SELECTED SPECIAL SHARES INC, 485APOS, 1999-02-25

SELECTED SPECIAL SHARES INC
485APOS, 1999-02-25

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------------

JOINT
COVER PAGE OF FORM N-1A
FOR
SELECTED AMERICAN SHARES, INC.
SELECTED SPECIAL SHARES, INC.
SELECTED CAPITAL PRESERVATION TRUST

SELECTED AMERICAN SHARES, INC.
POST-EFFECTIVE AMENDMENT NO. 80 UNDER THE SECURITIES ACT OF 1933
REGISTRATION STATEMENT NO. 2-10699
AND
AMENDMENT NO. 28 UNDER THE INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-51

SELECTED SPECIAL SHARES, INC.
POST-EFFECTIVE AMENDMENT NO. 53 UNDER THE SECURITIES ACT OF 1933
REGISTRATION STATEMENT NO. 2-27514
AND
AMENDMENT NO. 29 UNDER THE INVESTMENT COMPANY ACT OF 194
REGISTRATION NO. 811-1550

SELECTED CAPITAL PRESERVATION TRUST
POST-EFFECTIVE AMENDMENT NO. 22 UNDER THE SECURITIES ACT OF 1933
REGISTRATION STATEMENT NO. 33-15807
AND
AMENDMENT NO. 24 UNDER THE INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-5240

124 East Marcy Street
Santa Fe, New Mexico 87501
(1-505-820-3000)

Agents For Service: Thomas D. Tays, Esq.
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
1-505-820-3055

-or-

<PAGE>

Sheldon R. Stein, Esq.
D'Ancona & Pflaum
30 North LaSalle Street
Suite 2900
Chicago, Illinois 60602
(1-312-580-2014)

It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On , pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] On May 1, 1999, pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On , pursuant to paragraph (a)(2) of Rule 485

Title of Securities being Registered: Common Stock of:

(1) SELECTED AMERICAN SHARES FUND
(2) SELECTED SPECIAL SHARES FUND

Shares of Beneficial Interest of
--------------------------------

(1) SELECTED U.S. GOVERNMENT INCOME FUND
(2) SELECTED DAILY GOVERNMENT FUND

CROSS REFERENCE SHEET
---------------------
N-1A
ITEM NO. PART A CAPTION OR PLACEMENT: JOINT PROSPECTUS
-------- ---------------------------------------------------------
(Shares of Selected American Shares Fund, Selected
Special Shares Fund, Selected U.S. Government Income
Fund, and Selected Daily Government Fund are offered
though a single joint prospectus)

1. Front and Back Cover pages
2. Overview of Each Selected Fund:
Investment Objective and Strategy
Determining if this Fund is Right for You
Principal Risks
Past Performance
3. Fees and Expenses of the Fund
4. How We Manage Selected Funds
5. 1998 Annual Report
6. Who is Responsible for Your Selected Account
7. Once You Invest in the Selected Funds
8. How to Open an Account

<PAGE>

9. How to Buy, Sell and Exchange Shares
10. Once You Invest in the Selected Funds
11. Financial Highlights

N-1A
ITEM NO. PART B CAPTION OR PLACEMENT:
-------- ----------------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------

12. Cover Page
13. Organization of the Company
14. Portfolio Securities
15. Other Investment Practices
16. Investment Restrictions
17. Directors and Officers
18. Directors Compensation Table
19. Certain Shareholders of the Fund
20. Investment Advisory Services
21. Distribution of Company Shares
22. Other Important Service Providers
23. Portfolio Transactions
24. Organization of the Company
25. Purchase of Shares
26. Special Services
27. Exchange of Shares
28. Redemption of Shares
29. Federal Income Taxes
30. Distribution of Company Shares
31. Performance Data
32. 1998 Annual Report

<PAGE>

[COVER PAGE]

SELECTED AMERICAN SHARES FUND
SELECTED SPECIAL SHARES FUND
SELECTED U.S. GOVERNMENT INCOME FUND
SELECTED DAILY GOVERNMENT FUND

Prospectus and Application Form

May 1, 1999

The Securities and Exchange Commission has not approved or disapproved of these
securities. The Securities and Exchange Commission has not determined whether
this prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.

(Selected Funds logo)

(SELECTED FUNDS TAG LINE)

1
<PAGE>

TABLE OF CONTENTS

Overview of each Selected Fund
Selected American Shares Fund
Selected Special Shares Fund
Selected U.S. Government Income Fund
Selected Daily Government Fund
Investment Objective and Strategy
Determining if this Fund is Right for You
Principal Risks
Past Performance
Fees and Expenses of the Fund
Financial Highlights

Who Is Responsible for Your Selected Account

How We Manage Selected Funds

Once You Invest in the Selected Funds

How to Open an Account

How to Buy, Sell and Exchange Shares

Other Fund Documents

2
<PAGE>

OVERVIEW OF SELECTED AMERICAN SHARES FUND

INVESTMENT OBJECTIVE AND STRATEGY

Selected American Shares Fund's investment objective is to achieve both capital
growth and income. In the current market environment, we expect that current
income will be low.

The Fund invests primarily in common stock of U.S. companies with market
capitalizations of at least $5 billion.

