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SELECTED FUNDS
ANNUAL REPORT
DECEMBER 31, 1998
[SELECTED FUNDS LOGO]
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SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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Dear Fellow Shareholder:
1998 was a year when no one, including ourselves, seemed capable of consistently
predicting the trend of the market. What lessons did we learn as managers (and
the largest investors in our funds) from the market's volatile performance last
year? The first lesson is that it pays to stay aboard for the long voyage with
stocks inspite of occasional financial hurricanes. It's like being in a sailboat
circling the globe. You've got to ride out whatever storms may come your way.
The second lesson we learned is that to stay invested during turbulent times
requires keeping within a circle of competence. Our expertise is buying growth
at a value price based on rigorous research. Research is the North Star that
guides us and gives us the conviction to hold fast even when we are bombarded
with negative information.
The third lesson is that buying on market dips worked again. This suggests that
rather than panicking and selling, it is better to keep on a steady course. One
of the easiest ways to do this is to make investing a regular habit through up
and down markets with a program of dollar cost averaging.(1)
The fourth lesson is that the Federal Reserve Board (the "Fed") really is the
investor's friend. After the market declined 20% last year, the Fed moved
aggressively to reduce interest rates.(2) With inflation low, the Fed appears to
prefer nurturing slow, continuous growth through attempts to moderate the
business cycle rather than driving the economy into recession. This reduces the
risk that corporate earnings might collapse and may help avoid a big collapse in
the stock market. Still, we have to keep in mind that the Fed was prepared to
have a 20% market drop before it acted last year, and it might be willing to let
the market drop 20% again.
Looking ahead, we are neither totally bearish nor euphorically bullish in the
short run. Stock valuations are currently high but, at the same time, nothing
succeeds like success. Financial assets have been successful for investors and
are still benefiting from that momentum. In addition, huge money flows are being
created by baby boomers saving for their retirement and by central banks around
the world stimulating money-supply growth. A good bit of this money is spilling
into the financial markets and marking prices up.
At the end of the day, we believe the strength and direction of earnings are
likely to determine the market outlook in 1999. But the crosscurrents and
variables that could affect earnings are numerous. What will happen to the U.S.
dollar? Will the Euro be strong or weak? Will China devalue? Will Japan turn
around? Will the Asian nations find the legal and political resolve to deal with
their huge overhang of debt? Will the Fed raise interest rates or lower them
further? What will happen on the American political scene? What about the
potential for year 2000 computer disruptions?
While the market does face a number of potentially troublesome problems, there
are few attractive alternatives to equities. Moreover, it is still possible to
find good stocks to put on our shopping list because we live in a dynamic,
constantly changing economy and the American business model still works. U.S.
companies are undergoing another round of restructuring, consolidation and
cost-cutting in order to concentrate on core businesses, improve bottom-line
earnings and raise returns on capital.
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SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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We approach the job of investing shareholders' money and our own pragmatically
with the long-term in mind. We intend to remain fairly fully invested--trying
every day to make sensible decisions, rather than getting carried away with an
overly bullish or bearish stance. We emphasize firsthand research and meeting
with company managements so we are prepared to act when opportunities arise. And
we seek to buy stocks at pressure points when we perceive their prices have
dipped temporarily.
If you take a 30-year view of the market, assume a starting level of 9,000 for
the Dow and compound that figure at 7% annually, the Dow would be at 72,000 in
three decades. Even if the Dow dropped to 6,000 and you compound that amount at
7% a year, the Dow would reach 48,000 in 30 years. Given those possibilities, we
are not going to make market calls, we are just going to stay aboard for the
long voyage.(3)
Sincerely,
/s/ James J. McMonagle /s/ Shelby M.C. Davis
James J. McMonagle Shelby M.C. Davis
Chairman Chief Investment Officer
February 19, 1999
2
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SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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MANAGEMENT'S DISCUSSION AND ANALYSIS
SELECTED AMERICAN SHARES, INC.
PERFORMANCE OVERVIEW
+ Selected American Shares, Inc. (Selected American Shares) provided a total
return of 16.27% for the one-year period ended December 31, 1998 compared with a
return of 28.58% for the S&P 500 Index(4) and an average return of 15.61% for
the 768 growth and income funds tracked by Lipper Analytical Services.(5)
+ From May 6, 1993 through December 31, 1998, the approximate period that Davis
Selected Advisers has managed Selected American Shares, it provided an average
annual total return of 21.53% versus an average annual return of 17.67% for the
256 funds for that time period in the Lipper growth and income category.(6)
+ The Fund holds Morningstar's highest ***** (five-star) rating for the latest
three-year and five-year periods and a **** (four-star) rating for the latest
10-year period.(7) According to Morningstar, "The fund's core strategy of buying
great companies at fair prices remains intact and so do its prospects."(8)
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS
Q. How would you describe the Fund's performance in 1998?
A. Investors often measure performance on both an absolute and a relative basis.
After several years of strong performance on both counts, Selected American
Shares fired on only one cylinder in 1998, as our solid absolute return was
overshadowed by the roaring performance of the S&P 500. Ken and I view this as a
disappointing result, and while we don't judge ourselves and our shareholders
don't judge us on short-term performance, we can still learn important lessons
by taking a closer look at the factors that contributed to last year's results.
The first contributor to the Fund's disappointing short-term results was
mistakes. My grandfather Shelby Cullom Davis once said, "If you don't admit you
make mistakes you don't learn from them." It's worth examining your mistakes so
that if similar circumstances arise in the future, hopefully you won't repeat
the errors.
For us as long-term investors, it's not a mistake if we buy a stock and it
subsequently goes down. Ken and I recognize that every stock we purchase will
probably trade lower at some point in the future than on the day we bought it.
No one we know is gifted enough to buy the bottom tick in every stock. But it is
a mistake if we buy a stock that subsequently goes down and we don't want to add
to our position--or worse, we want to sell it. If we weren't mistaken in our
judgment about management or our judgment about the business, any stock that we
initially bought at price of $100 a share, for example, would be much more
attractive a price of $75 a share.
Our biggest mistake last year involved the Fund's holdings in the energy
category. The energy-services companies we own are among market leaders in that
industry. However, we overestimated how much control a well-run company can have
over its own destiny in an industry with deteriorating fundamentals. As Asian
economies slowed, the demand for oil fell far below levels that we had
anticipated. As a result, oil companies were caught with excess inventory and
capacity, putting even more pressure on energy prices. In such an environment,
major oil companies dramatically reduced their exploration and production
budgets and, therefore, their need for the equipment and services provided by
the type of companies that we own.
3
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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 AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS - CONTINUED
Although many of these stocks have fallen significantly, we do not see the
outlook brightening for some time, and we have sold many of our positions at
prices well below what we paid. While we continue to own some of these
companies, such as Schlumberger and Halliburton, as core names, we have not
added to them even at these low prices.(9) We will continue to closely monitor
them for signs of change, but we must put our holdings in this sector into the
category of mistakes.
Q. What other factors affected portfolio performance last year?
A. A second factor contributing to our disappointing relative performance was
not a mistake, but instead was a direct result of our investment philosophy.
This philosophy includes a strict price discipline that prevents us from buying
high-flying glamorous growth companies--not because we don't like the companies,
but because we don't like their high valuations. In particular, we see a
speculative bubble developing in Internet stocks where valuations have inflated
to levels reminiscent of the biotech craze of the early 1990s and the emerging
markets craze of the mid-1990s.
Unfortunately, the outstanding performance of just these kinds of glamour stocks
drove the market last year, and not owning them hurt our relative performance.
Nevertheless, we think that our price discipline has served us well over the
years and helped produce strong risk-adjusted returns for our shareholders. As
we expect 1999 to be another extremely volatile year, this discipline will
remain at the heart of our investment philosophy.
Another aspect of our investment philosophy that contributed to our mixed
short-term results was our fundamental belief in the importance of companies
having successful international operations. Last year, it wasn't fashionable to
have significant operations outside the United States, and that hurt the
performance of portfolio holdings such as American Express and
Hewlett-Packard.(9) But the fact that 95% of the world's population lives
outside the United States(10) should make it obvious that the ability to operate
globally is a big long-term advantage.
Unlike the category of mistakes discussed above, our belief in being global and
our price discipline are at the heart of our investment process, for better or
for worse. We believe that price must always be an essential factor in deciding
which businesses to buy, just as we think the competitive advantage of being
global is a vital consideration. So even if we had last year to live over again,
we would still stick with our price discipline and still value global expertise.
Q. Could you comment on the Fund's holdings of financial stocks?
A. Given the poor relative showing of financial stocks last year, some investors
have asked if we consider the Fund's ownership of many high-quality financial
companies to be a mistake. We do not. First, we always remember that financial
stocks rarely perform in a uniform way. For example, while companies such as
BankAmerica and Allstate were down 1% and almost 14%, respectively, the shares
of SunAmerica and Progressive surged 90% and 41%, respectively.(9) More
generally, however, Ken and I continue to think that favorable demographics, a
benign interest-rate environment, ongoing consolidation and the globalization of
the financial industry combined with reasonable valuations make this diverse
sector an attractive area to be invested in.
4
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SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS - CONTINUED
Another question we often receive concerns the large position we held in General
Re, which was purchased by Berkshire Hathaway last year. Our current intention
is to keep the Berkshire Hathaway shares we received from this merger.(9) My
father, Ken and I have attended Berkshire's annual meeting in Omaha for many
years and have long admired CEO Warren Buffett and his partner Charles Munger.
Q. What is your outlook as we move into the next century?
A. Looking ahead, if the market euphoria leading up to the new millennium
continues, it is likely that we will again lag behind funds that do not use a
price discipline in choosing their stocks. In such an environment, we would be
pleased to again achieve good absolute results even if relative results lag.
Our price discipline is an important element in controlling risk and avoiding
big losses, such as those investors experienced in 1973 and 1974 after a similar
bubble developed in growth stock valuations and was subsequently burst. Because
our family and employees remain among the largest shareholders of Selected
American Shares, we feel it is vital to control risk. We've often said that a
successful long-term investment record is built as much by avoiding the big
losses as by picking the big winners. In the coming years, that theory may again
be put to the test.(11)
In addition to euphoria, the approaching millennium may begin to increase
investor anxiety regarding possible year 2000 computer problems. Such
uncertainty combined with such euphoria promises to create another year of
exceptional volatility that will again test investors' nerves. Although
short-term results may be extremely volatile, we feel confident that the Fund is
positioned to weather any storm.(11) We appreciate shareholders' trust in
investing with us.
SELECTED SPECIAL SHARES, INC.
