................... 5,131,875
400,000 Tribune Co.............................................................................. 24,900,000
-------------
70,415,375
-------------
RAILROAD - (3.82%)
456,000 Burlington Northern Santa Fe............................................................ 42,379,500
617,700 Illinois Central Corp................................................................... 21,040,406
345,000 Union Pacific Corp...................................................................... 21,540,938
-------------
84,960,844
-------------
REAL ESTATE - (5.57%)
77,000 Bay Apartment Communities, Inc......................................................... 3,003,000
1,351,194 Centerpoint Properties Corporation..................................................... 47,460,689
</TABLE>
21
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS At December 31, 1997
SELECTED AMERICAN SHARES, INC. - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
=======================================================================================================================
<S> <C> <C>
COMMON STOCK - CONTINUED
REAL ESTATE - CONTINUED
75,000 Crescent Operating, Inc.*.............................................................. $ 1,837,500
750,000 Crescent Real Estate Equities Company.................................................. 29,531,250
165,400 Mack-Cali Realty Corporation........................................................... 6,781,400
54,599 Patriot American Hospitality, Inc...................................................... 1,573,134
713,800 Vornado Realty Trust.................................................................. 33,503,988
-------------
123,690,961
-------------
TECHNOLOGY - (9.02%)
150,000 Applied Materials, Inc.*............................................................... 4,514,063
1,298,000 Hewlett-Packard Company................................................................ 81,125,000
300,000 Intel Corp............................................................................. 21,075,000
765,000 International Business Machines Corporation............................................ 79,990,313
424,000 Novellus Systems, Inc.*................................................................ 13,700,500
-------------
200,404,876
-------------
TELECOMMUNICATIONS - (3.27%)
793,000 AirTouch Communications, Inc.*......................................................... 32,959,063
430,000 Motorola, Inc.......................................................................... 24,536,875
52,000 Qwest Communications International, Inc................................................ 3,094,000
605,000 360 (Degree) Communications Company*................................................... 12,213,438
-------------
72,803,376
-------------
Total Common Stock - (identified cost $1,290,114,990)...................... 2,124,202,881
-------------
CONVERTIBLE PREFERRED STOCK - (1.49%)
20,600 AirTouch Communications, Inc., 4.25%, Ser. C Conv. Pfd................................. 1,283,638
50,000 Banc One, $3.50, Ser. C Conv. Pfd...................................................... 5,256,250
230,000 Devon Financing Trust, $3.25, Ser. 144A Conv. Pfd...................................... 16,675,000
25,000 Devon Financing Trust, $3.25, Conv. Pfd................................................ 1,812,500
160,000 Rouse Company, $3.00, Conv. Pfd........................................................ 8,080,000
-------------
Total Convertible Preferred Stock - (identified cost $28,913,958)........... 33,107,388
-------------
</TABLE>
22
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS At December 31, 1997
SELECTED AMERICAN SHARES, INC. - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
=======================================================================================================================
<S> <C> <C>
SHORT TERM - (2.67%)
$4,955,000 Federal Home Loan Bank Discount Note, 4.75%, 01/02/98............................... $ 4,954,346
11,130,000 Federal Home Loan Bank Discount Note, 4.90%, 01/02/98............................... 11,128,485
4,785,000 Federal Home Loan Bank Discount Note, 5.75%, 01/06/98............................... 4,781,179
16,400,000 Federal Home Loan Mortgage Discount Note, 5.70%, 01/02/98........................... 16,397,403
13,225,000 Federal Home Loan Mortgage Discount Note, 5.75%, 01/08/98........................... 13,210,214
8,715,000 Federal Home Loan Mortgage Discount Note, 5.78%, 01/09/98........................... 8,703,806
--------------
Total Short Term (identified cost $59,175,433).................................. 59,175,433
--------------
TOTAL INVESTMENTS - (99.77%) - (identified cost $1,378,204,381) - (a)............... 2,216,485,702
OTHER ASSETS LESS LIABILITIES - (0.23%)............................................. 5,169,082
--------------
NET ASSETS - (100%)...................................................... $2,221,654,784
==============
*Non-Income Producing Security
(a) Aggregate cost for Federal Income Tax purposes is $1,378,204,381. At
December 31, 1997 unrealized appreciation (depreciation) of securities for
Federal Income Tax purposes is as follows:
Unrealized appreciation........................................................... $ 867,069,473
Unrealized depreciation........................................................... (28,788,152)
--------------
Net unrealized appreciation ............................................. $ 838,281,321
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS At December 31, 1997
SELECTED SPECIAL SHARES, INC.