Davis Selected Advisers, L.P. serves as investment adviser for Selected
American Shares Fund and manages its investment portfolio. The portfolio
managers use the Davis investment philosophy to select common stocks of quality
overlooked growth companies at value prices and to hold them for the long term.
We look for companies with sustainable growth rates that are selling at modest
price-to-earnings multiples, hoping that the multiples will expand as other
investors recognize the companies' true worth. We believe that companies with
sustainable growth rates and gradually expanding price-to-earnings multiples
can generate better returns for investors than large capitalization domestic
stocks generally.

You can find more detailed information about the types of securities that the
Fund buys in the section called HOW WE MANAGE SELECTED FUNDS.

DETERMINING IF THIS FUND IS RIGHT FOR YOU

YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking long-term growth of capital and some current income. You
o are more comfortable with established, well-known companies. You are
o investing for the long term (five years or more).

YOU SHOULD NOT INVEST IN THIS FUND IF:
o You are worried about the possibility of sharp price swings and dramatic
o market declines. You are interested in earning significant current
income.
o You are investing for the short term (less than five years).

PRINCIPAL RISKS

If you buy shares of Selected American Shares Fund, you may lose some or all of
the money that you invest. This section describes what we think are the two
most significant factors that can cause the Fund's performance to suffer.

3
<PAGE>

o MARKET RISK. The market value of shares of common stock can change
rapidly and unpredictably as a result of political or economic events
having little or nothing to do with the issuer.

An investment in Selected American Shares Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

You can find more detailed information about the risks of the Fund's particular
investments in the section called HOW WE MANAGE SELECTED FUNDS.

PAST PERFORMANCE

The bar chart and the table below provide an indication of the risks of
investing in Selected American Shares Fund by showing changes in the Fund's
performance from year to year over a 10-year period and by showing how the
Fund's average annual returns for one, five and ten years compare to those of
the S&P 500(R), a widely recognized unmanaged index of stock performance. How
the Fund has performed in the past is not necessarily an indication of how the
Fund will perform in the future.

SELECTED AMERICAN SHARES FUND
TOTAL RETURN OVER THE LAST 10-YEAR PERIOD
(AS OF DECEMBER 31 OF EACH YEAR)

1989 20.08%
1990 (3,90%)
1991 46.37%
1992 5.78%
1993 5.42%
1994 (3.20%)
1995 38.09%
1996 30.74%
1997 37.25%
1998 xx.xx%

BEST QUARTER: Qxx 'xx, up xx.xx% WORST QUARTER: Qxx 'xx, down xx.xx%
Year-to-date performance as of 03/31/99*: up x.xx%

* Not annualized.

4
<PAGE>

SELECTED AMERICAN SHARES FUND
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1998)

- - ----------------------------------------- --------------------- ------------------ ------------------ ------------------
PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS SINCE THE
ADVISER HAS BEEN
MANAGING THE FUND
(05/01/93)
- - ----------------------------------------- --------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
SELECTED AMERICAN SHARES FUND
- - ----------------------------------------- --------------------- ------------------ ------------------ ------------------
S&P 500 INDEX
- - ----------------------------------------- --------------------- ------------------ ------------------ ------------------
</TABLE>

FEES AND EXPENSES OF THE FUND

FEES YOU MAY PAY AS A SELECTED AMERICAN SHARES FUND SHAREHOLDER
(Paid Directly from Your Investment)

- - -------------------------------------------------------------- ----------------
Maximum Sales Charge (Load) Imposed on Purchases (as a None
percentage of offering price)
- - -------------------------------------------------------------- ----------------
Maximum Deferred Sales Charge (Load) None
- - -------------------------------------------------------------- ----------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
None
- - -------------------------------------------------------------- ----------------
Exchange Fee None
- - -------------------------------------------------------------- ----------------

SELECTED AMERICAN SHARES FUND
ANNUAL FUND OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998
(Deducted from Selected American Shares Fund's Assets)

- - -------------------------------------------------------------- ----------------
Management Fees 0.xx%
- - -------------------------------------------------------------- ----------------
Distribution (12b-1) Fees 0.xx%
- - -------------------------------------------------------------- ----------------
Other Expenses 0.xx%
- - -------------------------------------------------------------- ----------------
Total Annual Operating Expenses 0.xx%
- - -------------------------------------------------------------- ----------------

EXPENSE EXAMPLE

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

5
<PAGE>

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, your costs--based on these assumptions--would be:

- - ------------------------------ ------------------ --------------------- ------------------ -------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------------------------------ ------------------ --------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Xx xx xx xx
- - ------------------------------ ------------------ --------------------- ------------------ -------------------

</TABLE>

6
<PAGE>

FINANCIAL HIGHLIGHTS

These tables are designed to show you the financial performance of Selected
American Shares Fund for the past five years. Some of the information reflects
financial results for a single Fund share. The total returns represent the rate
that an investor would have earned (or lost) money on an investment in the
Fund. It assumes that all dividends and capital gains have been reinvested.

KPMG LLP has audited the information for fiscal year 1998. KPMG LLP's report,
along with the Fund's financial statements, is included in Selected Funds'
annual report, which is available by request. Another firm audited the
information for the previous fiscal years.

Insert financial highlights

7
<PAGE>

OVERVIEW OF SELECTED SPECIAL SHARES FUND

INVESTMENT OBJECTIVE AND STRATEGY

Selected Special Shares Fund's investment objective is capital growth. The Fund
invests primarily in common stock of U.S. companies with market capitalizations
of less than $5 billion.