PERFORMANCE OVERVIEW
+ Selected Special Shares, Inc. (Selected Special Shares) handily
outperformed its small-cap and mid-cap benchmarks last year. The Fund
provided a total return of 24.52% for the 12-month period ended December
31, 1998 while the Lipper Small Company Funds Index declined 0.85% and the
Wilshire Mid Cap Company Growth Index declined 1.08%.(12)
+ Unlike many more aggressive small-cap funds, Selected Special Shares seeks
to deliver less volatile returns while building long-term wealth for
shareholders. The Fund's three- and five-year results--average annual
returns of 20.91% and 18.26%--support this objective.(6)
+ Morningstar has awarded Selected Special Shares a performance rating of 4
in the Mid-Cap Growth fund category for the latest three-year period. A
rating of 4 indicates the Fund has above-average return and below-average
risk relative to the other funds in its category.(7)
5
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SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
PERFORMANCE OVERVIEW - CONTINUED
+ According to Morningstar, Portfolio Manager Elizabeth Bramwell's "unique
way of seeing things sets her apart. She looks for big top-line growth and
P/Es below the growth rates, but also pursues long-term themes, such as the
outsourcing trend and companies using technology to boost business. The
fund's returns since Bramwell's 1994 arrival now beat the mid-growth
average by four percentage points per year."(13)
AN INTERVIEW WITH ELIZABETH R. BRAMWELL, PORTFOLIO MANAGER
Q. Could you summarize the performance of small-cap and mid-cap stocks in 1998?
A. The first half of the year was a dazzling time for the market overall,
including many small- and mid-cap companies. Then in mid-July, the market
sharply reversed course as concerns about corporate profits began to mount,
followed by disappointment in a smaller-than-expected interest rate cut by the
Federal Reserve Board in September. However, the market came roaring back and
multiples again expanded after the Fed lowered interest rates further in October
and November--thereby signaling that its focus was on global financial stability
and growth, not just fighting inflation.
The industries that were particularly attractive in the second half of
1998--information processing, retailing and financial services--were reflected
in the Fund's top 10 contributors to appreciation during that period. Many of
these stocks have been held for some time and include: Charles Schwab, Dell
Computer, Amazon.com, Home Depot, Firstar, Office Depot, CVS, Lexmark, MCI
WorldCom and Imax.(9)
Q. What's your outlook for the year ahead?
A. The macroeconomic picture remains favorable with virtually no inflation and
the likelihood of flat to lower interest rates. In that scenario, P/E ratios
should expand and small-cap stocks, in particular, should benefit. We also see
the potential for global synchronized growth toward the end of the year because
of lower interest rates and recent recovery in emerging markets.
In this environment, we continue to look for companies with strong top-line
growth. Emerging companies are likely to have new products and services where
they have pricing power and the ability to differentiate themselves, thereby
facilitating their achieving above-average growth. For companies that actually
deliver on their projected earnings, we think the potential for multiple
expansion is high.
The potential for substantial gains is the primary reason to own small-cap
stocks. Although the Fund is not meant to be an entire investment program, it is
designed to be a complementary component to our large-cap fund, Selected
American Shares, in a diversified, long-term investment plan.
Q. Where do you see opportunities today?
A. We believe that we are in a period of tremendous advances in medicine,
technology and communications. Although some people have worried about year 2000
spending slowing other technology expenditures, we believe that any deferred
spending will take off again after January 1, 2000. SELECTED FUNDS P.O. Box
1688, 124 East Marcy Street Santa Fe, New Mexico 87501
6
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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
We think one of the major opportunities going forward will be companies that use
the Internet well. This would include not only obvious highly valued Internet
stocks, such as Amazon.com, but hidden players as well. We are continually
searching for companies that will be beneficiaries of the Internet revolution.
This could range from traditional retailers that expand into online selling to
companies that provide information processing services, such as Paychex and
Computer Sciences, two of the Fund's holdings. For example, at Computer
Sciences, most of the company's management consulting and systems integration
work now includes Internet-enabling facilitation.(9)
New Fund investments made in the fourth quarter include Flextronics, a contract
manufacturer in the semiconductor industry, and Sepracor, a pharmaceutical
separations company with single-isomer versions of several major drugs.(9)
Outsourcing is another strong investment theme. In addition to Paychex and
Computer Sciences, another outsourcing investment is Robert Half, which provides
accounting and other professional staff. We think the company could have a
particularly strong year because of the demand for accounting services to
maintain and back up records as we cross through January 1, 2000.(9)
Financial stocks, which enjoyed strong gains in the fourth quarter of 1998, are
another area of interest. Here we are focused on regional stocks, such as
Firstar, Zions Bancorporation and Washington Mutual.(9)
Q. How has your strategy positioned the Fund to benefit from the current market
environment?
A. We invest on a stock-by-stock basis--looking at such factors as strength of
management and consistency of earnings as well as valuations, especially the
price/earnings to growth [(P/E)/G] ratio. A primary strategy is to invest in
stocks at a discount to their projected future earnings growth rates or to the
overall market.
We estimate that the 1999 earnings growth rate on the Fund's portfolio is 23.6%,
for which we are currently paying a P/E multiple of 23.4. That gives the Fund a
P/E to growth ratio of 99%. So the Fund has an estimated earnings growth rate
that is four to five times higher than that of the S&P 500 and yet it is selling
at a slight discount to the P/E multiple for the S&P.
We think that Selected Special Shares offers an attractively valued portfolio,
particularly relative to the overall market, and that ultimately stock prices
move at least in line with their earnings growth. All in all, we expect 1999 to
be a good year for small- and mid-cap stocks. Moreover, given the valuation of
our portfolio, we think that there is potential for the portfolio's overall P/E
ratio to expand as well, giving shareholders an enhanced investment return.(11)
7
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SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
SELECTED U.S. GOVERNMENT INCOME FUND
PERFORMANCE OVERVIEW
+ 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 issued by the U.S. government or
its agencies.(14) Specifically, by emphasizing investments in the
intermediate range of the bond maturity spectrum, the Fund seeks to smooth
out performance and provide stability in a variety of market climates.(15)
+ The Fund generated a total return of 5.90% for the one-year period ended
December 31, 19986 versus an average return of 7.68% for the funds included
in Lipper Analytical Services' Intermediate U.S. Government Funds
category.(5)
AN INTERVIEW WITH CAROLYN H. SPOLIDORO, PORTFOLIO MANAGER
Q. What is the Selected U.S. Government Income Fund's general strategy?
A. Our strategy is to create a well-diversified portfolio in terms of types of
government securities, maturity lengths and call provisions--providing
opportunities to capitalize on different interest-rate 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 by the issuer before maturity and some that cannot. Currently, the
portfolio's duration is 4.3 years and its average life is 5.6 years.
The Fund's cautious approach offers downside protection in declining bond
markets but may underperform in rising bond markets. In other words, the
portfolio tends to hold up a bit better when interest rates climb or are
variable. But the price we pay for this stability is that the Fund does not
rally as well when rates go down as they did last year.(15)
Q. Could you recap the bond market's performance in 1998?
A. If you just look at the numbers over time, total returns were good on most
types of securities last year, including U.S. government securities. However,
that overlooks the volatility the markets experienced starting at the end of the
summer when a liquidity crisis erupted because of concerns about the health of
the global economy. This triggered a massive flight to quality and yield spreads
on fixed-income securities widened dramatically relative to U.S. Treasury
securities. While the liquidity crisis subsequently eased and yield spreads
narrowed, spreads are still not as narrow as they were at the beginning of 1998.
This environment made long-term U.S. Treasury securities one of the best
fixed-income investment to own last year. Long-term Treasuries did much better
than government agency securities, which, in turn, did much better than
mortgages--even though the quality differences among these various types of
securities are fairly small. The Fund's performance generally lagged other
intermediate-term U.S. government fund peers because its portfolio is a blend of
intermediate government agency securities and mortgage securities.
8
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SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CAROLYN H. SPOLIDORO, PORTFOLIO MANAGER - CONTINUED
Q. How are you positioning the Fund in 1999?
A. We have been positioning the Fund to take advantage of market rallies if
interest rates drop further as we anticipate. Specifically, we have been buying
various government agency and mortgage-backed securities, always with an eye
toward lengthening maturity and always carefully weighing the trade-off between
increasing call protection versus increasing yield.(9) At the same time, we
recognize the importance of continuing to maintain a disciplined approach with a
diversified, all-weather portfolio so that the Fund is structured to benefit
from various market conditions.
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 plan. 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 that contains more information about fees and expenses. Please
read the prospectus carefully before investing or sending money.
(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) There can be no assurance that the Federal Reserve Board will act to
support stock prices or that the Federal Reserve Board's actions in the
future might not hurt stock prices.
(3) This example illustrates the power of compounding over a 30-year period,
and is not intended to be indicative of future investment results which may
be higher or lower than the assumed rate.
(4) 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.
(5) Lipper Analytical Services' rankings and comparisons are based on total
returns unadjusted for commissions.
9
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SELECTED FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
(6) 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.
Average Annual Total Returns as of December 31, 1998 (no sales charge)
FUND NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- ------ ------- ------- --------
Selected American Shares 16.27% 27.77% 22.75% 18.02%
Selected Special 24.52% 20.91% 18.26% 15.39%
Selected US Government Income 5.90% 5.34% 5.69% 7.18%
Selected Daily Government 4.85% 4.82% 4.64% 5.03%
(7) Morningstar proprietary ratings reflect historical risk-adjusted
performance as of December 31, 1998. 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; the next 22.5% receive four stars; the next 35% receive three stars;
the next 22.5% receive two stars; and the last 10% receive one star.
Selected American Shares was rated against 2,802, 1,702 and 732 domestic
equity funds for the three-, five- and 10-year periods, respectively.
Like the Morningstar risk-adjusted rating, the category rating is a
quantitative measure of risk-adjusted returns. This three-year rating shows
how well a fund has balanced risk and return relative to other funds in the
same Morningstar category. The rating uses the same methodology as the
Morningstar risk-adjusted rating. Unlike the star rating, however, the
category rating does not reflect any front- or back-end sales charges.
Other expenses, such as 12b-1 fees, are included. As with the Star rating,
five is the best rating and one is the worst.
(8) Source: Morningstar Mutual Funds, December 6, 1998.
(9) Portfolio holdings and portfolio manager opinions cited in this material
are current at the time of printing but are subject to change. See each
Fund's Schedule of Investments for a detailed list of portfolio holdings.
(10) U.S. Census Bureau.
(11) No price discipline or other method of controlling risk can guarantee
shareholders will not experience a loss. Past performance is not a
guarantee of future success.
(12) 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.
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.
(13) Source: Morningstar Mutual Funds, September 6, 1998.
(14) There can be no assurance that the Fund will be successful in managing risk
or achieve its investment objective.
(15) Prices of shares will vary, so that when redeemed, an investor's shares may
be worth more or less than their original cost.
An investment in the Fund is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
10
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SELECTED AMERICAN SHARES, INC.
PORTFOLIO HOLDINGS - AT DECEMBER 31, 1998
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(The following two tables were depicted as pie charts in the printed material.)