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
=======================================================================================================================
<S> <C> <C>
COMMON STOCK - (90.22%)
APPAREL - (0.87%)
35,000 Cutter & Buck, Inc.*.................................................................... $ 651,875
-------------
AUTOMOTIVE/HEAVY EQUIPMENT - (2.58%)
25,000 Hays Lemmerz International, Inc.*....................................................... 700,000
26,000 Lear Corporation*....................................................................... 1,235,000
-------------
1,935,000
-------------
CHEMICALS - (2.34%)
48,000 OM Group, Inc........................................................................... 1,758,000
-------------
COMMUNICATIONS - (1.66%)
8,000 Ciena Corporation*...................................................................... 489,000
25,000 WorldCom, Inc.*......................................................................... 756,250
-------------
1,245,250
-------------
ELECTRONICS - (2.05%)
15,000 Black Box Corporation*.................................................................. 530,625
40,000 Kent Electronics Corporation *.......................................................... 1,005,000
-------------
1,535,625
-------------
ENERGY - (6.68%)
20,000 Camco International, Inc................................................................ 1,273,750
31,000 Diamond Offshore Drilling, Inc. ........................................................ 1,491,875
30,000 Global Marine, Inc.*.................................................................... 735,000
25,000 Input/Output, Inc.*..................................................................... 742,188
25,000 Rowan Companies, Inc.*.................................................................. 762,500
-------------
5,005,313
-------------
ENTERTAINMENT/LEISURE TIME - (3.21%)
22,000 Cinar Films, Inc., Class B*............................................................. 855,250
55,500 Regal Cinemas, Inc.*.................................................................... 1,547,060
-------------
2,402,310
-------------
FINANCIAL SERVICES - (17.68%)
10,000 American Express Co..................................................................... 892,500
52,500 The Charles Schwab Corporation.......................................................... 2,201,719
20,000 First Union Corporation................................................................. 1,025,000
26,000 LaSalle Partners, Inc.*................................................................. 926,250
14,000 NationsBank Corporation................................................................. 851,375
17,000 Northern Trust Company.................................................................. 1,185,750
15,000 Star Banc Corporation................................................................... 860,625
60,000 TCF Financial Corporation............................................................... 2,036,250
37,000 Washington Mutual, Inc.................................................................. 2,361,060
20,000 Zions Bancorporation.................................................................... 907,500
-------------
13,248,029
-------------
</TABLE>
24
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS At December 31, 1997
SELECTED SPECIAL SHARES, INC. - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
=======================================================================================================================
<S> <C> <C>
COMMON STOCK - CONTINUED
HEALTHCARE - (7.13%)
15,000 Alkermes, Inc.*......................................................................... $ 298,125
33,500 Biacore International, AB - ADR*....................................................... 288,938
20,000 BioChem Pharmaceuticals Inc.* - ADR..................................................... 417,500
10,000 Cardinal Health, Inc.................................................................... 751,250
10,000 Closure Medical Corporation*............................................................ 258,750
33,000 Elan Corporation, PLC ADR*.............................................................. 1,689,188
30,000 Focal, Inc*............................................................................. 324,375
5,000 Myriad Genetics, Inc.*.................................................................. 121,250
25,500 Neurex Corporation *.................................................................... 353,813
22,000 Quintiles Transnational Corporation*.................................................... 841,500
-------------
5,344,689
-------------
HOME/OFFICE FURNITURE - (5.46%)
17,000 HON Industries, Inc..................................................................... 1,003,000
15,000 Herman Miller, Inc...................................................................... 818,438
20,000 Knoll, Inc.*............................................................................ 642,500
38,800 Leggett & Platt, Inc.................................................................... 1,624,750
-------------
4,088,688
-------------
INDUSTRIAL PRODUCTS - (8.17%)
20,000 Fastenal Company........................................................................ 765,000
20,600 Illinois Tool Works, Inc................................................................ 1,238,575
30,000 Littlefuse, Inc.*....................................................................... 746,250
27,000 Minerals Technologies, Inc.............................................................. 1,226,813
42,656 Molex Inc., Class A..................................................................... 1,226,360
50,700 ThermoQuest Corporation*................................................................ 918,938
-------------
6,121,936
-------------
INFORMATION PROCESSING - OFFICE EQUIPMENT - (3.56%)
10,000 Compaq Computer Corporation............................................................. 564,375
25,000 Dell Computer Corporation*.............................................................. 2,100,000
-------------
2,664,375
-------------
INFORMATION PROCESSING - SERVICES - (6.20%)
30,000 Computer Sciences Corporation*.......................................................... 2,505,000
14,000 DST Systems, Inc.*...................................................................... 597,625
30,500 Paychex, Inc............................................................................ 1,544,063
-------------
4,646,688
-------------
INFORMATION PROCESSING - SOFTWARE - (0.48%)
13,200 Great Plains Software, Inc.*............................................................ 359,700
-------------
INSURANCE - (1.37%)
36,000 Horace Mann Educators Corporation....................................................... 1,023,750
-------------
PACKAGING - (2.06%)
25,000 Sealed Air Corporation*................................................................. 1,543,750
-------------
</TABLE>
25
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS At December 31, 1997
SELECTED SPECIAL SHARES, INC. - CONTINUED
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL (NOTE 1)
=======================================================================================================================
<S> <C> <C>
COMMON STOCK - CONTINUED
RETAILING - (7.87%)
7,000 Amazon.com, Inc.*....................................................................... $ 421,750
10,500 CVS Corporation......................................................................... 672,656
15,000 The Home Depot, Inc..................................................................... 883,125
20,200 Kohl's Corporation*..................................................................... 1,376,125
23,000 Tiffany & Co............................................................................ 829,438
20,000 Viking Office Products, Inc.*........................................................... 436,250
25,000 Whole Foods Market, Inc.*............................................................... 1,278,125
-------------
5,897,469
-------------
TEMPORARY HELP - (9.70%)
10,000 Data Processing Resources Corporation*.................................................. 255,000
50,000 Interim Services, Inc.*................................................................. 1,293,750
30,525 Labor Ready, Inc.*...................................................................... 587,606
74,000 On Assignment, Inc.*.................................................................... 1,961,000
15,500 The Registry, Inc.*..................................................................... 711,063
61,500 Robert Half International, Inc.*........................................................ 2,460,000
-------------
7,268,419
-------------
TRANSPORTATION - (1.15%)
27,000 Kansas City Southern Industries, Inc.................................................... 857,250
-------------
Total Common Stock - (identified cost $41,652,605)........................... 67,598,116
-------------
SHORT TERM - (10.00%)
$ 4,985,000 Federal Home Loan Bank Discount Note, 4.90%, 01/08/98................................... 4,980,251
2,515,000 Federal Home Loan Mortgage Discount Note, 5.72%, 01/02/98............................... 2,514,600
-------------
Total Short Term - (identified cost $7,494,851).............................. 7,494,851
-------------
TOTAL INVESTMENTS - (100.22%) - (identified cost $41,147,456) - (a)..................... 75,092,967
LIABILITIES LESS OTHER ASSETS - (0.22%)................................................. (162,509)
-------------
NET ASSETS - (100%).......................................................... $ 74,930,458
=============
* Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $41,147,456. At December
31, 1997 unrealized appreciation (depreciation) of securities for Federal
Income Tax purposes is as follows:
Unrealized appreciation............................................................... $ 26,763,606
Unrealized depreciation.............................................................. (818,095)