Bramwell Capital Management, Inc. serves as sub-adviser for Selected Special
Shares Fund and manages its investment portfolio. The portfolio manager selects
small and medium companies that she believes have growth potential. Primarily,
these are companies that:
o Are enjoying rapidly expanding demand in their existing markets.
o Are expanding into new markets.
o are [regularly] [actively] developing or introducing new products.
o Have opportunities to improve returns on sales and investments.

DETERMINING IF THIS FUND IS RIGHT FOR YOU

YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking long-term growth of capital.
o You prefer to invest in small and medium capitalization growth companies.
o You are willing to accept higher risk for the opportunity to pursue higher
returns.
o You are investing for the long term (five years or more).

YOU SHOULD NOT INVEST IN THIS FUND IF:
o You are worried about the possibility of sharp price swings and dramatic
market declines.
o You are interested in earning current income.
o You prefer to invest in larger, more established companies.
o You are investing for the short term (less than five years).

PRINCIPAL RISKS

If you buy shares of Selected Special Shares Fund, you may lose some or all of
the money that you invest. This section describes what we think are the two
most significant factors that can cause the Fund's performance to suffer.

o MARKET RISK. The market value of shares of common stock can change
rapidly and unpredictably as a result of political or economic events
having little or nothing to do with the issuer.

8
<PAGE>

o COMPANY RISK. The price of a common stock varies with the success and
failure of its issuer. As a result, the success of the companies in which
the Fund invests largely determines the Fund's performance. Investing in
small and medium capitalization companies may be more risky than investing
in large capitalization companies, and the share prices of smaller
capitalization companies may be more volatile.

An investment in Selected Special Shares Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

PAST PERFORMANCE

The bar chart and the table below provide an indication of the risks of
investing in Selected Special Shares Fund by showing changes in the Fund's
performance from year to year over a 10-year period and by showing how the
Fund's average annual returns for one year, five years, ten years, and since
inception compare to those of the S&P 500(R), a widely recognized unmanaged
index of stock performance. How the Fund has performed in the past is not
necessarily an indication of how the Fund will perform in the future.

SELECTED SPECIAL SHARES FUND
TOTAL RETURN OVER THE LAST 10-YEAR PERIOD
(AS OF DECEMBER 31 OF EACH YEAR)

1989 28.91%
1990 (6.87%)
1991 25.53%
1992 8.43%
1993 10.81%
1994 (2.56%)
1995 34.24%
1996 11.86%
1997 26.91%
1998 xx%

BEST QUARTER: Qxx 'xx, up xx.xx% WORST QUARTER: Qxx 'xx, down xx.xx%
Year-to-date performance as of 03/31/99*: up x.xx%

* Not annualized.

SELECTED SPECIAL SHARES FUND

9
<PAGE>

AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1998)

- - ----------------------------------------- --------------------- ------------------ ------------------ ------------------
PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS SINCE THE
ADVISER HAS BEEN
MANAGING THE FUND
(05/01/93)
- - ----------------------------------------- --------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
SELECTED SPECIAL SHARES FUND
- - ----------------------------------------- --------------------- ------------------ ------------------ ------------------
S&P 500 INDEX
- - ----------------------------------------- --------------------- ------------------ ------------------ ------------------

</TABLE>

FEES AND EXPENSES OF THE FUND

FEES YOU MAY PAY AS A SELECTED SPECIAL SHARES FUND SHAREHOLDER
(Paid Directly from Your Investment)

- - -------------------------------------------------------------- ----------------

- - -------------------------------------------------------------- ----------------
Maximum Sales Charge (Load) Imposed on Purchases (as a None
percentage of offering price)
- - -------------------------------------------------------------- ----------------
Maximum Deferred Sales Charge (Load) None
- - -------------------------------------------------------------- ----------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
- - -------------------------------------------------------------- ----------------
Exchange Fee None
- - -------------------------------------------------------------- ----------------

SELECTED SPECIAL SHARES FUND
ANNUAL FUND OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998
(Deducted from Selected Special Shares Fund's Assets)

- - -------------------------------------------------------------- ----------------
Management Fees Xx%
- - -------------------------------------------------------------- ----------------
Distribution (12b-1) Fees Xx%
- - -------------------------------------------------------------- ----------------
Other Expenses Xx%
- - -------------------------------------------------------------- ----------------
Total Annual Operating Expenses Xx%
- - -------------------------------------------------------------- ----------------

10
<PAGE>

EXPENSE EXAMPLE

This example is intended to help you compare the cost of investing in Selected
Special Shares Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in Selected Special Shares Fund for
the time periods indicated and then redeem all of your shares at the end of
those periods. The example also assumes that your investment has a 5% return
each year and that Selected Special Shares Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, your costs--based on
these assumptions--would be:

- - ------------------------------ ------------------ --------------------- ------------------ -------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------------------------------ ------------------ --------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
$xxx $xxx $xxx $xxx
- - ------------------------------ ------------------ --------------------- ------------------ -------------------

</TABLE>

11
<PAGE>

FINANCIAL HIGHLIGHTS

These tables are designed to show you the financial performance of Selected
Special Shares Fund for the past five years. Some of the information reflects
financial results for a single Fund share. The total returns represent the rate
that an investor would have earned (or lost) money on an investment in the
Fund. It assumes that all dividends and capital gains have been reinvested.