PORTFOLIO MAKEUP SECTOR WEIGHTINGS
(% OF FUND NET ASSETS) (% OF STOCK HOLDINGS)
---------------------- ---------------------
Preferred Stocks 1.1% Diversified 4.5%
Cash & Cash Equivalents 5.5% Technology 11.6%
Common Stocks 93.4% Real Estate 3.4%
Consumer Products 5.1%
Electronics 5.9%
Pharmaceutical and
Health Care 7.0%
Insurance 13.5%
Other 9.9%
Food/Beverage 4.9%
Financial 13.7%
Building Material 4.7%
Energy 4.9%
Bank and Savings and Loan 10.9%
TOP 10 HOLDINGS
STOCK SECTOR % OF FUND NET ASSETS
- --------------- ------ --------------------
Wells Fargo & Co. Banks and Savings &
Loan Associations 5.31%
American Express Co. Financial 5.25%
Hewlett-Packard Company Technology 4.72%
McDonald's Corp. Food/Beverage & Restaurant 4.55%
International Business
Machines Corporation Technology 4.55%
Berkshire Hathaway, Inc. - CL A Diversified 4.23%
Philip Morris Cos., Inc. Consumer Products 3.84%
Citigroup, Inc. Financial 3.58%
Texas Instruments Inc. Electronics 3.56%
Morgan Stanley, Dean Witter,
Discover & Co. Investment Firms 3.39%
11
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SELECTED AMERICAN SHARES, INC.
PORTFOLIO ACTIVITY - JANUARY 1, 1998 THROUGH DECEMBER 31, 1998
================================================================================
NEW POSITIONS ADDED (1/1/98-12/31/98)
(Highlighted Positions are those greater than 0.99% of Net Assets)
<TABLE>
<CAPTION>
DATE OF 1ST % OF 12/31/98
SECURITY SECTOR PURCHASE FUND NET ASSETS
- -------- ------ -------- ---------------
<S> <C> <C> <C>
American Home Products Corp. Pharmaceutical and Health Care 11/10/98 0.84%
Camco International Inc. Energy 05/26/98 --
Centerpoint Properties Corporation Private Real Estate 04/02/98 0.08%
Donaldson, Lufkin & Jenrette, Inc. Investment Firms 10/07/98 0.07%
DOVER CORP. ENERGY 03/12/98 2.05%
HOUSEHOLD INTERNATIONAL, INC. FINANCIAL 10/07/98 1.57%
Micron Technology, Inc. Electronics 10/12/98 0.19%
NORWEST CORPORATION BANKS AND SAVINGS & LOAN ASSOCIATIONS 06/17/98 --
Sealed Air Corporation Consumer Products 10/07/98 0.65%
Swisscom AG Telecommunications 10/05/98 --
Tyco International Ltd. Diversified Manufauring 12/23/98 0.41%
Union Pacific Cap Trust Railroad 03/27/98 --
UNUM Corp. Insurance 11/25/98 0.54%
Vulcan Materials Co. Building Materials 10/23/98 0.37%
POSITIONS CLOSED (1/1/98-12/31/98) (Gains and losses greater than $3 million are
highlighted)
SECURITY SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- -------- ------ ------------------ -----------
360 (DEGREE) COMMUNICATIONS COMPANY TELECOMMUNICATIONS 04/01/98 $ 5,467,796
Archer-Daniels-Midland Co. Agriculture 06/10/98 2,596,176
BOEING CO. AEROSPACE 10/16/98 (10,767,911)
Burlington Resources, Inc. Energy 11/09/98 (2,998,589)
Crescent Operating, Inc. Real Estate 12/10/98 (1,006,883)
J.P. MORGAN & CO., INC. FINANCIAL 09/08/98 5,809,165
Nabors Industries, Inc. Energy 06/02/98 (947,110)
NESTLE SA - ADR FOOD/BEVERAGE 12/17/98 11,217,677
Nestle SA Food/Beverage 12/18/98 2,348,118
NIKE INC. APPAREL 05/05/98 (7,362,637)
Novellus Systems, Inc. Technology 11/04/98 (1,163,121)
Qwest Communications International, Inc. Telecommunications 04/08/98 1,206,700
SWISSCOM AG TELECOMMUNICATIONS 12/11/98 10,040,099
TCF Financial Corp. Financial 10/01/98 (7,804)
Tyson Foods, Inc. Food/Beverage 10/09/98 (160,566)
UNION PACIFIC CORP. RAILROAD 07/16/98 (5,148,825)
Union Pacific Cap Trust Preferred 10/08/98 (255,000)
Vornado Operating Inc. Real Estate 12/09/98 (50,385)
</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, 1998.
One Year........................... 16.27%
Five Years......................... 22.75%
Ten Years.......................... 18.02%
$10,000 INVESTED OVER TEN YEARS. Let's say you invested $10,000 in Selected
American Shares ("SAS") on December 31, 1988. As the chart below shows, by
December 31, 1998 the value of your investment would have grown to $52,489 - a
424.89% increase on your initial investment. For comparison, the Standard &
Poor's 500 Stock Index is also presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 SAS
--------- ---
1988 10,000.00 10,000.00
1989 13,164.00 12,007.41
1990 12,756.00 11,538.78
1991 16,635.00 16,876.50
1992 17,901.00 17,854.09
1993 19,702.00 18,822.24
1994 19,962.00 18,220.53
1995 27,457.00 25,161.54
1996 33,758.00 32,894.98
1997 45,017.00 45,143.43
1998 57,845.00 52,489.39
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, 1998
================================================================================
(The following two tables were depicted as pie charts in the printed material.)
PORTFOLIO MAKEUP SECTOR WEIGHTINGS
(% OF FUND NET ASSETS) (% OF STOCK HOLDINGS)
---------------------- ---------------------
Cash & Cash Equivalents 3.7% Industrial Products 3.7%
Common Stocks 96.3% Employee Staffing 9.7%
Other 6.7%
Communications 4.2%
Entertainment/Leisure 4.3%
Health Care 9.6%
Chemicals 2.9%
Financial Services 16.2%
Automotive/Heavy Equipment 2.3%
Home/Office Furniture 6.7%
Retailing 13.2%
Transportation 2.2%
Information Processing 18.1%
TOP 10 HOLDINGS
STOCK SECTOR % OF FUND NET ASSETS
- --------------- ------ --------------------
Computer Sciences Corporation Information Processing--
Services 4.77%
Robert Half International, Inc. Employee Staffing 3.14%
The Charles Schwab Corporation Financial Services 3.12%
Dell Computer Corporation Information Processing--
Office Equipment 3.09%
Sterling Commerce, Inc. Information Processing--
Services 2.71%
Cardinal Health, Inc. Healthcare 2.65%
Kohl's Corporation Retailing 2.62%
On Assignment, Inc. Employee Staffing 2.50%
Tiffany & Co. Retailing 2.47%
Washington Mutual, Inc. Financial Services 2.44%
14
<PAGE>
SELECTED SPECIAL SHARES, INC.
PORTFOLIO ACTIVITY - JANUARY 1, 1998 THROUGH DECEMBER 31, 1998
================================================================================
NEW POSITIONS ADDED (1/1/98-12/31/98)
(Highlighted Positions are those greater than 0.99% of Net Assets)
<TABLE>
<CAPTION>
DATE OF 1ST % OF 12/31/98
SECURITY SECTOR PURCHASE FUND NET ASSETS
- -------- ------ -------- ---------------
<S> <C> <C> <C>
Abercrombie & Fitch Co. Retailing 01/29/98 0.37%
DA Consulting Group, Inc. Employee Staffing 04/24/98 0.61%
Dril-Quip, Inc. Machinery 01/06/98 --
Dura Pharmaceuticals, Inc. Pharmaceutical 02/09/98 --
EarthLink Network, Inc. Communications 06/17/98 0.60%
ETHAN ALLEN INTERIORS, INC. HOME/OFFICE FURNITURE 04/14/98 1.30%
Federated Investors, Inc. Financial Services 05/13/98 0.96%
FLEXTRONICS INTERNATIONAL LTD. ELECTRONICS 12/07/98 1.36%
Friede Goldman International, Inc. Energy 01/29/98 0.30%
FURNITURE BRANDS INTERNATIONAL, INC. HOME/OFFICE FURNITURE 03/16/98 1.01%
Galileo International, Inc. Travel Services 03/11/98 --
IMAX CORPORATION ENTERTAINMENT/LEISURE TIME 06/08/98 1.67%
Infinity Broadcasting Corp. Communications 12/09/98 --
Keane, Inc. Information Processing - Services 11/25/98 0.86%
KEEBLER FOODS CO. FOOD/BEVERAGE 04/20/98 1.51%
LEXMARK INTERNATIONAL GROUP, INC. INFORMATION PROCESSING - OFFICE EQUIP. 11/09/98 2.12%
Linens 'n Things, Inc. Retailing 02/06/98 --
The Maxim Group, Inc. Retailing 03/13/98 --
Mercury General Corporation Insurance 05/04/98 --
North Fork Bancorporation, Inc. Financial Services 05/29/98 0.89%
ORBITAL SCIENCES CORPORATION COMMUNICATIONS 04/27/98 1.17%
PAREXEL INTERNATIONAL CORPORATION HEALTHCARE 01/23/98 1.31%
PREMIER PARKS, INC. ENTERTAINMENT/LEISURE TIME 03/26/98 1.28%
Professional Detailing, Inc. Consulting Services 05/19/98 --
Proffitt's Inc. Retailing 06/24/98 --
SEPRACOR, INC. HEALTHCARE 11/04/98 1.02%
SPR, Inc. Information Processing - Services 05/05/98 0.37%
STERLING COMMERCE, INC. INFORMATION PROCESSING - SERVICES 03/11/98 2.71%
Superior Consultant Holdings Corp. Consulting Services 06/17/98 --
Teleglobe, Inc. Communications 03/27/98 0.76%
</TABLE>
15
<PAGE>
SELECTED SPECIAL SHARES, INC.
PORTFOLIO ACTIVITY - JANUARY 1, 1998 THROUGH DECEMBER 31, 1998
================================================================================
POSITIONS CLOSED (1/1/98-12/31/98)
(Gains and losses greater than $500,000 are highlighted)
<TABLE>
<CAPTION>
SECURITY SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- -------- ------ ------------------ -----------
<S> <C> <C> <C>
Alkermes, Inc. Healthcare 11/05/98 $ 98,924
American Express Co. Financial Services 09/11/98 276,559
Biacore International, AB - ADR Healthcare 06/30/98 (245,000)
Black Box Corporation Electronics 04/03/98 59,975
Ciena Corporation Communications 09/17/98 (481,702)
CliniChem Development Inc. Pharmaceutical 07/02/98 (188)
Compaq Computer Corporation Information Processing--
Office Equipment 03/09/98 167,995
Dril-Quip, Inc. Energy 06/12/98 37,386
Dura Pharmaceuticals, Inc. Healthcare 03/10/98 (351,976)
Fastenal Company Industrial Products 05/12/98 287,496
First Union Corporation Financial Services 03/26/98 204,089
Galileo International, Inc. Travel Services 10/27/98 (25,619)
Global Marine, Inc. Energy 04/15/98 109,587
Great Plains Software, Inc. Information Processing-Software 08/11/98 119,360
Infinity Broadcasting Corp. Communications 12/10/98 6,254
Input/Output, Inc. Energy 08/26/98 (395,429)
KENT ELECTRONICS CORPORATION ELECTRONICS 10/14/98 (637,136)
Linens 'n Things, Inc. Retailing 10/19/98 109,765
Littlefuse, Inc. Industrial Products 03/19/98 (91,545)
The Maxim Group, Inc. Retailing 11/12/98 (69,558)
Mercury General Corporation Insurance 10/27/98 (358,645)
Myriad Genetics, Inc. Healthcare 07/14/98 (68,752)
NationsBank Corporation Financial Services 05/27/98 218,931
Neurex Corporation Healthcare 06/12/98 345,425
Professional Detailing, Inc. Consulting Services 06/10/98 8,399
REGAL CINEMAS, INC. ENTERTAINMENT/LEISURE TIME 01/23/98 921,939
Renaissance Worldwide, Inc. Consulting Services 08/19/98 (9,457)
Rowan Companies, Inc. Energy 04/15/98 104,359
Sealed Air Corporation Packaging 07/02/98 190,570
Superior Consultant Holdings Corp. Consulting Services 12/11/98 8,656
ThermoQuest Corporation Industrial Products 10/30/98 (299,690)
Whole Foods Market, Inc. Retailing 06/10/98 377,129
</TABLE>
16
<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, 1998.