-------------
Net unrealized appreciation ................................................. $ 25,945,511
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS At December 31, 1997
SELECTED CAPITAL PRESERVATION TRUST -
SELECTED U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
=======================================================================================================================
<S> <C> <C>
MORTGAGES - (56.87%)
FEDERAL HOME LOAN MORTGAGE CORPORATION POOLS - (16.41%)
$ 398,083 6.50%, 01/01/04, Pool No. 97289...................................................... $ 399,608
175,300 8.00%, 09/01/21, Pool No. D2-7906.................................................... 182,806
245,550 8.00%, 10/01/21, Pool No. D2-7334.................................................... 255,602
134,551 8.00%, 06/01/22, Pool No. D2-0670.................................................... 140,060
-------------
Total FHLMC - (identified cost $956,719)..................................... 978,076
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION POOLS - (7.11%)
3,151 10.00%, 07/01/05, Pool No. 98835...................................................... 3,332
13,389 10.00%, 08/01/05, Pool No. 99903...................................................... 14,231
11,390 8.50%, 07/01/17, Pool No. 51539...................................................... 12,024
6,986 8.50%, 04/01/21, Pool No. 117725..................................................... 7,364
377,750 7.50%, 01/01/27, Pool No. 356381..................................................... 386,839
-------------
Total FNMA - (identified cost $412,027)...................................... 423,790
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION POOLS - (15.63%)
33,152 10.00%, 09/15/01, Pool No. 265854..................................................... 33,902
51,849 9.00%, 04/15/16, Pool No. 147297..................................................... 56,467
69,474 9.00%, 05/15/16, Pool No. 161091..................................................... 75,661
159,631 9.00%, 06/15/16, Pool No. 157698..................................................... 173,848
8,960 9.00%, 07/15/16, Pool No. 162087..................................................... 9,758
100,676 9.00%, 07/15/16, Pool No. 162605..................................................... 109,326
56,379 9.00%, 11/15/16, Pool No. 179412..................................................... 61,400
53,162 9.00%, 08/15/17, Pool No. 209243..................................................... 57,841
29,309 9.00%, 05/15/18, Pool No. 235263..................................................... 31,858
61,767 9.00%, 08/15/18, Pool No. 258776..................................................... 67,139
195,088 9.00%, 08/15/19, Pool No. 227430..................................................... 211,852
19,782 7.00%, 09/20/23, Pool No. 008299 (Adjustable Rate)................................... 20,316
21,748 7.00%, 01/20/24, Pool No. 008360 (Adjustable Rate)................................. 22,372
-------------
Total GNMA - (identified cost $857,643)...................................... 931,740
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS & REAL ESTATE MORTGAGE
INVESTMENT CONDUITS - (17.72%)
500,000 Federal National Mortgage Association, 92-152M, 7.75%, 08/25/07....................... 537,500
500,000 United States Department of Veteran Affairs, Mortgage Trust 1992-1,
7.75%, 07/15/17................................................................... 519,060
-------------
Total CMOs & REMICs - (identified cost $983,256)............................. 1,056,560
-------------
Total Mortgages - (identified cost $3,209,645)............................... 3,390,166
-------------
</TABLE>
27
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS At December 31, 1997
SELECTED CAPITAL PRESERVATION TRUST -
SELECTED U.S. GOVERNMENT INCOME FUND - CONTINUED
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
=======================================================================================================================
<S> <C> <C>
MEDIUM TERM NOTES - (38.06%)
$ 200,000 Federal Home Loan Bank, 7.24%, 11/09/10............................................... $ 199,282
500,000 Federal Home Loan Mortgage Corporation, 6.615%, 03/03/04.............................. 496,640
500,000 Federal Home Loan Mortgage Corporation, 8.00%, 06/20/11............................... 526,955
300,000 Federal National Mortgage Association, 6.23%, 07/18/02................................ 303,936
250,000 Federal National Mortgage Association, 6.39%, 09/24/07................................ 255,313
500,000 Federal National Mortgage Association, 6.42%, 12/01/08................................ 487,110
-------------
Total Medium Term Notes - (identified cost $2,206,373)....................... 2,269,236
-------------
SHORT TERM - (4.45%)
265,000 Federal Home Loan Bank Discount Note, 4.90%, 01/02/98
- (identified cost $264,964)...................................................... 264,964
-------------
TOTAL INVESTMENTS - (99.38%) - (identified cost $5,680,982) - (a)..................... 5,924,366
OTHER ASSETS LESS LIABILITIES - (0.62%)............................................... 37,220
-------------
NET ASSETS - (100%) ......................................................... $ 5,961,586
=============
(a) Aggregate cost for Federal Income Tax purposes is $5,680,982. At December
31, 1997 unrealized appreciation (depreciation) of securities for Federal
Income Tax purposes is as follows:
Unrealized appreciation............................................................... $ 244,274
Unrealized depreciation............................................................... (890)
-------------
Net unrealized appreciation.................................................. $ 243,384
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS At December 31, 1997
SELECTED CAPITAL PRESERVATION TRUST -
SELECTED DAILY GOVERNMENT FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
=======================================================================================================================
<S> <C> <C>
FEDERAL HOME LOAN BANK - (18.99%)
$ 2,020,000 4.90%, 01/02/98 Discount Note......................................................... $ 2,019,725
6,355,000 5.475%, 01/09/98 Discount Note........................................................ 6,347,268
10,300,000 5.43%, 01/30/98 Discount Note......................................................... 10,254,946
3,715,000 5.56%, 02/27/98 Discount Note......................................................... 3,682,296
-------------
Total Federal Home Loan Bank - (identified cost $22,304,235)...................... 22,304,235
-------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - (35.15%)
2,500,000 5.72%, 01/02/98 Discount Note......................................................... 2,499,603
2,665,000 5.75%, 01/07/98 Discount Note......................................................... 2,662,446
4,005,000 5.75%, 01/08/98 Discount Note......................................................... 4,000,522
5,930,000 5.55%, 01/14/98 Discount Note......................................................... 5,918,115
5,150,000 5.71%, 01/22/98 Discount Note......................................................... 5,132,846
6,185,000 5.54%, 01/23/98 Discount Note......................................................... 6,164,060
10,000,000 5.43%, 01/26/98 Discount Note......................................................... 9,962,292
3,280,000 5.75%, 01/26/98 Discount Note......................................................... 3,266,903
1,700,000 5.65%, 02/19/98 Discount Note......................................................... 1,686,927
-------------
Total Federal Home Loan Mortgage Corporation - (identified cost $41,293,714)...... 41,293,714
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - (46.19%)
2,310,000 5.50%, 01/05/98 Discount Note......................................................... 2,308,588
4,400,000 5.49%, 01/13/98 Discount Note......................................................... 4,391,948
2,020,000 5.43%, 01/15/98 Discount Note......................................................... 2,015,734
5,190,000 5.44%, 01/20/98 Discount Note......................................................... 5,175,099
4,605,000 5.71%, 01/21/98 Discount Note......................................................... 4,590,392
3,940,000 5.75%, 01/29/98 Discount Note......................................................... 3,922,379
3,615,000 5.50%, 02/05/98 Discount Note......................................................... 3,595,670
2,400,000 5.48%, 02/06/98 Discount Note......................................................... 2,386,848
2,060,000 5.64%, 02/10/98 Discount Note......................................................... 2,047,091
2,485,000 5.66%, 02/18/98 Discount Note......................................................... 2,466,247
11,975,000 5.57%, 03/03/98 Discount Note......................................................... 11,861,979
7,585,000 5.43%, 03/20/98 Discount Note......................................................... 7,495,762
2,030,000 5.43%, 03/26/98 Discount Note......................................................... 2,004,280
-------------
Total Federal National Mortgage Association - (identified cost $54,262,017)....... 54,262,017
-------------
TOTAL INVESTMENTS - (100.33%) - (identified cost $117,859,966) - (a).................. 117,859,966
LIABILITIES LESS OTHER ASSETS - (0.33%)............................................... (389,135)
-------------
NET ASSETS - (100%).......................................................... $ 117,470,831
=============
</TABLE>
(a) Aggregate cost for Federal income tax purposes is $117,859,966.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
SELECTED FUNDS
STATEMENT OF ASSETS AND LIABILITIES
At December 31, 1997
<TABLE>
<CAPTION>
=============================================================================================================================
U.S.