Insert financial highlights

12
<PAGE>

OVERVIEW OF SELECTED U.S. GOVERNMENT INCOME FUND

INVESTMENT OBJECTIVE AND STRATEGY

Selected U.S. Government Income Fund's investment objective is to obtain
current income consistent with preservation of capital by investing primarily
in U.S. Government Securities. The Fund does not attempt to generate the
highest possible current yield for its investors. Instead, we try to deliver
competitive results with less risk or volatility than our competitors.

There are two basic types of U.S. Government Securities: direct obligations of
the U.S. Treasury, and obligations issued or guaranteed by an agency or
instrumentality of the U.S. Government. U.S. Government Securities all
represent debt obligations (unlike equity securities, which represent ownership
of the issuer).

Obligations that the U.S. Treasury issues or guarantees are generally
considered to offer the highest credit quality available in any security. Many
securities issued by government agencies are not fully guaranteed by the U.S.
Government, and in unusual circumstances may present credit risk.

Selected U.S. Government Income Fund's portfolio often contains a significant
percentage of mortgage-backed securities and collateralized mortgage
obligations.

o A "mortgage-backed security" represents ownership of a pool of mortgage
loans. As the mortgages are paid off, a portion of the principal and
interest payments are passed through to the owners of the securities.

o A "collateralized mortgage obligation" is a debt security that is secured
by a pool of mortgages, mortgage-backed securities, U.S. Government
Securities, or corporate debt obligations.

Selected U.S. Government Income Fund only buys mortgage-backed securities and
collateralized mortgage obligations that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.

Selected U.S. Government Income Fund typically holds many different types of
U.S. Government Securities with varying features. We try to buy securities with
a range of maturity dates, interest rates and call (prepayment) provisions. By
diversifying among these features, the Fund seeks to capture both the higher
yield of long-term securities and the flexibility of short-term securities.

13
<PAGE>

DETERMINING IF THIS FUND IS RIGHT FOR YOU

YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:

o You are seeking current income.
o You are most comfortable investing in high quality Government Securities.
o You want to diversify a common stock portfolio.
o You are investing for at least three years.

YOU SHOULD NOT INVEST IN THIS FUND IF:

o You cannot accept even moderate price swings or market declines.
o You are investing for less than three years.

PRINCIPAL RISKS

Selected U.S. Government Income Fund principally holds high quality debt
securities, which pose very little credit risk. However, an investment in the
Fund is susceptible to interest rate risk. There are two principal ways that
changes in interest rates affect the U.S. Government Securities:

o PRICE VOLATILITY RISK. Most U.S. Government Securities pay a fixed
interest rate. When market rates increase, the value and price of
fixed-rate securities usually decline. When interest rates are falling,
the value and price of fixed-rate securities usually increase. As a
result, an increase in market rates should reduce the value of the Fund's
portfolio and a decrease in rates should have the opposite effect.

o EXTENSION AND PREPAYMENT RISK. Market prices of mortgage-backed
securities and collateralized mortgage obligations will fluctuate when
borrowers change the pace at which they prepay the underlying mortgages.
Changes in market interest rates influence borrowers' prepayment
decisions. Rising interest rates cause "extension risk"; borrowers are
more likely to maintain their existing mortgages until they come due
instead of choosing to prepay them. Falling interest rates cause
"prepayment risk"; borrowers are more likely to prepay their mortgages so
that they can refinance at a lower rate. A government agency that has the
right to "call" (prepay) a fixed-rate security may respond to interest
rate changes in the same way.

The pace at which borrowers prepay their obligations affects the yield and
the cash flow to holders of securities tied to those obligations. These
changes in yield and cash flow affect the market value and price of those
securities.

14
<PAGE>

An investment in Selected U.S. Government Income Fund is not a bank deposit and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.

PAST PERFORMANCE

The bar chart and the table below provide an indication of the risks of
investing in Selected U.S. Government Income Fund by showing changes in the
Fund's performance from year to year for the past ten years and by showing how
the Fund's average annual returns for one year, five years, ten years, and
since inception compare to those of the Lehman Brothers Intermediate Term U.S.
Treasury Securities Index, a recognized unmanaged index of Government
Securities performance. How the Fund has performed in the past is not
necessarily an indication of how the Fund will perform in the future.

SELECTED U.S. GOVERNMENT INCOME FUND
TOTAL RETURN OVER THE LAST 10-YEAR PERIOD
(AS OF DECEMBER 31 OF EACH YEAR)

1989 8.47%
1990 8.53%
1991 13.46%
1992 5.11%
1993 7.99%
1994 (2.71%)
1995 15.97%
1996 2.85%
1997 7.32%
1998 xx.xx%

BEST QUARTER: Qxx 'xx, up xx.xx% WORST QUARTER: Qxx 'xx, down xx.xx%
Year-to-date performance as of 03/31/99*: up x.xx%

* Not annualized.