One Year........................... 24.52%
Five Years......................... 18.26%
Ten Years.......................... 15.39%
$10,000 INVESTED OVER TEN YEARS. Let's say you invested $10,000 in Selected
Special Shares ("SSS") on December 31, 1988. As the chart below shows, by
December 31, 1998 the value of your investment would have grown to $41,888 - a
318.88% increase on your initial investment. For comparison, the Standard &
Poor's 500 Stock Index is also presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
S & P 500 SSS
--------- ---
1988 10,000.00 10,000.00
1989 13,164.00 12,891.28
1990 12,756.00 12,006.06
1991 16,635.00 15,063.87
1992 17,901.00 16,341.26
1993 19,702.00 18,098.70
1994 19,962.00 17,652.69
1995 27,457.00 23,696.66
1996 33,758.00 26,507.98
1997 45,017.00 33,639.94
1998 57,845.00 41,887.73
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.
17
<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, 1998.
One Year........................... 5.90%
Five Years......................... 5.69%
Ten Years.......................... 7.18%
$10,000 INVESTED OVER TEN YEARS. Let's say you invested $10,000 in U.S.
Government Income Fund ("SUSGIF") on December 31, 1988. As the chart below
shows, by December 31, 1998 the value of your investment would have grown to
$20,021 - an 100.21% increase on your initial investment. For comparison, the
Lehman Brothers Intermediate Term U.S. Treasury Securities Index is also
presented on the chart below.
(The following table was depicted as a line chart in the printed material.)
Lehman Index SUSGIF
------------ ------
1988 10,000.00 10,000.00
1989 11,268.00 10,846.86
1990 12,345.22 11,772.47
1991 14,091.29 13,370.91
1992 15,073.56 14,063.62
1993 16,317.93 15,176.49
1994 15,983.86 14,765.45
1995 18,298.69 17,129.52
1996 19,024.63 17,617.43
1997 20,483.08 18,904.91
1998 22,253.68 20,020.76
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.
18
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED AMERICAN SHARES, INC.
December 31, 1998
VALUE
SHARES SECURITY (NOTE 1)
===============================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
COMMON STOCK - (93.44%)
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (10.15%)
346,844 Banc One Corporation............................. $ 17,710,722
900,834 BankAmerica Corporation.......................... 54,162,644
153,800 Golden West Financial Corporation................ 14,101,538
1,535,302 U.S. Bancorp..................................... 54,503,221
3,866,560 Wells Fargo & Co................................. 154,420,740
------------
294,898,865
------------
BUILDING MATERIALS - (4.38%)
930,600 Martin Marietta Materials, Inc................... 57,871,688
2,040,000 Masco Corporation................................ 58,650,000
81,900 Vulcan Materials Co.............................. 10,774,969
------------
127,296,657
------------
CONSUMER PRODUCTS - (4.80%)
190,000 Gillette Co...................................... 9,179,375
2,085,000 Philip Morris Cos., Inc. ........................ 111,547,500
370,700 Sealed Air Corporation*.......................... 18,928,869
------------
139,655,744
------------
DIVERSIFIED - (4.23%)
1,754 Berkshire Hathaway, Inc. - CL A*................. 122,780,000
16 Berkshire Hathaway, Inc. - CL B*................. 37,600
------------
122,817,600
------------
DIVERSIFIED MANUFACTURING - (0.41%)
160,000 Tyco International Ltd........................... 12,070,000
------------
ELECTRONICS - (5.53%)
708,000 Applied Materials, Inc.*......................... 30,222,750
110,000 Micron Technology, Inc.*......................... 5,561,875
558,750 Molex Incorporated............................... 21,267,422
1,210,000 Texas Instruments Inc............................ 103,530,625
------------
160,582,672
------------
ENERGY - (4.57%)
154,880 British Petroleum Company PLC - ADR* (c)......... 14,713,600
423,000 Cooper Cameron Corporation*...................... 10,363,500
1,630,200 Dover Corporation................................ 59,706,075
702,000 Halliburton Co................................... 20,796,750
244,085 Noble Affiliates, Inc............................ 6,010,593
323,000 Schlumberger Limited............................. 14,898,375
251,900 Smith International, Inc.*....................... 6,344,731
------------
132,833,624
------------
FINANCIAL - (12.84%)
1,491,500 American Express Co............................... 152,505,875
1,100,000 Freddie Mac....................................... 70,881,250
2,102,095 Citigroup, Inc.................................... 104,053,703
</TABLE>
19
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED AMERICAN SHARES, INC. - CONTINUED
December 31, 1998
VALUE
SHARES SECURITY (NOTE 1)
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
COMMON STOCK - CONTINUED
FINANCIAL - CONTINUED
1,150,000 Household International, Inc......................... $ 45,568,750
------------
373,009,578
------------
FOOD/BEVERAGE & RESTAURANT - (4.55%)
1,725,000 McDonald's Corporation............................... 132,178,125
------------
INVESTMENT FIRMS - (3.46%)
50,000 Donaldson, Lufkin & Jenrette, Inc.................... 2,050,000
1,387,432 Morgan Stanley, Dean Witter, Discover & Co........... 98,507,672
------------
100,557,672
------------
LIFE INSURANCE - (3.68%)
1,124,356 SunAmerica, Inc. .................................... 91,213,381
269,400 UNUM Corporation..................................... 15,726,225
------------
106,939,606
------------
PHARMACEUTICAL AND HEALTH CARE - (6.53%)
435,100 American Home Products Corporation................... 24,501,569
170,000 Johnson & Johnson.................................... 14,258,750
80,000 Merck & Co., Inc..................................... 11,815,000
272,000 Novartis AG - ADR.................................... 26,735,016
400,000 Pfizer Inc........................................... 50,175,000
895,600 SmithKline Beecham PLC - ADR......................... 62,244,200
------------
189,729,535
------------
PROPERTY/CASUALTY INSURANCE - (8.94%)
1,265,028 The Allstate Corporation............................. 48,861,707
481,250 American International Group, Inc.................... 46,500,781
450,400 Chubb Corporation.................................... 29,219,700
471,700 Progressive Corporation (Ohio)....................... 79,895,481
732,200 Transatlantic Holdings, Inc.......................... 55,326,863
------------
259,804,532
------------
PUBLISHING - (2.56%)
452,800 Gannett Co., Inc..................................... 29,205,600
286,000 Harcourt General, Inc................................ 15,211,625
134,000 The News Corporation Ltd., Sponsored ADR............. 3,542,625
400,000 Tribune Co........................................... 26,400,000
------------
74,359,850
------------
RAILROAD - (0.82%)
394,100 Burlington Northern Santa Fe (c)..................... 13,300,875
202,204 Canadian National Railway Co......................... 10,489,333
------------
23,790,208
------------
REAL ESTATE - (3.20%)
77,000 Avalonbay Communities, Inc........................... 2,637,250
1,451,194 Centerpoint Properties Corporation (e)............... 49,068,497
70,000 Centerpoint Properties Corporation Private (d)(e).... 2,248,531
</TABLE>
20
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED AMERICAN SHARES, INC. - CONTINUED
December 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
===========================================================================================
COMMON STOCK - CONTINUED
REAL ESTATE - CONTINUED
<S> <C> <C>
416,300 Crescent Real Estate Equities Company........................ $ 9,574,900
165,400 Mack-Cali Realty Corporation................................. 5,106,725
54,599 Patriot American Hospitality, Inc............................ 327,594
713,800 Vornado Realty Trust......................................... 24,090,750
--------------
93,054,247
--------------
TECHNOLOGY - (10.80%)
2,005,975 Hewlett-Packard Company...................................... 137,033,165
378,000 Intel Corporation............................................ 44,793,000
715,000 International Business Machines Corporation.................. 132,096,250
--------------
313,922,415
--------------
TELECOMMUNICATIONS - (1.99%)
648,000 AirTouch Communications, Inc.*............................... 46,737,000
180,000 Motorola, Inc................................................ 10,991,250
--------------
57,728,250
--------------
Total Common Stock - (identified
cost $1,527,563,880)................................... 2,715,229,180
--------------
CONVERTIBLE PREFERRED STOCK - (1.09%)
20,600 AirTouch Communications, Inc., 4.25%, Ser. C Conv. Pfd....... 2,121,800
230,000 Devon Financing Trust, $3.25, Ser. 144A Conv. Pfd. (b)....... 12,650,000
25,000 Devon Financing Trust, $3.25, Conv. Pfd. (b)................. 1,375,000
361,400 Rouse Company, $3.00, Conv. Pfd.............................. 15,675,725
--------------
Total Convertible Preferred Stock--
(identified cost $36,077,962).......................... 31,822,525
--------------
SHORT TERM INVESTMENTS- (6.08%)
$16,380,000 Fannie Mae Discount Note, 5.12%, 01/05/99.................... 16,370,682
21,150,000 Fannie Mae Discount Note, 5.10%, 01/07/99.................... 21,132,023
19,375,000 Federal Home Loan Bank Discount Note, 5.05%, 01/15/99........ 19,336,950
17,675,000 Federal Home Loan Bank Discount Note, 5.12%, 01/20/99........ 17,627,238
19,275,000 Federal Home Loan Bank Discount Note, 4.50%, 01/26/99........ 19,214,766
16,985,000 Freddie Mac Discount Note, 5.11%, 01/04/99................... 16,977,767
22,555,000 Freddie Mac Discount Note, 5.11%, 01/08/99................... 22,532,589
19,065,000 Freddie Mac Discount Note, 5.10%, 01/14/99................... 19,029,889
9,245,000 Freddie Mac Discount Note, 5.16%, 01/22/99................... 9,217,173
13,258,000 Lehman Brothers Repurchase Agreement, 5.04%,
01/04/99, dated 12/31/98, repurchase value
$13,265,424 (collateralized by $12,819,000
par value U.S. Treasury Note, 5.875%, 09/30/02,
market value $13,524,045).................................. 13,258,000
1,900,000 State Street Bank and Trust Company Repurchase
Agreement, 4.60%, 01/04/99, dated 12/31/98,
repurchase value $1,900,971 (collateralized
by $1,950,000 par value Federal Home Loan Bank,
4.95%, 12/04/00, market value $1,947,563).................. 1,900,000
--------------
Total Short Term Investments (identified
cost $176,597,077)..................................... 176,597,077
--------------
Total Investments - (100.61%) - (identified cost
$1,740,238,919) - (a)...................................... 2,923,648,782
Liabilities Less Other Assets- (0.61%)....................... (17,741,956)
--------------
Net Assets - (100%)................................... $2,905,906,826
==============
</TABLE>
* Non-Income Producing Security
21
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED AMERICAN SHARES, INC. - CONTINUED
December 31, 1998
VALUE
(NOTE 1)
================================================================================
(a) Aggregate cost for Federal Income Tax purposes is $1,740,238,919. At
December 31, 1998 unrealized appreciation (depreciation) of securities for
Federal Income Tax purposes is as follows:
Unrealized appreciation.............................. $1,198,216,369
Unrealized depreciation.............................. (14,806,506)
--------------
Net unrealized appreciation .................. $1,183,409,863
==============
(b) These securities are subject to Rule 144A. The Board of Directors of the
Fund has determined that there is sufficient liquidity in these securities to
realize current valuations. These securities amounted to $14,025,000 and 0.48%
of the Fund's net assets as of December 31, 1998.