SELECTED SELECTED GOVERNMENT DAILY
AMERICAN SPECIAL INCOME GOVERNMENT
SHARES SHARES FUND FUND
------ ------ ---- ----
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value
(see schedules of investments)............... $ 2,216,485,702 $ 75,092,967 $ 5,924,366 $ 117,859,966
Cash........................................... 72,544 19,691 7,633 12,270
Receivables:
Dividends and interest....................... 2,933,475 24,464 51,949 -
Capital stock sold........................... 5,350,506 18,975 20 11,400
Investment securities sold................... - 250,980 - -
--------------- -------------- --------------- ---------------
Total assets............................. 2,224,842,227 75,407,077 5,983,968 117,883,636
--------------- -------------- --------------- ---------------
LIABILITIES:
Payables:
Capital stock reacquired..................... 1,121,571 27,022 - 72,521
Investment securities purchased.............. - 371,955 - -
Accrued expenses............................... 2,028,477 77,642 11,932 73,570
Distributions payable.......................... 37,395 - 10,450 266,714
--------------- -------------- --------------- ---------------
Total liabilities........................ 3,187,443 476,619 22,382 412,805
--------------- -------------- --------------- ---------------
NET ASSETS ....................................... $ 2,221,654,784 $ 74,930,458 $ 5,961,586 $ 117,470,831
=============== ============== =============== ===============
SHARES OUTSTANDING (NOTE 5)....................... 81,727,215 5,751,970 661,902 117,740,831
=============== ============== =============== ===============
NET ASSET VALUE, offering and
redemption price per share (Net
assets ~ shares outstanding)................. $ 27.18 $ 13.03 $ 9.01 $ 1.00
=========== ========== =========== ===========
NET ASSETS CONSIST OF:
Paid-in capital................................ 1,373,469,092 46,540,350 5,771,542 117,470,831
Accumulated net realized gain (loss)........... 9,904,371 2,444,597 (53,340) -
Unrealized appreciation on investments......... 838,281,321 25,945,511 243,384 -
--------------- -------------- --------------- ---------------
$ 2,221,654,784 $ 74,930,458 $ 5,961,586 $ 117,470,831
=============== ============== =============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
SELECTED FUNDS
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
=========================================================================================================================
U.S.
SELECTED SELECTED GOVERNMENT DAILY
AMERICAN SPECIAL INCOME GOVERNMENT
SHARES SHARES FUND FUND
------ ------ ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends...................................... $ 26,361,737 $ 300,097 $ - $ -
Interest....................................... 2,660,936 162,161 436,488 6,341,790
------------- -------------- --------------- ---------------
Total income............................... 29,022,673 462,258 436,488 6,341,790
------------- -------------- --------------- ---------------
Expenses:
Management fees (Note 2)....................... 10,823,019 466,352 29,928 345,976
Custodian fees................................. 460,056 28,060 16,500 32,649
Transfer agent fees............................ 1,036,501 117,691 10,927 68,579
Audit fees..................................... 27,800 15,106 7,113 11,406
Legal fees..................................... 150,338 15,492 555 19,325
Reports to shareholders........................ 90,564 13,480 2,470 6,588
Directors fees and expenses.................... 209,495 7,997 918 11,224
Registration and filing fees................... 139,994 26,290 11,618 15,419
Miscellaneous.................................. 106,988 3,956 668 5,256
Commissions paid under
distribution plan (Note 3)................... 4,578,645 168,093 14,964 288,313
------------- -------------- --------------- ---------------
Total expenses............................. 17,623,400 862,517 95,661 804,735
Reimbursement of expenses by
adviser (Note 2)............................. - - (5,654) -
------------- -------------- --------------- ---------------
Net expenses............................... 17,623,400 862,517 90,007 804,735
------------- -------------- --------------- ---------------
Investment income (loss) - net............. 11,399,273 (400,259) 346,481 5,537,055
------------- ------------- --------------- ---------------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain from
investment transactions...................... 141,428,955 2,882,984 21,776 -
Net increase in unrealized
appreciation of investments
during the period............................ 399,055,976 13,446,850 44,190 -
------------- -------------- --------------- ---------------
Net realized and unrealized
gain on investments...................... 540,484,931 16,329,834 65,966 -
------------- -------------- --------------- ---------------
Net increase in net
assets resulting from
operations................................. $ 551,884,204 $ 15,929,575 $ 412,447 $ 5,537,055
============= ============== =============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
SELECTED FUNDS STATEMENT OF CHANGES IN NET
ASSETS For the year ended December 31, 1997
<TABLE>
<CAPTION>
=====================================================================================================================
U.S.