SELECTED U.S. GOVERNMENT INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1998)

15
<PAGE>

- - ----------------------------------------- --------------------- ------------------ ------------------ ------------------
(05/01/93)
- - ----------------------------------------- --------------------- ------------------ ------------------ ------------------
SELECTED AMERICAN SHARES FUND
- - ----------------------------------------- --------------------- ------------------ ------------------ ------------------
LEHMAN BROTHERS INTERMEDIATE TERM U.S.
TREASURY SECURITIES INDEX
- - ----------------------------------------- --------------------- ------------------ ------------------ ------------------

</TABLE>

30-DAY SEC YIELD

30-day SEC yield measures income earned by a mutual fund. All mutual funds are
required to use identical formulas to calculate their 30-day SEC yield, which
gives investors a convenient way to compare fund results. To calculate 30-day
SEC yield, a mutual fund divides its annualized net investment income per share
earned during a prescribed 30-day period by the maximum offering price per
share on the last day of the period.

As of March 31, 1999, the Fund's 30-day SEC yield was xx%. You can obtain
Selected U.S. Government Income Fund's most recent 30-day SEC yield by calling
us toll-free at 1-800-243-1575, Monday through Friday, 7 a.m. to 4 p.m.
Mountain Time.

FEES AND EXPENSES OF THE FUND

FEES YOU MAY PAY AS A SELECTED U.S. GOVERNMENT INCOME FUND SHAREHOLDER
(Paid Directly from Your Investment)

- - -------------------------------------------------------------- ----------------
Maximum Sales Charge (Load) Imposed on Purchases (as a None
percentage of offering price)
- - -------------------------------------------------------------- ----------------
Maximum Deferred Sales Charge (Load) None
- - -------------------------------------------------------------- ----------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
- - -------------------------------------------------------------- ----------------
Exchange Fee None
- - -------------------------------------------------------------- ----------------

[SEE COMMENT ABOVE]

16
<PAGE>

SELECTED U.S. GOVERNMENT INCOME FUND
ANNUAL FUND OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998
(Deducted from Selected U.S. Government Income Fund's Assets)

EXPENSE EXAMPLE

This example is intended to help you compare the cost of investing in Selected
U.S. Government Income Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in Selected U.S. Government Income
Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. The example also assumes that your investment has a 5%
return each year and that Selected U.S. Government Income Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
your costs--based on these assumptions--would be:

- - ------------------------------ ------------------ --------------------- ------------------ -------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------------------------------ ------------------ --------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
$xxx $xxx $xxx $xxx
- - ------------------------------ ------------------ --------------------- ------------------ -------------------

</TABLE>

17
<PAGE>

FINANCIAL HIGHLIGHTS

These tables are designed to show you the financial performance of Selected
U.S. Government Income Fund for the past five years. Some of the information
reflects financial results for a single Fund share. The total returns represent
the rate that an investor would have earned (or lost) money on an investment in
the Fund. It assumes that all dividends and capital gains have been reinvested.

Insert financial highlights

18
<PAGE>

OVERVIEW OF SELECTED DAILY GOVERNMENT FUND

INVESTMENT OBJECTIVE AND STRATEGY

Selected Daily Government Fund is a money market fund. Its investment objective
is to provide as high a level of current income as possible from the type of
short-term investments in which it invests, consistent with prudent investment
management, stability of principal and maintenance of liquidity.

Selected Daily Government Fund invests exclusively in U.S. Government
Securities and repurchase agreements secured by U.S. Government Securities.

U.S. Government Securities represent debt obligations (unlike equity
securities, which represent ownership of the issuer). There are two basic types
of U.S. Government Securities: direct obligations of the U.S. Treasury, and
obligations issued or guaranteed by an agency or instrumentality of the U.S.
Government. Selected Daily Government Fund favors securities issued or
guaranteed by U.S. Government agencies because those securities typically pay a
higher rate than securities issued or guaranteed directly by the U.S. Treasury.

A "repurchase agreement" is a type of short-term investment that uses
securities as collateral. Like a short-term loan, the borrower sells securities
to the lender. The borrower agrees to buy back the securities at a certain
time--at a higher price that incorporates an "interest payment." Selected Daily
Government Fund only enters into repurchase agreements when the underlying
securities are U.S. Government Securities.

We maintain liquidity and preserve capital by carefully monitoring the maturity
of the Fund's investments. Our portfolio has a dollar-weighted average maturity
of 90 days or less.

DETERMINING IF THIS FUND IS RIGHT FOR YOU

YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking current income.
o You are most comfortable investing in high quality U.S. Government
Securities.
o You want a safe haven in times of market turmoil.
o You want easy access to your money.

YOU SHOULD NOT INVEST IN THIS FUND IF:
o You need a high total return to achieve your investment goals.
o Your primary investment goal is capital growth.

19
<PAGE>

PRINCIPAL RISKS

Because Selected Daily Government Fund invests exclusively in short-term U.S.
Government Securities, it incurs a minimum of interest rate or credit risk.
U.S. Government Securities are among the safest investments you can make, and
are an excellent means of preserving principal. However, there is always some
risk that the issuer of a security held by the Fund will fail to make a payment
when it is due. Some of the agency-issued securities in the Fund's portfolio
are not fully guaranteed by the U.S. Government, and in unusual circumstances
may present credit risk.

The primary risk of investing in Selected Daily Government Fund is that the
Fund's dividends to its investors are not stable. When interest rates increase,
the Fund's dividends typically increase. When interest rates decrease, the
Fund's dividends typically decrease.