(c) Loaned security - See Note 7 of Notes to Financial Statements
(d) Restricted security - See Note 8 of Notes to Financial Statements.
(e) Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer and is an affiliate, as defined in the Investment
Company Act of 1940, at or during the year ended December 31, 1998. The
aggregate fair value of the security of affiliated company held by the Fund as
of December 31, 1998 amounts to $51,317,028. Transactions during the period in
which the issuer was an affiliate are as follows:
Shares Shares
December 31, Gross Gross December 31, Dividend
Security 1997 Additions Reductions 1998 Income
-------- ---- --------- ---------- ---- ------
Centerpoint Properties
Corporation 1,351,194 100,000 -- 1,451,194 2,236,306
Centerpoint Properties
Corporation Private -- 70,000 -- 70,000 83,790
See Notes to Financial Statements.
22
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED SPECIAL SHARES, INC.
December 31, 1998
VALUE
SHARES SECURITY (NOTE 1)
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
COMMON STOCK - (96.33%)
APPAREL - (1.57%)
40,000 Cutter & Buck, Inc.*.................................. $1,490,000
----------
AUTOMOTIVE/HEAVY EQUIPMENT - (2.24%)
32,000 Hays Lemmerz International, Inc.*..................... 966,000
30,000 Lear Corporation*..................................... 1,155,000
----------
2,121,000
----------
CHEMICALS - (2.80%)
22,000 Minerals Technologies, Inc............................ 900,625
48,000 OM Group, Inc......................................... 1,752,000
----------
2,652,625
----------
COMMUNICATIONS - (4.05%)
10,000 EarthLink Network, Inc.*.............................. 568,125
20,000 MCI Worldcom, Inc.*................................... 1,435,000
25,000 Orbital Sciences Corporation.*........................ 1,106,250
20,000 Teleglobe, Inc........................................ 720,000
----------
3,829,375
----------
ELECTRONICS - (1.36%)
15,000 Flextronics International Ltd.*....................... 1,282,500
----------
EMPLOYEE STAFFING - (9.37%)
28,000 DA Consulting Group, Inc.*............................ 581,000
15,000 Data Processing Resources Corporation*................ 431,250
65,000 Interim Services, Inc.*............................... 1,519,375
50,787 Labor Ready, Inc.*.................................... 999,869
70,000 On Assignment, Inc.*.................................. 2,366,875
66,500 Robert Half International, Inc.*...................... 2,971,719
----------
8,870,088
----------
ENERGY - (0.93%)
25,000 Diamond Offshore Drilling, Inc. ...................... 592,188
25,000 Friede Goldman International, Inc.*................... 284,375
----------
876,563
----------
ENTERTAINMENT/LEISURE TIME - (4.11%)
44,000 Cinar Corporation, Class B*........................... 1,100,000
50,000 Imax Corporation*..................................... 1,581,250
40,000 Premier Parks, Inc.*.................................. 1,210,000
----------
3,891,250
----------
FINANCIAL SERVICES - (15.63%)
52,500 The Charles Schwab Corporation........................ 2,949,844
50,100 Federated Investors, Inc.............................. 908,063
20,000 Firstar Corporation................................... 1,865,000
35,000 LaSalle Partners, Inc.*............................... 1,030,313
</TABLE>
23
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED SPECIAL SHARES, INC. - CONTINUED
December 31, 1998
VALUE
SHARES SECURITY (NOTE 1)
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
COMMON STOCK - CONTINUED
FINANCIAL SERVICES - CONTINUED
35,000 North Fork Bancorporation, Inc........................ $ 837,813
18,000 Northern Trust Company................................ 1,570,500
60,000 TCF Financial Corporation............................. 1,451,250
60,500 Washington Mutual, Inc................................ 2,310,344
30,000 Zions Bancorporation.................................. 1,871,250
-----------
14,794,377
-----------
FOOD/BEVERAGE - (1.51%)
38,100 Keebler Foods Co.*.................................... 1,433,513
-----------
HEALTHCARE - (9.27%)
20,000 BioChem Pharmaceuticals Inc.* - ADR................... 572,500
33,000 Cardinal Health, Inc.................................. 2,503,875
10,000 Closure Medical Corporation*.......................... 297,500
15,000 Elan Corporation, PLC ADR*............................ 1,043,438
30,000 Focal, Inc*........................................... 285,000
50,000 PAREXEL International Corporation*.................... 1,237,500
35,000 Quintiles Transnational Corporation*.................. 1,865,938
11,000 Sepracor, Inc.*....................................... 968,688
-----------
8,774,439
-----------
HOME/OFFICE FURNITURE - (6.60%)
30,000 Ethan Allen Interiors, Inc............................ 1,230,000
35,000 Furniture Brands International, Inc.*................. 953,750
30,000 Herman Miller, Inc.................................... 802,500
34,000 HON Industries, Inc................................... 813,875
25,000 Knoll, Inc.*.......................................... 740,625
77,600 Leggett & Platt, Inc.................................. 1,707,200
-----------
6,247,950
-----------
INDUSTRIAL PRODUCTS - (3.60%)
20,600 Illinois Tool Works, Inc.............................. 1,194,800
35,156 Molex Inc., Class A................................... 1,120,598
23,600 Schlumberger Limited................................. 1,088,550
-----------
3,403,948
-----------
INFORMATION PROCESSING - OFFICE EQUIPMENT - (5.22%)
40,000 Dell Computer Corporation*............................ 2,927,500
20,000 Lexmark International Group, Inc.*.................... 2,010,000
-----------
4,937,500
-----------
INFORMATION PROCESSING - SERVICES - (12.24%)
70,000 Computer Sciences Corporation*........................ 4,510,625
40,000 DST Systems, Inc.*.................................... 2,282,906
20,200 Keane, Inc.*.......................................... 806,738
20,750 Paychex, Inc.......................................... 1,067,328
</TABLE>
24
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED SPECIAL SHARES, INC. - CONTINUED
December 31, 1998
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
COMMON STOCK - CONTINUED
INFORMATION PROCESSING - SERVICES - CONTINUED
21,000 SPR, Inc.*............................................ $ 351,750
57,000 Sterling Commerce, Inc.*.............................. 2,565,000
-----------
11,584,347
-----------
INSURANCE - (1.08%)
36,000 Horace Mann Educators Corporation..................... 1,026,000
-----------
RETAILING - (12.67%)
5,000 Abercrombie & Fitch Co.*.............................. 353,750
1,500 Amazon.com, Inc.*..................................... 481,781
34,000 CVS Corporation....................................... 1,870,000
30,000 The Home Depot, Inc................................... 1,835,625
40,400 Kohl's Corporation*................................... 2,482,075
50,000 Office Depot, Inc.*................................... 1,846,875
25,000 Saks Incorporated*.................................... 789,063
45,000 Tiffany & Co.......................................... 2,334,375
-----------
11,993,544
-----------
TRANSPORTATION - (2.08%)
40,000 Kansas City Southern Industries, Inc.................. 1,967,500
-----------
Total Common Stock - (identified
cost $53,855,924)................................ 91,176,519
-----------
SHORT TERM INVESTMENTS- (3.21%)
$ 3,035,000 State Street Bank and Trust Co. Repurchase
Agreement, 4.60%, 01/04/99, dated 12/31/98,
repurchase value of $3,036,551 (collateralized
by $3,115,000 par value Federal Home Loan Bank,
4.95%, 12/04/00, market value $3,111,106) -
(identified cost $3,035,000)......................... 3,035,000
-----------
Total Investments - (99.54%) - (identified
cost $56,890,924) - (a)......................... 94,211,519
Other Assets Less Liabilities - (0.46%)........... 432,596
-----------
Net Assets - (100%).............................. $94,644,115
===========
</TABLE>
* Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $56,890,924. At December
31, 1998 unrealized appreciation (depreciation) of securities for Federal Income
Tax purposes is as follows:
Unrealized appreciation.............................. $38,847,456
Unrealized depreciation.............................. (1,526,861)
-----------
Net unrealized appreciation .................... $37,320,595
===========
See Notes to Financial Statements.