SELECTED SELECTED GOVERNMENT DAILY
AMERICAN SPECIAL INCOME GOVERNMENT
SHARES SHARES FUND FUND
------ ------ ---- ----
<S> <C> <C> <C> <C>
OPERATIONS:
Investment income (loss) - net............. $ 11,399,273 $ (400,259) $ 346,481 $ 5,537,055
Net realized gain from
investment transactions.................. 141,428,955 2,882,984 21,776 -
Net increase in unrealized
appreciation of investments.............. 399,055,976 13,446,850 44,190 -
---------------- -------------- ---------------- ----------------
Net increase in net
assets resulting from operations......... 551,884,204 15,929,575 412,447 5,537,055
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income...................... (11,399,273) - (346,481) (5,537,055)
Realized gains from investment
transactions............................. (153,472,089) (3,472,560) - -
Paid in capital............................ (1,360,646) - - -
CAPITAL SHARE TRANSACTIONS
(NOTE 5)................................... 459,536,450 37,950 (1,038,054) 4,796,597
---------------- -------------- ---------------- ----------------
Total increase (decrease)
in net assets....................... 845,188,646 12,494,965 (972,088) 4,796,597
NET ASSETS:
Beginning of period........................ 1,376,466,138 62,435,493 6,933,674 112,674,234
---------------- -------------- ---------------- ----------------
End of period.............................. $ 2,221,654,784 $ 74,930,458 $ 5,961,586 $ 117,470,831
================ ============== ================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
SELECTED FUNDS
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
=====================================================================================================================
U.S.
SELECTED SELECTED GOVERNMENT DAILY
AMERICAN SPECIAL INCOME GOVERNMENT
SHARES SHARES FUND FUND
------ ------ ---- ----
<S> <C> <C> <C> <C>
OPERATIONS:
Investment income (loss) - net............. $ 9,511,645 $ (407,853) $ 434,927 $ 6,753,488
Net realized gain (loss) from
investment transactions.................. 83,894,963 7,632,828 (75,100) -
Net increase (decrease) in unrealized
appreciation of investments.............. 212,458,746 (390,261) (162,807) -
-------------- -------------- ------------- --------------
Net increase in net
assets resulting from operations......... 305,865,354 6,834,714 197,020 6,753,488
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income...................... (9,661,781) - (434,927) (6,753,488)
Realized gains from investment
transactions............................. (77,556,567) (6,390,679) (13,355) -
CAPITAL SHARE
TRANSACTIONS
(NOTE 5)................................... 232,307,432 3,016,674 (626,116) (71,928,943)
-------------- -------------- ------------- --------------
Total increase (decrease)
in net assets....................... 450,954,438 3,460,709 (877,378) (71,928,943)
NET ASSETS:
Beginning of period........................ 925,511,700 58,974,784 7,811,052 184,603,177
-------------- -------------- ------------- --------------
End of period.............................. $1,376,466,138 $ 62,435,493 $ 6,933,674 $ 112,674,234
============== ============== ============= ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
===============================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Selected Funds consist of Selected American Shares, Inc., Selected
Special Shares, Inc. and the Selected Capital Preservation Trust. The Companies
and Trust are registered under the Investment Company Act of 1940, as amended,
as diversified, open-end management investment companies. The Selected Capital
Preservation Trust operates as a series fund, consisting of the U.S. Government
Income Fund and Daily Government Fund. The Trust accounts separately for the
assets, liabilities and operations of each series. Davis Selected Advisers,
L.P. became investment adviser effective May 1, 1993. Prior to May 1, 1993,
Selected Financial Services, Inc. was the investment manager. The following is
a summary of significant accounting policies followed by the Funds in the
preparation of financial statements.
Selected American Shares, Inc. and Selected Special Shares, Inc. are
diversified, professionally managed stock-oriented funds.
Selected U.S. Government Income Fund 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.
Selected Daily Government Fund 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.
An investment in any of the 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.
A. VALUATION OF SECURITIES - Securities listed on national securities exchanges
are valued at the last reported sales price on the day of valuation. Securities
traded in the over the counter market and listed securities for which no sale
was reported on that date are stated at the last quoted bid price. Securities
for which market quotations are not readily available are valued at fair value
as determined by the Boards of Directors/Trustees. The Daily Government Fund
uses the amortized cost method of valuing investment securities which
represents fair value as determined by the Board of Trustees.
B. FEDERAL INCOME TAXES - It is each Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its income to shareholders. At
December 31, 1997 the U.S. Government Income Fund had capital loss carryovers
of $53,339 available to offset future capital gains, if any, which expire in
2004.
C. USE OF ESTIMATES IN FINANCIAL STATEMENTS - In preparing financial statements
in conformity with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the reported
amounts of income and expenses during the reporting period. Actual results may
differ from these estimates.
34
<PAGE>
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1997
===============================================================================
D. OTHER - Securities transactions are accounted for on the trade date (date
the order to buy or sell is executed) with gain or loss on the sale of
securities being determined based upon identified cost. Interest income is
recorded on the accrual basis. Dividends and distributions to shareholders are
recorded on the ex-dividend date. Discounts and premiums on securities
(excluding convertible bonds) purchased are amortized over the life of the
respective securities.
NOTE 2 - INVESTMENT ADVISORY FEES
Advisory fees are paid monthly to the investment adviser. The rate for
American Shares, Inc. is .65% on the first $500 million of average daily net
assets, .60% on the next $500 million and .55% of average daily net assets in
excess of $1 billion. The rate for Special Shares, Inc. is .70% on the first
$50 million of average daily net assets, .675% on the next $100 million, .65%
on the next $100 million and .60% of average daily net assets in excess of $250
million. The rate for the U.S. Government Income Fund is .50% of average daily
net assets. The rate for the Daily Government Fund is based upon daily net
assets at an annual rate of .30%. The Adviser has agreed to reimburse the U.S.
Government Income Fund for any expenses in excess of 1.50% of average net
assets.
Each Fund has adopted procedures to treat Shelby Cullom Davis & Co. ("SCD")
as an affiliate of the Adviser. SCD received $ 64,872 in commissions on the
purchases/sales of portfolio securities.