Although Selected Daily Government Fund seeks to preserve the value of your
investment at $1.00 per share, investors can lose money. An investment in the
Fund is not a bank deposit and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.

PAST PERFORMANCE

The bar chart and the table below provide an indication of the risks of
investing in Selected Daily Government Fund by showing changes in the Fund's
performance from year to year for the past ten years and by presenting the
Fund's average annual returns for one year, five years, and ten years. How the
Fund has performed in the past is not necessarily an indication of how the Fund
will perform in the future.

SELECTED DAILY GOVERNMENT FUND
TOTAL RETURN OVER THE LAST 10-YEAR PERIOD
(AS OF DECEMBER 31 OF EACH YEAR)

1989 8.63%
1990 7.66%
1991 5.51%
1992 3.07%
1993 2.34%
1994 3.51%
1995 5.23%
1996 4.70%
1997 4.91%
1998 xx%

20
<PAGE>

BEST QUARTER: Qxx 'xx, up xx.xx% WORST QUARTER: Qxx 'xx, down xx.xx%
Year-to-date performance as of 03/31/99*: up x.xx%

* Not annualized.

- - ----------------------------------------- --------------------- ------------------ ------------------ ------------------

- - ----------------------------------------- --------------------- ------------------ ------------------ ------------------
</TABLE>

SELECTED DAILY GOVERNMENT FUND
7-DAY SEC YIELD
(AS OF MARCH 31, 1999)

7-DAY SEC YIELD X.XX

You can obtain Selected Daily Government Fund's most recent 7-day SEC yield by
calling us toll-free at 1-800-243-1575, Monday through Friday, 7 a.m. to 4 p.m.
Mountain Time.

FEES AND EXPENSES OF THE FUND

FEES YOU MAY PAY AS A SELECTED DAILY GOVERNMENT FUND SHAREHOLDER
(Paid Directly from Your Investment)

- - -------------------------------------------------------------- ----------------
Maximum Sales Charge (Load) Imposed on Purchases (as a None
percentage of offering price)
- - -------------------------------------------------------------- ----------------
Maximum Deferred Sales Charge (Load) None
- - -------------------------------------------------------------- ----------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
- - -------------------------------------------------------------- ----------------
Exchange Fee None
- - -------------------------------------------------------------- ----------------

SELECTED DAILY GOVERNMENT FUND
ANNUAL FUND OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998
(Deducted from Selected Daily Government Fund's Assets)

- - -------------------------------------------------------------- ----------------
Management Fees Xx%
- - -------------------------------------------------------------- ----------------
Distribution (12b-1) Fees None
- - -------------------------------------------------------------- ----------------
Other Expenses Xx%
- - -------------------------------------------------------------- ----------------
Total Annual Operating Expenses Xx%
- - -------------------------------------------------------------- ----------------

21
<PAGE>

EXPENSE EXAMPLE

This example is intended to help you compare the cost of investing in Selected
Daily Government Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in Selected Daily Government Fund
for the time periods indicated and then redeem all of your shares at the end of
those periods. The example also assumes that your investment has a 5% return
each year and that Selected Daily Government Fund's operating expenses remain
the same. Although your actual costs may be higher or lower, your costs--based
on these assumptions--would be:

- - ------------------------------ ------------------ --------------------- ------------------ -------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------------------------------ ------------------ --------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
$xxx $xxx $xxx $xxx
- - ------------------------------ ------------------ --------------------- ------------------ -------------------
</TABLE>

22
<PAGE>

FINANCIAL HIGHLIGHTS

These tables are designed to show you the financial performance of Selected
U.S. Daily Government Fund for the past five years. Some of the information
reflects financial results for a single Fund share. The total returns represent
the rate that an investor would have earned (or lost) money on an investment in
the Fund. It assumes that all dividends and capital gains have been reinvested.

Insert financial highlights

23
<PAGE>

WHO IS RESPONSIBLE FOR YOUR SELECTED ACCOUNT

A number of entities provide services to Selected Funds. This section shows how
each Fund is organized, the entities that perform these services, and how these
entities are compensated. Additional information on the organization of each
Fund is provided in Selected Funds' Statement of Additional Information. For
information on how to receive this document, see the back cover of this
prospectus.

INVESTMENT ADVISER

DAVIS SELECTED ADVISERS, LP
Referred to throughout this prospectus as "Davis Selected Advisers"
124 East Marcy Street
Santa Fe, NM 87501
o Provides daily portfolio management for Selected American Shares Fund,
Selected U.S. Government Income Fund, and Selected Daily Government Fund.
o Oversees services provided by the sub-advisers.
o Serves as investment adviser and manages the business affairs of each of
the Selected Funds, other mutual funds, and other institutional clients.
o Annual Adviser Fee for the year ended December 31, 1997 (based on average
net assets): Selected American Shares Fund: 0.xx%
Selected Special Shares Fund: 0.xx%
Selected U.S. Government Income Fund: 0.xx%
Selected Daily Government Fund: 0.xx%

INVESTMENT SUB-ADVISERS

BRAMWELL CAPITAL MANAGEMENT, INC.
Referred to throughout this prospectus as "Bramwell Capital Management"
745 Fifth Avenue
New York, NY 10151
o Provides daily portfolio management for Selected Special Shares Fund.
o Serves as investment adviser for the Bramwell Funds, Inc. and other
institutional clients.
o Annual Fee: Davis Selected Advisers pays the fee, not Selected Funds.