25
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED CAPITAL PRESERVATION TRUST -
SELECTED U.S. GOVERNMENT INCOME FUND
December 31, 1998
<TABLE>
<CAPTION>
VALUE
PRINCIPAL SECURITY (NOTE 1)
===============================================================================================
MORTGAGES - (44.20%)
FANNIE MAE POOLS - (3.95%)
<S> <C> <C>
$ 2,390 10.00%, 07/01/05, Pool No. 98835...................................... $ 2,497
7,702 10.00%, 08/01/05, Pool No. 99903...................................... 8,143
5,279 8.50%, 07/01/17, Pool No. 51539...................................... 5,555
6,885 8.50%, 04/01/21, Pool No. 117725..................................... 7,242
216,940 7.50%, 01/01/27, Pool No. 356381..................................... 222,904
----------
Total Fannie Mae - (identified cost $238,838)................ 246,341
----------
FREDDIE MAC POOLS - (6.46%)
96,506 8.00%, 09/01/21, Pool No. D2-7906.................................... 100,367
193,505 8.00%, 10/01/21, Pool No. D2-7334.................................... 200,882
97,626 8.00%, 06/01/22, Pool No. D2-0670.................................... 101,348
----------
Total Freddie Mac - (identified cost $390,094).............. 402,597
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION POOLS - (17.09%)
23,755 10.00%, 09/15/01, Pool No. 265854..................................... 24,673
14,158 7.00%, 09/20/23, Pool No. 008299 (Adjustable Rate)................... 14,368
16,695 7.00%, 01/20/24, Pool No. 008360 (Adjustable Rate)................... 16,943
336,920 6.50%, 02/20/28, Pool No. 002547..................................... 338,393
342,152 6.50%, 04/15/28, Pool No. 780776..................................... 345,679
324,413 6.50%, 11/20/28, Pool No. 002673..................................... 325,830
----------
Total GNMA - (identified cost $1,055,624).................... 1,065,886
----------
COLLATERALIZED MORTGAGE OBLIGATIONS & REAL ESTATE MORTGAGE
INVESTMENT CONDUITS - (16.70%)
500,000 Federal National Mortgage Association, 92-152M, 7.75%, 08/25/07....... 528,590
500,000 United States Department of Veteran Affairs, Mortgage Trust 1992-1,
7.75%, 07/15/17................................................... 513,125
----------
Total CMOs & REMICs - (identified cost $983,474)............. 1,041,715
----------
Total Mortgages - (identified cost $2,668,030)............... 2,756,539
----------
MEDIUM TERM NOTES - (50.30%)
300,000 Fannie Mae, 6.23%, 07/18/02........................................... 310,266
350,000 Fannie Mae, 6.57%, 08/22/07........................................... 377,944
250,000 Fannie Mae, 6.39%, 09/24/07........................................... 266,757
300,000 Fannie Mae, 6.34%, 02/04/08........................................... 307,407
350,000 Fannie Mae, 6.00%, 05/15/08........................................... 369,467
350,000 Federal Farm Credit Bank, 5.79%, 06/23/08............................. 357,381
239,444 Freddie Mac, 6.50%, 01/01/04.......................................... 241,482
350,000 Freddie Mac, 6.51%, 01/08/07.......................................... 375,102
</TABLE>
26
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED CAPITAL PRESERVATION TRUST -
SELECTED U.S. GOVERNMENT INCOME FUND - CONTINUED
December 31, 1998
VALUE
PRINCIPAL SECURITY (NOTE 1)
===============================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
MEDIUM TERM NOTES - CONTINUED
$500,000 Freddie Mac, 8.00%, 06/20/11.......................... $ 531,330
----------
Total Medium Term Notes - (identified cost
$3,044,681).................................. 3,137,136
----------
SHORT TERM INVESTMENTS- (5.69%)
355,000 State Street Corporation Repurchase Agreement,
4.60%, 01/06/99, dated 12/31/99, repurchase
value of $355,272 (collateralized by $365,000
par value Federal Home Loan Bank, 5.03%,
10/29/99, market value $364,658) -
(identified cost $355,000)............................ 355,000
----------
Total Investments - (100.19%) - (identified
cost $6,067,711) - (a).............................. 6,248,675
Liabilities Less Other Assets - (0.19%)............... (12,042)
----------
Net Assets - (100%) ......................... $6,236,633
==========
(a) Aggregate cost for Federal Income Tax purposes is $6,067,711. At December
31, 1998 unrealized appreciation (depreciation) of securities for Federal Income
Tax purposes is as follows:
Unrealized appreciation.............................. $ 186,212
Unrealized depreciation.............................. (5,248)
-----------
Net unrealized appreciation................. $ 180,964
===========
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED CAPITAL PRESERVATION TRUST -
SELECTED DAILY GOVERNMENT FUND
December 31, 1998
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
==================================================================================================
FANNIE MAE - (11.75%)
<S> <C> <C>
$ 2,755,000 5.12%, 01/05/99 Discount Note.......................................... $ 2,753,433
2,305,000 4.80%, 01/08/99 Discount Note.......................................... 2,302,849
1,305,000 5.07%, 01/08/99 Discount Note.......................................... 1,303,713
3,610,000 4.83%, 01/27/99 Discount Note.......................................... 3,597,407
4,890,000 5.03%, 02/05/99 Discount Note.......................................... 4,866,087
------------
Total Fannie Mae - (identified cost $14,823,489) .................. 14,823,489
------------
FEDERAL FARM CREDIT BANK - (3.15%)
3,995,000 4.98%, 02/11/99 Discount Note - (identified cost $3,972,342)........... 3,972,342
------------
FEDERAL HOME LOAN BANK - (10.66%)
2,090,000 4.78%, 01/13/99 Discount Note.......................................... 2,086,670
3,085,000 4.78%, 01/22/99 Discount Note.......................................... 3,076,398
8,360,000 4.65%, 03/02/99 Discount Note.......................................... 8,295,210
------------
Total Federal Home Loan Bank - (identified cost $13,458,278)....... 13,458,278
------------
FREDDIE MAC - (74.67%)
3,455,000 5.03%, 01/04/99 Discount Note.......................................... 3,453,552
5,620,000 5.05%, 01/06/99 Discount Note.......................................... 5,616,058
2,155,000 5.05%, 01/07/99 Discount Note.......................................... 2,153,186
4,110,000 5.09%, 01/11/99 Discount Note.......................................... 4,104,189
5,775,000 5.02%, 01/12/99 Discount Note.......................................... 5,766,142
4,170,000 5.11%, 01/14/99 Discount Note.......................................... 4,162,305
7,165,000 4.95%, 01/15/99 Discount Note.......................................... 7,151,207
1,225,000 5.02%, 01/15/99 Discount Note.......................................... 1,222,609
3,765,000 4.76%, 01/20/99 Discount Note.......................................... 3,755,541
6,625,000 5.11%, 01/22/99 Discount Note.......................................... 6,605,252
5,435,000 5.11%, 01/25/99 Discount Note.......................................... 5,416,485
1,270,000 5.12%, 01/28/99 Discount Note.......................................... 1,265,123
4,560,000 5.00%, 01/29/99 Discount Note.......................................... 4,542,267
10,670,000 4.94%, 02/18/99 Discount Note.......................................... 10,599,720
12,000,000 5.06%, 02/19/99 Discount Note.......................................... 11,917,353
2,120,000 4.925%, 02/22/99 Discount Note......................................... 2,104,919
2,710,000 5.08%, 02/25/99 Discount Note.......................................... 2,688,967
3,975,000 4.90%, 02/26/99 Discount Note.......................................... 3,944,702
7,835,000 5.07%, 02/26/99 Discount Note ..................................... 7,773,207
------------
Total Freddie Mac - (identified cost $94,242,784).................. 94,242,784
------------
Total Investments - (100.23%) - (identified cost $126,496,893) - (a)... 126,496,893
Liabilities Less Other Assets - (0.23%)................................ (294,385)
------------
Net Assets - (100%)........................................... $126,202,508
============
</TABLE>
(a) Aggregate cost for Federal income tax purposes is $126,496,893.
See Notes to Financial Statements.
28
<PAGE>
SELECTED FUNDS
STATEMENT OF ASSETS AND LIABILITIES
At December 31, 1998
<TABLE>
<CAPTION>
========================================================================================================
SELECTED SELECTED U.S. GOVERNMENT DAILY
AMERICAN SPECIAL INCOME GOVERNMENT
SHARES SHARES FUND FUND
-------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value * (see
accompanying Schedules of Investments)
Unaffiliated companies ................. $2,859,010,668 $94,211,519 $ 6,248,675 $126,496,893
Affiliated companies ................... 51,317,028 -- -- --
Collateral for securities loaned (Note 7) 13,321,086 -- -- --
Prepaid expenses ......................... 77,708 6,985 9,043 10,559
Cash ..................................... 132,770 13,969 42,157 14,392
Receivables:
Dividends and interest ................. 2,724,252 41,970 61,964 --
Capital stock sold ..................... 2,945,424 885,248 750 30,413
Due from Adviser ....................... -- -- 6,000 --
-------------- ----------- ------------ ------------
Total assets ............................. 2,929,528,936 95,159,691 6,368,589 126,552,257
-------------- ----------- ------------ ------------
LIABILITIES:
Return of collateral for securities loaned
(Note 7) ................................. 13,321,086 -- -- --
Payables:
Capital stock reacquired ............... 1,839,652 31,411 105,299 10,343
Investment securities purchased ........ 5,961,332 369,125 -- --
Accrued expenses ......................... 2,451,852 115,040 14,426 87,009
Distributions payable .................... 48,188 -- 12,231 252,397
-------------- ----------- ------------ ------------
Total liabilities .................. 23,622,110 515,576 131,956 349,749
-------------- ----------- ------------ ------------
NET ASSETS ................................ $2,905,906,826 $94,644,115 $ 6,236,633 $126,202,508
============== =========== ============ ============
SHARES OUTSTANDING (NOTE 5) ............... 93,247,795 6,410,129 689,837 126,202,508
============== =========== ============ ============
NET ASSET VALUE, offering and
redemption price per share (Net
Assets / shares outstanding) ............. $ 31.16 $ 14.76 $ 9.04 $ 1.00
============== =========== ============ ============
NET ASSETS CONSIST OF:
Paid-in capital .......................... $1,705,904,429 $56,068,885 $ 6,028,088 $126,202,508
Accumulated net realized gain ............ 16,592,534 1,254,635 27,581 --
Net unrealized appreciation on
investments ............................. 1,183,409,863 37,320,595 180,964 --
-------------- ----------- ------------ ------------
$2,905,906,826 $94,644,115 $ 6,236,633 $126,202,508
============== =========== ============ ============
</TABLE>
* Including repurchase agreements of $15,158,000, $3,035,000 and $355,000 for
Selected American Shares, Selected Special Shares and Selected U.S. Government
Income Fund, respectively, and cost of $1,740,238,919, $56,890,924, $6,067,711
and $126,496,893 for Selected American Shares, Selected Special Shares, U.S.
Government Income Fund and Daily Government Fund, respectively.
See Notes to Financial Statements.