NOTE 3 - DISTRIBUTION
For services under the distribution agreement, the Funds pay a fee of .25%
of average daily net assets. For the year ended December 31, 1997, for American
Shares, Special Shares, U.S. Government Income and Daily Government Funds, the
Funds incurred distribution services fees totaling $4,578,645, $168,093,
$14,964 and $288,313, respectively.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the year ended December 31, 1997 for American Shares,
Special Shares and U.S. Government Income Fund were as follows:
SELECTED SELECTED
AMERICAN SPECIAL U.S. GOVERNMENT
SHARES SHARES INCOME FUND
------ ------ -----------
Cost of purchases........... $714,512,013 $32,883,251 $948,090
Proceeds of sales........... $457,576,132 $42,782,064 $910,063
35
<PAGE>
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1997
===============================================================================
NOTE 5 - CAPITAL STOCK
At December 31, 1997, there were 100 million shares of capital stock of
Selected American Shares ($1.25 par value per share) authorized. At December
31, 1997, there were 50 million shares of capital stock of Selected Special
Shares ($0.25 par value per share) authorized. At December 31, 1997, there were
unlimited shares of capital stock of Selected Capital Preservation Trust ($0.10
par value per share) authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
----------------------------------------------------------------------------
U.S.
AMERICAN SPECIAL GOVERNMENT DAILY
SHARES SHARES INCOME GOVERNMENT
INC. INC. FUND FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ......................... 25,462,064 617,322 39,980 14,694,975
Shares issued in reinvestment
of distributions ................ 5,681,154 313,915 31,978 3,596,735
------------- ------------- ------------- -------------
31,143,218 931,237 71,958 18,291,710
Shares redeemed ..................... (13,357,448) (911,431) (188,979) (13,495,113)
------------- ------------- -------------
Net increase (decrease) ....... 17,785,770 19,806 (117,021) 4,796,597
============= ============= ============= =============
Proceeds from shares sold ........... $ 640,917,425 $ 7,637,165 $ 356,629 $ 14,694,975
Proceeds from shares issued in
reinvestment of distributions ... 148,002,730 3,227,796 284,113 3,596,735
------------- ------------- ------------- -------------
788,920,155 10,864,961 640,742 18,291,710
Cost of shares redeemed ............. (329,383,705) (10,827,011) (1,678,796) (13,495,113)
------------- ------------- ------------- -------------
Net increase (decrease) ....... $ 459,536,450 $ 37,950 ($ 1,038,054) $ 4,796,597
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
----------------------------------------------------------------------------
U.S.
AMERICAN SPECIAL GOVERNMENT DAILY
SHARES SHARES INCOME GOVERNMENT
INC. INC. FUND FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ......................... 15,567,086 625,367 24,347 24,374,970
Shares issued in reinvestment
of distributions ................ 3,980,585 536,003 42,111 6,823,075
------------- ------------- ------------- -------------
19,547,671 1,161,370 66,458 31,198,045
Shares redeemed ..................... (7,951,322) (889,193) (136,618) (103,126,988)
------------- ------------- ------------- -------------
Net increase (decrease) ....... 11,596,349 272,177 (70,160) (71,928,943)
============= ============= ============= =============
Proceeds from shares sold ........... $ 307,057,971 $ 7,008,830 $ 216,118 $ 24,374,970
Proceeds from shares issued in
reinvestment of distributions ... 81,960,295 5,908,372 373,713 6,823,075
------------- ------------- ------------- -------------
389,018,266 12,917,202 589,831 31,198,045
Cost of shares redeemed ............. (156,710,834) (9,900,528) (1,215,947) (103,126,988)
------------- ------------- ------------- -------------
Net increase (decrease) ....... $ 232,307,432 $ 3,016,674 $ (626,116) $ (71,928,943)
============= ============= ============= =============
</TABLE>
36
<PAGE>
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1997
===============================================================================
NOTE 6 - MATTERS SUBMITTED TO A VOTE OF SHAREHOLDERS
A special meeting of shareholders was held on March 25, 1997. Matters
submitted for approval included consideration of a Sub-Advisory Agreement
between Davis Selected Advisers, L.P., the Investment Adviser of the Funds, and
Davis Selected Advisers-NY, Inc., an affiliate of the Adviser, approval of
amendments to the Funds' fundamental investment restrictions, ratification of
Tait, Weller & Baker as the Fundsi independent auditors and election of Mr.
William P. Barr, Ms. Marsha Williams, Mr. Richard C. O'Brien, Mr. Jerome E.
Hass and Ms. Katherine L. MacWilliams as directors/trustees of the Funds.
Results of the meeting were as follows:
SELECTED AMERICAN SHARES - With respect to consideration of the Sub-Advisory
Agreement, 39,712,272 votes were cast in favor, 346,689 votes were cast against
and 890,845 votes abstained. With respect to approval of amendments to the
Fundis fundamental investment restrictions, 36,996,879 votes were cast in
favor, 537,874 votes were cast against and 913,882 votes abstained. With
respect to ratification of Tait, Weller & Baker as the Fund's independent
auditors, 40,160,014 votes were cast in favor, 194,474 votes were cast against
and 595,318 votes abstained. With respect to the election of Mr. Barr,
40,401,137 votes were cast in favor and 548,672 votes were withheld. With
respect to the election of Ms. Williams, 40,404,815 votes were cast in favor
and 544,993 votes were withheld. With respect to the election of Mr. O'Brien,
40,339,250 votes were cast in favor and 610,559 votes were withheld. With
respect to the election of Mr. Hass, 40,351,192 votes were cast in favor and
598,616 votes were withheld. With respect to the election of Ms. MacWilliams,
40,330,042 votes were cast in favor and 619,767 votes were withheld. The terms
of office of Mr. Floyd A. Brown, Mr. William G. Cole, Mr. Shelby M.C. Davis,
Mr. Robert J. Greenebaum, Mr. James J. McMonagle and Mr. Larry Robinson also
continued after the meeting.
SELECTED SPECIAL SHARES - With respect to consideration of the Sub-Advisory
Agreement, 3,144,383 votes were cast in favor, 87,117 votes were cast against
and 314,912 votes abstained. With respect to approval of amendments to the
Fund's fundamental investment restrictions, 2,945,058 votes were cast in favor,
69,097 votes were cast against and 322,723 votes abstained. With respect to
ratification of Tait, Weller & Baker as the Fund's independent auditors,
3,277,587 votes were cast in favor, 10,924 votes were cast against and 257,901
votes abstained. With respect to the election of Mr. Barr, 3,300,402 votes were
cast in favor and 246,011 votes were withheld. With respect to the election of
Ms. Williams, 3,303,289 votes were cast in favor and 243,124 votes were
withheld. With respect to the election of Mr. O'Brien, 3,281,144 votes were
cast in favor and 265,268 votes were withheld. With respect to the election of
Mr. Hass, 3,295,734 votes were cast in favor and 250,678 votes were withheld.