DAVIS SELECTED ADVISERS-NY, INC.
609 Fifth Avenue
New York, NY 10017
o Performs investment management and research services for each of the
Selected Funds and other institutional clients.
o Wholly owned subsidiary of Davis Selected Advisers.
o Annual Fee: Davis Selected Advisers pays the fee, not Selected Funds.

24
<PAGE>

CUSTODIAN AND TRANSFER AGENT

STATE STREET BANK AND TRUST COMPANY
Also referred to as "State Street Bank and Trust"
PO Box 8243
Boston, MA 02266-8243
o Prices each Selected Fund daily.
o Holds share certificates and other assets of each Selected Fund.
o Maintains records of shareholders.
o Issues and cancels share certificates.
o Supervises the payment of dividends.

BOARD OF DIRECTORS

Selected Funds' Board of Directors has general supervisory responsibilities of
Selected Funds and supervises the investment adviser's duties.

DISTRIBUTOR

DAVIS DISTRIBUTORS, LLC
Referred to throughout this prospectus as "Davis Distributors"
124 East Marcy Street
Santa Fe, NM 87501
o Oversees purchases of shares and promotional activities for Selected
Funds.
o Wholly owned subsidiary of Davis Selected Advisers.
o Serves as distributor for other mutual funds managed by Davis Selected
Advisers.

FOUNDER AND CHIEF INVESTMENT OFFICER OF THE ADVISER

SHELBY M.C. DAVIS
Responsibilities:
o Chief Investment Officer of Davis Selected Advisers.
o President of each Selected Fund.

Other Experience:

o Portfolio Manager of Selected American Shares Fund from May 1993 until
February 1997.
o Portfolio Manager of another fund managed by Davis Selected Advisers from
its inception in 1969 until February 1997.

25
<PAGE>

PORTFOLIO MANAGERS

FOR SELECTED AMERICAN SHARES FUND
CHRISTOPHER C. DAVIS

Responsibilities:
o Portfolio Manager or Co-Portfolio Manager of the Fund since December 1994.
o Also manages or co-manages other equity funds advised by Davis Selected
Advisers.

Other Experience:
o Assistant Portfolio Manager and research analyst working with Shelby M.C.
Davis beginning in September 1989.

KENNETH CHARLES FEINBERG

Responsibilities:
o Co-Portfolio Manager of the Fund since May 1998.
o Also co-manages other equity funds advised by Davis Selected Advisers.

Other Experience:
o Research analyst at Davis Selected Advisers since December 1994.
o Assistant Vice President of Investor Relations for Continental Corp. from
1988 to 1994.

FOR SELECTED SPECIAL SHARES FUND
ELIZABETH R. BRAMWELL

Responsibilities:
o Portfolio Manager of the Fund since February 1994.
o Also manages or co-manages other equity funds managed by Bramwell Capital
Management.

Other Experience:
o President, Chief Investment Officer, Portfolio Manager and a Trustee of
Gabelli Growth Fund from its inception in April 1987 until February 1994.

26
<PAGE>

FOR SELECTED U.S. GOVERNMENT INCOME FUND
AND SELECTED DAILY GOVERNMENT FUND
CAROLYN H. SPOLIDORO

Responsibilities:
o Portfolio Manager of Selected U.S. Government Income Fund since 1995.
o Portfolio Manager of Selected Daily Government Fund since 1993.
o Also manages other fixed income funds advised by Davis Selected Advisers.

Other Experience:
o Has worked for Davis Selected Advisers since 1985.

[BOXED]: OUR CODE OF ETHICS

We allow the officers and employees of Selected Funds and their affiliates to
buy and sell securities for their own personal accounts. However, in order to
do so they must agree to a number of restrictions, listed in our company Code
of Ethics.

27
<PAGE>

HOW WE MANAGE SELECTED FUNDS

EQUITY FUNDS: INVESTMENT PHILOSOPHY

SELECTED AMERICAN SHARES FUND is managed by Davis Selected Advisers using the
Davis investment philosophy. The Davis investment philosophy stresses a
back-to-basics approach: we use extensive research to buy growing companies at
value prices and hold on to them for the long term. Over the years, Davis
Selected Advisers has developed a list of ten characteristics that we believe
foster sustainable long-term growth, minimize risk and enhance the potential
for superior long-term returns. While very few companies have all ten, we
search for companies that demonstrate several of the characteristics that are
listed in the following chart.