29
<PAGE>
SELECTED FUNDS
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
===================================================================================================
SELECTED SELECTED U.S. GOVERNMENT DAILY
AMERICAN SPECIAL INCOME GOVERNMENT
SHARES SHARES FUND FUND
------------ ----------- -------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends
Unaffiliated companies ................ $ 29,731,676 $ 333,850 $ -- $ --
Affiliated companies .................. 2,320,096 -- -- --
Interest ................................ 5,111,584 226,123 402,917 6,634,374
Lending fees ............................ 14,519 -- -- --
------------ ----------- -------- ----------
Total income ........................ 37,177,875 559,973 402,917 6,634,374
------------ ----------- -------- ----------
Expenses:
Management fees (Note 2) ................ 14,793,828 575,453 30,211 364,848
Custodian fees .......................... 298,738 22,752 9,369 15,880
Transfer agent fees ..................... 1,250,108 140,880 13,959 75,437
Audit fees .............................. 31,007 16,007 6,955 14,059
Legal fees .............................. 122,736 18,308 519 19,975
Reports to shareholders ................. 392,812 15,841 2,518 24,168
Directors fees and expenses ............. 322,753 7,598 576 11,453
Registration and filing fees ............ 197,405 28,368 17,527 30,906
Miscellaneous ........................... 205,212 15,762 1,036 7,909
Payments under distribution plan
(Note 3) ............................... 6,383,558 208,501 15,105 304,040
------------ ----------- -------- ----------
Total expenses ...................... 23,998,157 1,049,470 97,775 868,675
Expenses paid indirectly (Note 6) ... (6,794) (4,105) (1,141) (232)
Reimbursement of expenses by
adviser (Note 2) .................. -- -- (6,000) --
------------ ----------- -------- ----------
Net expenses ........................ 23,991,363 1,045,365 90,634 868,443
------------ ----------- -------- ----------
Net investment income (loss) ........ 13,186,512 (485,392) 312,283 5,765,931
------------ ----------- -------- ----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain from
investment transactions ............... 29,504,571 7,077,136 97,915 --
Net increase (decrease) in unrealized
appreciation of investments
during the period ..................... 345,128,542 11,375,084 (62,420) --
------------ ----------- -------- ----------
Net realized and unrealized
gain on investments ............... 374,633,113 18,452,220 35,495 --
------------ ----------- -------- ----------
Net increase in net
assets resulting from
operations .......................... $387,819,625 $17,966,828 $347,778 $5,765,931
============ =========== ======== ==========
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
SELECTED FUNDS
STATEMENT OF CHANGES IN NET ASSETS For the year ended December 31, 1998
<TABLE>
<CAPTION>
===================================================================================================
SELECTED SELECTED U.S. GOVERNMENT DAILY
AMERICAN SPECIAL INCOME GOVERNMENT
SHARES SHARES FUND FUND
------------ ----------- -------- ----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........ $ 13,186,512 $ (485,392) $ 312,283 $ 5,765,931
Net realized gains from
investment transactions ............ 29,504,571 7,077,136 97,915 --
Net increase (decrease) in unrealized
appreciation of investments ........ 345,128,542 11,375,084 (62,420) --
-------------- ----------- ---------- ------------
Net increase in net
assets resulting from operations ... 387,819,625 17,966,828 347,778 5,765,931
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income .............. (13,186,512) -- (312,283) (5,765,931)
Realized gains from investment
transactions ..................... (23,381,397) (7,866,840) (16,994) --
Dividend in excess of net
investment income ................ (180,435) -- -- --
CAPITAL SHARE TRANSACTIONS
(NOTE 5) ............................ 333,180,761 9,613,669 256,546 8,731,677
-------------- ----------- ---------- ------------
Total increase in net assets ......... 684,252,042 19,713,657 275,047 8,731,677
NET ASSETS:
Beginning of period ................. 2,221,654,784 74,930,458 5,961,586 117,470,831
-------------- ----------- ---------- ------------
End of period ....................... $2,905,906,826 $94,644,115 $6,236,633 $126,202,508
============== =========== ========== ============
</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>
==============================================================================================
SELECTED SELECTED U.S. GOVERNMENT DAILY
AMERICAN SPECIAL INCOME GOVERNMENT
SHARES SHARES FUND FUND
------------ ----------- -------- ----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . $ 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
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Selected Funds (the Funds) consist of Selected American Shares, Inc.,
(American Shares, Inc.), Selected Special Shares, Inc., (Special Shares, Inc.),
and the Selected Capital Preservation Trust (the Trust). The Trust operates as a
series fund, consisting of the U.S. Government Income Fund and Daily Government
Fund. The Funds and Trust are registered under the Investment Company Act of
1940, as amended, as diversified, open-end management investment companies. The
Trust accounts separately for the assets, liabilities and operations of each
series. The following is a summary of significant accounting policies followed
by the Funds in the preparation of financial statements.
American Shares, Inc. and Special Shares, Inc. are diversified,
professionally managed stock-oriented funds.
Selected U.S. Government Income Fund (U.S. Government Income) seeks to
obtain current income consistent with preservation of capital by investing
primarily in debt obligations of the U.S. Government, its agencies or
instrumentalities.
Selected Daily Government Fund (Daily Government) seeks to provide a high
level of current income from short-term money market securities consistent with
prudent investment management, preservation of capital and maintenance of
liquidity. It invests in U.S. Government Securities and repurchase agreements in
respect thereto.
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 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. These valuation procedures
are reviewed and subject to approval by the Board of Directors/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 taxable income to
shareholders. Therefore, no provision for federal income or excise tax is
required.
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 and disclosure of contingent 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.
33
<PAGE>
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1998
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
D. SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME - Securities
transactions are accounted for on the trade date (date the order to buy or sell
is executed) with realized gain or loss on the sale of securities being
determined based upon identified cost. Interest income is recorded on the
accrual basis and dividend income is recorded on the ex-dividend date. Discounts
and premiums on debt securities (excluding convertible bonds) purchased are
amortized over the lives of the respective securities in accordance with the
requirements of the Internal Revenue Code.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions to
shareholders are recorded on the ex-dividend date. The character of the
distributions made during the year from net investment income may differ from
its ultimate characterization for federal income tax purposes. Also, due to the
timing of distributions, the fiscal year in which amounts are distributed may
differ from the fiscal year in which income or gain was recorded by the Funds.
The Funds adjust the classification of distributions to shareholders to reflect
the differences between financial statement amounts and distributions determined
in accordance with income tax regulations. Accordingly, for American Shares,
Inc. during the year ended December 31, 1998 accounts have been reclassified to
reflect an increase in undistributed net investment income of $180,435, an
increase in accumulated net realized gain of $564,989 and a decrease in paid-in
capital of $745,424. For Special Shares, Inc. during the year ended December 31,
1998 accounts have been reclassified to reflect an increase in undistributed net
investment income of $485,392, a decrease in accumulated net realized gain of
$400,258 and a decrease in paid-in capital of $85,134.
NOTE 2 - INVESTMENT ADVISORY FEES
Advisory fees are paid monthly to the investment adviser. Until January 1,
1999, the rate for American Shares, Inc. was 0.65% on the first $500 million of
average net assets, 0.60% on the next $500 million and 0.55% of average net
assets in excess of $1 billion. Effective January 1, 1999, the management fee
was reduced to 0.65% on the first $500 million of average net assets, 0.60% of
the average net assets on the next $500 million, 0.55% of the average net assets
on the next $2 billion, 0.54% of the average net assets on the next $1 billion,
0.53% of the average net assets on the next $1 billion, 0.52% of the average net
assets on the next $1 billion, 0.51% of the average net assets on the next $1
billion and 0.50% of the average net assets in excess of $7 billion. The rate
for Special Shares, Inc. is 0.70% on the first $50 million of average net
assets, 0.675% on the next $100 million, 0.65% on the next $100 million and
0.60% of average net assets in excess of $250 million. The rate for the U.S.
Government Income Fund is 0.50% of average net assets. The rate for the Daily
Government Fund is 0.30% of average net assets.
Boston Financial Data Services is the Funds' primary transfer agent. Davis
Selected Advisers, L.P. (the "Adviser") is also paid for certain transfer agent
services. The fee paid to the Adviser for the year ended December 31, 1998 was
$162,634, $18,845, $1,165 and $6,560 for American Shares, Inc., Special Shares,
Inc., U.S. Government Income and Daily Government Funds, respectively. Certain
directors/trustees and officers of the Funds are also directors/trustees and
officers of the general partner of the Adviser.
The Adviser has agreed to reimburse the U.S. Government Income Fund for any
expenses in excess of 1.50% of average net assets.
Davis Selected Advisers - NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of
the Adviser, acts as sub-adviser to the Funds. The Funds pay no fees directly to
DSA-NY.
With respect to Special Shares, Inc., Bramwell Capital Management, Inc.
("Bramwell") also acts as sub-adviser and manages the day-to-day investment
operations for the fund. The Fund pays no fees directly to Bramwell, who
receives from the Adviser a percentage of the total annual investment advisory
fees paid by the Fund to the Adviser.
34
<PAGE>
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1998
================================================================================
NOTE 2 - INVESTMENT ADVISORY FEES - (Continued)
Each fund has adopted procedures to treat Shelby Cullom Davis & Co. ("SCD") as
an affiliate of the Adviser. For American Shares, Inc., SCD received $155,832 in
commissions on the purchases/sales of portfolio securities.
NOTE 3 - DISTRIBUTION
For services under the distribution agreement, the Funds pay a fee of 0.25%
of average daily net assets. For the year ended December 31, 1998, American
Shares, Inc., Special Shares, Inc., U.S. Government Income and Daily Government
Funds, incurred distribution services fees totaling $6,383,558, $208,501,
$15,101 and $304,040, respectively.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the year ended December 31, 1998 were as follows:
AMERICAN SPECIAL U.S. GOVERNMENT
SHARES, INC. SHARES, INC. INCOME
------------ ------------ ------
Cost of purchases... $705,361,536 $ 37,460,423 $ 2,775,309
Proceeds of sales... $489,962,814 $ 32,335,025 $ 1,996,841
NOTE 5 - CAPITAL STOCK
At December 31, 1998, there were 300 million shares of capital stock of
American Shares, Inc. ($1.25 par value per share) authorized. At December 31,
1998, there were 50 million shares of capital stock of Special Shares, Inc.
($0.25 par value per share) authorized. At December 31, 1998, 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, 1998
-------------------------------------------------------------
AMERICAN SPECIAL U.S.
SHARES SHARES GOVERNMENT DAILY
INC. INC. INCOME GOVERNMENT
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Shares sold ................... 29,034,922 2,135,219 192,677 24,255,402
Shares issued in reinvestment
of distributions ............. 1,213,367 527,262 30,016 5,746,130
------------- ------------ ------------ -------------
30,248,289 2,662,481 222,693 30,001,532
Shares redeemed ............... (18,727,709) (2,004,322) (194,758) (21,269,855)
------------- ------------ ------------ -------------
Net increase ............... 11,520,580 658,159 27,935 8,731,677
============= ============ ============ =============
Proceeds from shares sold ..... $ 829,939,241 $ 29,840,446 $ 1,747,977 $ 24,255,402
Proceeds from shares issued in
reinvestment of distributions 35,183,278 7,182,421 271,717 5,746,130
------------- ------------ ------------ -------------
865,122,519 37,022,867 2,019,694 30,001,532
Cost of shares redeemed ....... (27,409,198) (1,763,148) (21,269,855) (531,941,758)
------------- ------------ ------------ -------------
Net increase ............... $ 333,180,761 $ 9,613,669 $ 256,546 $ 8,731,677
============= ============ ============ =============
</TABLE>
35
<PAGE>
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1998
<TABLE>
<CAPTION>
================================================================================================
NOTE 5 - CAPITAL STOCK - (Continued)
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------
AMERICAN SPECIAL U.S.
SHARES SHARES GOVERNMENT DAILY
INC. INC. INCOME GOVERNMENT
------------- ------------ ------------ -------------
<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 ............... 17,785,770 (117,021) 4,796,597 19,806
============= ============ ============ ============
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 ............... $ 459,536,450 $ 37,950 $ (1,038,054) $ 4,796,597
============= ============ ============ ============
</TABLE>
NOTE 6 - CUSTODIAN FEES
Under an agreement with the custodian bank, each fund's custodian fees are
reduced for earnings on cash balances maintained at the custodian by the Funds.
Such reductions amounted to $6,794, $4,105, $1,141 and $232 for American Shares,
Inc., Special Shares, Inc., U.S. Government Income and Daily Government,
respectively.
NOTE 7 - SECURITIES LOANED
American Shares, Inc. (the "Fund") has entered into a securities lending
arrangement with PaineWebber, Inc. Under the terms of the agreement, the Fund
receives fee income from lending transactions; in exchange for such fees,
PaineWebber, Inc. is authorized to loan securities on behalf of the Fund,
against receipt of collateral at least equal to the value of the securities
loaned. Cash collateral is invested by the Adviser in money market instruments.