With respect to the election of Ms. MacWilliams, 3,292,801 votes were cast in
favor and 253,612 votes were withheld. The terms of office of Mr. Floyd A.
Brown, Mr. William G. Cole, Mr. Shelby M.C. Davis, Mr. Robert J. Greenebaum,
Mr. James J. McMonagle and Mr. Larry Robinson also continued after the meeting.
SELECTED U.S. GOVERNMENT INCOME FUND - With respect to consideration of the
Sub-Advisory Agreement, 421,678 votes were cast in favor, 8,768 votes were cast
against and 10,137 votes abstained. With respect to approval of amendments to
the Fund's fundamental investment restrictions, 423,811 votes were cast in
favor, 6,635 votes were cast against and 10,137 votes abstained. With respect
to ratification of Tait, Weller & Baker as the Fund's independent auditors,
434,176 votes were cast in favor, 4,057 votes were cast against and 2,350 votes
abstained. With respect to the election of Mr. Barr, 423,710 votes were cast in
favor and 7,873 votes were withheld. With respect to the election of Ms.
Williams, 432,710 votes were cast in favor and 7,873 votes were withheld. With
respect to the election of Mr. O'Brien, 432,710 votes were cast in favor and
7,873 votes were withheld. With respect to the election of Mr. Hass, 432,710
votes were cast in favor and 7,873 votes were withheld. With respect to the
election of Ms. MacWilliams, 432,710 votes were cast in favor and 7,873 votes
were withheld. The terms of office of Mr. Floyd A. Brown, Mr.
37
<PAGE>
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1997
===============================================================================
NOTE 6 - MATTERS SUBMITTED TO A VOTE OF SHAREHOLDERS - CONTINUED
William G. Cole, Mr. Shelby M.C. Davis, Mr. Robert J. Greenebaum, Mr. James J.
McMonagle and Mr. Larry Robinson also continued after the meeting.
SELECTED DAILY GOVERNMENT FUND - With respect to consideration of the
Sub-Advisory Agreement, 101,811,501 votes were cast in favor, 294,519 votes
were cast against and 473,183 votes abstained. With respect to approval of
amendments to the Fund's fundamental investment restrictions, 101,465,318 votes
were cast in favor, 544,029 votes were cast against and 569,855 votes
abstained. With respect to ratification of Tait, Weller & Baker as the Fund's
independent auditors, 102,249,478 votes were cast in favor, 19,028 votes were
cast against and 310,696 votes abstained. With respect to the election of Mr.
Barr, 102,278,030 votes were cast in favor and 301,173 votes were withheld.
With respect to the election of Ms. Williams, 102,352,154 votes were cast in
favor and 227,049 votes were withheld. With respect to the election of Mr.
O'Brien, 102,294,115 votes were cast in favor and 285,088 votes were withheld.
With respect to the election of Mr. Hass, 102,304,970 votes were cast in favor
and 274,232 votes were withheld. With respect to the election of Ms.
MacWilliams, 102,299,660 votes were cast in favor and 279,543 votes were
withheld. The terms of office of Mr. Floyd A. Brown, Mr. William G. Cole, Mr.
Shelby M.C. Davis, Mr. Robert J. Greenebaum, Mr.
James J. McMonagle and Mr. Larry Robinson also continued after the meeting.
38
<PAGE>
SELECTED FUNDS
FINANCIAL HIGHLIGHTS
SELECTED AMERICAN SHARES, INC.
===============================================================================
The following financial information represents selected data for each share of
capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993(2)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........ $ 21.53 $ 17.68 $ 13.09 $ 14.59 $ 17.13
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income...................... .16 .18 .22 .20 .24
Net Gains or Losses on Securities
(both realized and unrealized).......... 7.72 5.15 4.74 (.66) .70
--------- --------- --------- --------- ---------
Total From Investment Operations......... 7.88 5.33 4.96 (.46) .94
Less Distributions
Dividends (from net investment
income)................................. (.17) (.17) (.22) (.20) (.24)
Distributions (from capital gains)......... (2.05) (1.31) (.15) (.83) (3.24)
Distributions in Excess of Net
Investment Income....................... (.01) - - (.01) -
--------- --------- --------- --------- ---------
Total Distributions..................... (2.23) (1.48) (.37) (1.04) (3.48)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period.............. $ 27.18 $ 21.53 $ 17.68 $ 13.09 $ 14.59
========= ========= ========= ========= =========
Total Return................................ 37.25% 30.74% 38.09% (3.20)% 5.42%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted)............................ 2,221,655 1,376,466 925,512 529,404 451,392
Ratio of Expenses to Average
Net Assets.............................. .96% 1.03% 1.09% 1.26% 1.01%(1)
Ratio of Net Income to Average
Net Assets.............................. .62% .87% 1.42% 1.42% 1.37%
Portfolio Turnover Rate.................... 26% 29% 27% 23% 79%
Average Commission Rate per Share.......... $.0600 $.0580 - - -
</TABLE>
(1) Had the Adviser 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, became the investment
adviser. Until May 1, 1993, Selected Financial Services, Inc. was the
investment adviser.
39
<PAGE>
SELECTED FUNDS
FINANCIAL HIGHLIGHTS
SELECTED SPECIAL SHARES, INC.