As of December 31, 1998, the Fund had on loan securities valued at $12,930,000;
cash of $13,321,086 was received as collateral for the loans and has been
invested in approved instruments. The Fund bears the risk of any deficiency in
the amount of the collateral available for return to a borrower due to a loss in
an approved investment.
NOTE 8 - RESTRICTED SECURITIES
Restricted securities are not registered under the Securities Act of 1933
and may have contractual restrictions on resale. They are valued under methods
approved by the Board of Directors as reflecting fair value. The aggregate value
of restricted securities in American Shares, Inc. was $2,248,531, or 0.07% of
the net assets of December 31, 1998. Information concerning restricted
securities is as follows:
<TABLE>
<CAPTION>
Number of Valuation per Unit as
Fund Security Acquisition Date Shares Cost per Unit of December 31, 1998
- ---- -------- ---------------- ------ ------------- ---------------------
<S> <C> <C> <C> <C> <C>
American Centerpoint Properties
Shares, Inc. Corp. Private 04/02/98 70,000 $33.375 $32.121875
</TABLE>
36
<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,
--------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $27.18 $21.53 $17.68 $13.09 $14.59
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ................ .15 .16 .18 .22 .20
Net Realized and Unrealized
Gains (Losses) .................... 4.24 7.72 5.15 4.74 (.66)
------ ------ ------ ------ ------
Total From Investment Operations .. 4.39 7.88 5.33 4.96 (.46)
DIVIDENDS AND DISTRIBUTIONS
Dividends from Net Investment Income . (.15) (.17) (.17) (.22) (.20)
Distributions from Realized Gains .... (.26) (2.05) (1.31) (.15) (.83)
Dividends in Excess of Net
Investment Income ................. -- (.01) -- -- (.01)
------ ------ ------ ------ ------
Total Dividends and Distributions . (.41) (2.23) (1.48) (.37) (1.04)
------ ------ ------ ------ ------
Net Asset Value, End of Period ........ $31.16 $27.18 $21.53 $17.68 $13.09
====== ====== ====== ====== ======
TOTAL RETURN(1) ....................... 16.27% 37.25% 30.74% 38.09% (3.20)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000,000 omitted) ................... $2,906 $2,222 $1,376 $ 926 $ 529
Ratio of Expenses to Average
Net Assets .......................... .94% .96% 1.03% 1.09% 1.26%
Ratio of Net Investment Income to
Average Net Assets .................. .52% .62% .87% 1.42% 1.42%
Portfolio Turnover Rate(2) ........... 20% 26% 29% 27% 23%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the first
day of the fiscal period, with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period.
(2) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
See Notes to Financial Statements.
37
<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,
------------------------------------------------
1998 1997 1996 1995 1994(3)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ......... $ 13.03 $ 10.89 $ 10.80 $ 9.02 $ 10.20
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss ......................... (.08) (.07) -- -- (.03)
Net Realized and Unrealized
Gains (Losses) ............................. 3.14 2.83 1.27 3.04 (.22)
------- ------- ------- ------- -------
Total From Investment Operations ......... 3.06 2.76 1.27 3.04 (.25)
DIVIDENDS AND DISTRIBUTIONS
Distributions from Realized Gains ........... (1.33) (.62) (1.18) (1.26) (.93)
------- ------- ------- ------- -------
Total Dividends and
Distributions ................................ (1.33) (.62) (1.18) (1.26) (.93)
------- ------- ------- ------- -------
Net Asset Value, End of Period ............... $ 14.76 $ 13.03 $ 10.89 $ 10.80 $ 9.02
======= ======= ======= ======= =======
TOTAL RETURN(1) .............................. 24.52% 26.91% 11.86% 34.24% (2.56)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000 omitted) ..... $94,644 $74,930 $62,435 $58,975 $47,275
Ratio of Expenses to Average Net Assets ..... 1.26%(4) 1.28% 1.33% 1.48% 1.41%(2)
Ratio of Net Investment Loss to Average
Net Assets ............................... (.58)% (.60)% (.66)% (.58)% (.27)%
Portfolio Turnover Rate(5) .................. 41% 51% 98% 127% 99%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the first
day of the fiscal period, with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period.
(2) Had the Adviser not absorbed certain expenses, the ratio of expenses for the
year ended December 31, 1994 would have been 1.62%.
(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.
(4) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.25% for the period ended December 31,
1998.
(5) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
SEE NOTES TO FINANCIAL STATEMENTS
38
<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,
--------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...... $ 9.01 $ 8.90 $ 9.20 $ 8.45 $ 9.20
------ ------- ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income .................... .47 .51 .53 .54 .50
Net Realized and Unrealized
Gains (Losses) ........................ .06 .11 (.28) .78 (.75)
------ ------- ------ ------ -------
Total From Investment Operations ........ .53 .62 .25 1.32 (.25)
DIVIDENDS AND DISTRIBUTIONS
Dividends from Net Investment Income ..... (.47) (.51)) (.53) (.54) (.50)
Distributions from Realized Gains ........ (.03) -- (.02) (.03) --
------ ------- ------ ------ -------
Total Dividends and Distributions ..... (.50) (.51) (.55) (.57) (.50)
------ ------- ------ ------ -------
Net Asset Value, End of Period ............ $ 9.04 $ 9.01 $ 8.90 $ 9.20 $ 8.45
====== ======= ====== ====== =======
TOTAL RETURN(1) ........................... 5.90% 7.32% 2.85% 15.97% (2.71)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) ........................... $6,237 $ 5,962 $6,934 $7,811 $10,263
Ratio of Expenses to Average
Net Assets .............................. 1.52%(2,3) 1.50%(2) 1.44%(2) 1.44%(2) 1.42%(2)
Ratio of Net Investment Income to
Average Net Assets .................... 5.17% 5.79% 5.96% 6.09% 5.70%
16%
Portfolio Turnover Rate(4) ............... 36% 16% 26% 76% 65%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the first
day of the fiscal period, with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period.
(2) Had the Adviser not absorbed certain expenses, the ratio of expenses for the
years ended December 31, 1994, 1995, 1996, 1997 and 1998 would have been
1.69%, 1.58%, 1.67%, 1.60% and 1.62%, respectively.
(3) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.50% for the period ended December 31,
1998.
(4) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
See Notes to Financial Statements.
39
<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,
-----------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<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 ................... .047 .048 .046 .051 .034
DIVIDENDS AND DISTRIBUTIONS
Dividends from Net Investment Income .... (.047) (.048) (.046) (.051) (.034)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ........... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
TOTAL RETURN(1) .......................... 4.85% 4.91% 4.70% 5.23% 3.51%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(000 omitted) .......................... $126,203 $117,471 $112,674 $184,603 $121,886
Ratio of Expenses to Average
Net Assets ............................. .71% .70% .75% .75%2 .75%2
Ratio of Net Investment Income
to Average Net Assets ................ 4.74% 4.80% 4.62% 5.13% 3.44%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the first
day of the fiscal period, with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period.
(2) Had the Adviser not absorbed certain expenses, the ratio of expenses for the
years ended December 31, 1994 and 1995 would have been, 1.07% and 0.78%,
respectively.
See Notes to Financial Statements.
40
<PAGE>
SELECTED FUNDS
INCOME TAX INFORMATION (UNAUDITED)
December 31, 1998
================================================================================
In early 1999, shareholders will receive information regarding all dividends
and distributions paid to them by the funds during calendar year 1998.
Regulations of the U.S. Treasury Department require the funds to report this
information to the Internal Revenue Service.
SELECTED AMERICAN SHARES, INC.
Distributions of $0.41 per share were paid to shareholders during the
calendar year 1998, of which $0.26 was designated as a "capital gain
distribution" for federal income tax purposes. Whether received in stock or
cash, the capital gain distribution should be treated by shareholders as a gain
from the sale of capital assets held for more than one year (long-term capital
gains).
Dividends paid by the Fund during the calendar year ended 1998 which are not
designated as capital gain distributions should be multiplied by 100% to arrive
at the net amount eligible for the corporate dividend-received deduction.
SELECTED SPECIAL SHARES, INC.
Distributions of $1.325 per share were paid to shareholders during the
calendar year 1998, of which $1.255 was designated as a "capital gain
distribution" for federal income tax purposes. Whether received in stock or
cash, the capital gain distribution should be treated by shareholders as a gain
from the sale of capital assets held for more than one year (long-term capital
gains).
None of the dividends paid by the Fund during the calendar year ended 1998
are eligible for the corporate dividend-received deduction.
SELECTED U.S. GOVERNMENT INCOME FUND
Distributions of $0.49013 per share were paid to shareholders during the
calendar year 1998, of which $0.025 was designated as a "capital gain
distribution" for federal income tax purposes. Whether received in stock or
cash, the capital gain distribution should be treated by shareholders as a gain
from the sale of capital assets held for more than one year (long-term capital
gains).
None of the dividends paid by the Fund during the calendar year ended 1998
are eligible for the corporate dividend-received deduction.
The foregoing information is presented to assists shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because of
the complexity of the federal regulations which may affect your individual tax
return and the many variations in state and local regulations, we recommend that
you consult your tax adviser for specific guidance.
41
<PAGE>
SELECTED FUNDS
INDEPENDENT AUDITORS' REPORT
================================================================================
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., U.S. Government
Income Fund and Daily Government Fund including the schedules of investments as
of December 31, 1998 and the related statement of operations, the statement of
changes in net assets, and the financial highlights for the year 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 audit. The statement
of changes in net assets for the year ended December 31, 1997 and the financial
highlights for each of the years in the four-year period ended December 31, 1997
were audited by other auditors whose report dated February 13, 1998, expressed
an unqualified opinion on this information.
We conducted our audit 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, 1998, by correspondence with the custodian and brokers; and where
confirmations were not received from brokers, we performed other auditing
procedures. 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 audit provides 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, 1998, the
results of operations, the changes in net assets, and the financial highlights
for the year then ended, in conformity with generally accepted accounting
principles.
KPMG LLP
Denver, Colorado
February 5, 1999
42
<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 Sharra L. Reed
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
(800) 243-1575
DISTRIBUTOR
Davis Distributors, LLC
124 East Marcy Street
Santa Fe, New Mexico 87501
TRANSFER AGENT & CUSTODIAN
State Street Bank and Trust Company
c/o Selected Funds
P.O. Box 8243
Boston, Massachusetts 02266-8243
AUDITORS
KPMG LLP
707 Seventeenth Street, Suite 2300
Denver, CO 80202
COUNSEL
D'Ancona & Pflaum
111 E. Wacker Drive
Chicago, Illinois 60601-4205
=================================================
FOR MORE INFORMATION ABOUT THE SELECTED FUNDS,
INCLUDING MANAGEMENT FEE, CHARGES AND EXPENSES,
SEE THE CURRENT PROSPECTUS WHICH MUST PRECEDE
OR ACCOMPANY THIS REPORT.
=================================================