===============================================================================
The following financial information represents selected data for each share of
capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994(2),(3) 1993(3)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $ 10.89 $ 10.80 $ 9.02 $ 10.20 $ 10.40
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income....................... (.07) - - (.03) -
Net Gains or Losses on Securities
(both realized and unrealized)........... 2.83 1.27 3.04 (.22) 1.10
--------- --------- --------- --------- ---------
Total From Investment Operations......... 2.76 1.27 3.04 (.25) 1.10
Less Distributions
Distributions (from capital gains).......... (.62) (1.18) (1.26) (.93) (1.30)
--------- --------- --------- --------- ---------
Total Distributions...................... (.62) (1.18) (1.26) (.93) (1.30)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period............... $ 13.03 $ 10.89 $ 10.80 $ 9.02 $ 10.20
========= ========= ========= ========= =========
Total Return................................. 26.91% 11.86% 34.24% (2.56)% 10.81%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted)............................ 74,930 62,435 58,975 47,275 53,257
Ratio of Expenses to Average
Net Assets .............................. 1.28% 1.33% 1.48% 1.41%(1) 1.24%(1)
Ratio of Net Income to Average
Net Assets............................... (.60)% (.66)% (.58)% (.27)% (.07)%
Portfolio Turnover Rate..................... 51% 98% 127% 99% 100%
Average Commission Rate per Share........... $.0600 $.0600 - - -
</TABLE>
(1) Had the Adviser not absorbed certain expenses, the ratio of expenses for
the years ended December 31, 1993 and 1994 would have been 1.51% and 1.62%,
respectively.
(2) Effective May 1, 1993, Davis Selected Advisers 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.
40
<PAGE>
SELECTED FUNDS
FINANCIAL HIGHLIGHTS
SELECTED U.S. GOVERNMENT INCOME FUND
===============================================================================
The following financial information represents selected data for each share of
capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1997 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..................... .51 .53 .54 .50 .56
Net Gains or Losses on Securities
(both realized and unrealized)......... .11 (.28) .78 .21
--------- --------- --------- --------- ---------
(.75)
Total From Investment Operations....... .62 .25 1.32 (.25) .77
Less Distributions
Dividends (from net investment
income)................................ (.51) (.53) (.54) (.50) (.56)
Distributions (from capital gains)........ - (.02) (.03) - (.32)
--------- --------- --------- --------- ---------
Total Distributions.................... (.51) (.55) (.57) (.50) (.88)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period............. $ 9.01 $ 8.90 $ 9.20 $ 8.45 $ 9.20
========= ========= ========= ========= =========
Total Return............................... 7.32% 2.85% 15.97% (2.71)% 7.99%
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted).......................... 5,962 6,934 7,811 10,263 10,336
Ratio of Expenses to Average
Net Assets............................. 1.50%(1) 1.44%(1) 1.44%(1) 1.42%(1) 1.34%(1)
Ratio of Net Income to Average
Net Assets............................. 5.79% 5.96% 6.09% 5.70% 5.85%
Portfolio Turnover Rate................... 16% 26% 76% 65% 29%
</TABLE>
(1) Had the Adviser not absorbed certain expenses, the ratio of expenses for
the years ended December 31, 1993, 1994, 1995, 1996 and 1997 would have
been 1.88%, 1.69%, 1.58%, 1.67% and 1.60%, respectively.
(2) Effective May 1, 1993, Davis Selected Advisers, became the investment
adviser. Until May 1, 1993, Selected Financial Services, Inc. was the
investment adviser.
41
<PAGE>
SELECTED FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DAILY GOVERNMENT FUND
===============================================================================
The following financial information represents selected data for each share of
capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 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.................... .048 .046 .051 .034 .023
Less Distributions
Dividends (from net investment
income)............................... (.048) (.046) (.051) (.034) (.023)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period............ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ========== ==========
Total Return.............................. 4.91% 4.70% 5.23% 3.51% 2.34%
- ------------
Ratios/Supplemental Data
Net Assets, End of Period
(000 omitted)......................... 117,471 112,674 184,603 121,886 8,732
Ratio of Expenses to Average
Net Assets............................ .70% .75% .75%(1) .75%(1) .75%(1)
Ratio of Net Income to Average
Net Assets............................ 4.80% 4.62% 5.13% 3.44% 2.31%
</TABLE>
(1) Had the Adviser not absorbed certain expenses, the ratio of expenses for
the years ended December 31, 1993, 1994 and 1995 would have been 2.29%,
1.07% and 0.78%, respectively.
(2) Effective May 1, 1993, Davis Selected Advisers became the investment
adviser. Until May 1, 1993, Selected Financial Services, Inc. was the
investment adviser.
42
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors/Trustees
of Selected American Shares, Inc., Selected Special Shares, Inc. and Selected
Capital Preservation Trust.
We have audited the accompanying statement of assets and liabilities of
Selected American Shares, Inc., Selected Special Shares, Inc. and Selected
Capital Preservation Trust, (comprising, respectively, the U.S. Government
Income Fund and Daily Government Fund) including the schedules of portfolio
investments as of December 31, 1997 and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years then ended and the financial highlights for each of the five years then
ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Selected American Shares, Inc., Selected Special Shares, Inc., U.S.
Government Income Fund and Daily Government Fund as of December 31, 1997, the
results of operations for the year then ended, the changes in net assets for
each of the two years then ended and the financial highlights for each of the
five years then ended, in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 13, 1998
43
<PAGE>
SELECTED
FUNDS
124 East Marcy Street Santa Fe, New Mexico 87501
================================================
DIRECTORS OFFICERS
William P. Barr James J. McMonagle
Floyd A. Brown Chairman
Andrew A. Davis Shelby M.C. Davis
Christopher C. Davis President
Jerome Hass Kenneth C. Eich
James J. McMonagle Vice President
Katherine L. MacWilliams Eileen R. Street
Richard O'Brien Vice President, Treasurer
Larry Robinson & Assistant Secretary
Marsha Williams Thomas D. Tays
Vice President
& Secretary
Arthur Don
Assistant Secretary
Sheldon R. Stein
Assistant Secretary
INVESTMENT ADVISER
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
DISTRIBUTOR
Davis Distributors, LLC
124 East Marcy Street
Santa Fe, New Mexico 87501
TRANSFER AGENT & CUSTODIAN
State Street Bank Trust Company
c/o The Selected Funds
P.O. Box 8406
Boston, Massachusetts 02266-8406
COUNSEL
D'Ancona & Pflaum
30 North LaSalle Street
Chicago, Illinois 60602
============================================
FOR MORE INFORMATION ABOUT THE SELECTED
FUNDS, INCLUDING MANAGEMENT FEE, CHARGES
AND EXPENSES, SEE THE CURRENT PROSPECTUS
WHICH MUST PRECEDE OR ACCOMPANY THIS REPORT.
============================================
<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
SELECTED FUNDS
ANNUAL REPORT
DECEMBER 31, 1997
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[PICTURE OF A LEAF]
[SELECTED FUNDS LOGO]