[SET OFF OR BOXED]

WHAT WE LOOK FOR IN A COMPANY

1. FIRST-CLASS MANAGEMENT. We believe that great companies are created by
great managers. In visiting companies, we look for managers with a record
of doing what they say they are going to do.
2. MANAGEMENT OWNERSHIP. Just as we invest heavily in our own funds, we look
for companies where individual managers own a significant stake.
3. STRONG RETURNS ON CAPITAL. We want companies that invest their capital
wisely and reap superior returns on those investments.
4. LEAN EXPENSE STRUCTURE. Companies that can keep costs low are able to
compete better, especially in difficult times. A low cost structure
sharply reduces the risk of owning a company's shares.
5. DOMINANT OR GROWING MARKET SHARE IN A GROWING MARKET. A company that is
increasing its share of a growing market has the best of both worlds.
6. PROVEN RECORD AS AN ACQUIRER. When an industry or market downturn occurs,
it is a good idea to own companies that can take advantage of attractive
prices to expand operations through inexpensive acquisitions.
7. STRONG BALANCE SHEET. Strong finances give a company staying power to
weather difficult economic cycles.
8. COMPETITIVE PRODUCTS OR SERVICES. We invest in companies with products that
are not vulnerable to obsolescence.
9. SUCCESSFUL INTERNATIONAL OPERATIONS. A proven ability to expand
internationally reduces the risk of being tied too closely to the U.S.
economic cycle.
10. INNOVATION. The savvy use of technology in any business, from a food
company to an investment bank, can help reduce costs and increase sales.

SELECTED SPECIAL SHARES FUND, managed by Bramwell Capital Management, seeks to
capitalize on investment opportunities in small and medium capitalization
companies. The portfolio manager searches for companies with above average
profit growth that are selling at price-to-earnings ratios below the ratios of
large capitalization companies. If

28
<PAGE>

successful, the Fund's investments may benefit as the small and medium
capitalization companies become more seasoned and their price to earnings
ratios increase over time to levels paid for large capitalization growth
companies.

GOVERNMENT FUNDS: CONSERVATIVE INVESTING

The two Selected Funds that invest in U.S. Government Securities (Selected U.S.
Government Income Fund and Selected Daily Government Fund) do not attempt to
generate the highest possible current yield for their investors. Instead, the
portfolio manager tries to deliver competitive results with less risk or
volatility than our competitors.

OTHER SECURITIES AND INVESTMENT STRATEGIES

There are other securities which Selected Funds may invest in, and investment
strategies which the Funds may employ, but they are not principal investment
strategies. For example, the equity funds invest primarily in U.S. companies,
but may invest portions of their assets in the common stock of foreign
companies. Investing in foreign companies provides additional opportunities to
own quality overlooked growth companies. Foreign securities can also offer
diversification; a fund with foreign investments will not be entirely dependent
upon the U.S. economy. However, investing in foreign markets involves
additional risks. The Statement of Additional Information discusses these
securities and investment strategies.

Each Selected Fund (other than Selected Daily Government Fund) uses short-term
investments to earn interest and maintain flexibility while we evaluate
long-term opportunities. We also may use short-term investments for temporary
defensive purposes. In the event our portfolio managers anticipate a market
decline, we may reduce our risk by investing in short-term securities until
market conditions improve. Unlike common stocks or longer-term Government
Securities, these investments will not appreciate in value when the market
advances. In such a circumstance, the short-term investments will not
contribute to the capital growth component of a Fund's investment objective.

ADDITIONAL RISKS FOR THE FUND: YEAR 2000 AND EURO CONVERSION

Two events could disrupt the way the Selected Funds handle securities trades,
pay and receive interest and dividends, price their shares, and offer account
services.

EURO CONVERSION. On January 1, 1999, eleven of the fifteen member states of the
European Union converted to a common currency, the "euro." As a result, all
computer systems that were designed to convert currencies like lira, francs and
deutschmarks into dollars are being upgraded to recognize the euro. During the
transition, it may be difficult

29
<PAGE>

to assign accurate valuations to some of the Funds' securities that are
denominated in European currencies.

YEAR 2000. Many computer software systems in use today cannot distinguish the
Year 2000 from the Year 1900 because of the way dates are encoded and
calculated. Any business that relies on a computer, including Davis Selected
Advisers, Davis Distributors, and the third parties that provide services to
Selected Funds, may be disrupted until its software is updated.

The various entities that provide services to Selected Funds (including the
custodian, transfer agent, and distributor) have advised Davis Selected
Advisers that they are actively working on changing their computer systems to
prepare for the Year 2000 and to accommodate the euro conversion. Although
there is no way to ensure that fund administration will not suffer, our service
providers advise us that they expect that their systems, and those of other
parties they deal with, will continue to operate without significant lapses.

Selected Funds are also at risk if the issuers of the Funds' securities
experience difficulties with Year 2000 or euro conversion issues. If a
company's business suffers because it has not adequately prepared for these
events, the value of that company's securities is likely to decline.

30
<PAGE>

ONCE YOU INVEST IN THE SELECTED FUNDS

This section describes: how your investment is valued, how you earn money on
your investment, and how the government may tax these earnings.

HOW YOUR SHARES ARE VALUED

Once you open an account in any Selected Fund, you are entitled to buy and sell
shares on any business day. The share price of your investment changes
depending on the total value of the fund's investments.

Each business day, we determine the value of the shares of each Selected Fund
by adding up the total value of the fund's investments plus other assets (such
as cash), subtracting the fund's liabilities, and dividing the result by the
total number of fund shares outstanding. This share figure is known as the net
asset value (NAV).

Net asset values for all Selected Funds are determined each day the Funds are
open for business. A business day is defined as any day the New York Stock
Exchange is open for trading. We calculate net asset value either at the close
of the Exchange or at 4 p.m. Eastern Time, whichever comes first.

The net asset values of all Selected Fund shares are published daily in the
business section of most major newspapers. If you have access to the Internet,
you can also check net asset value on our web site (WWW.SELECTEDFUNDS.COM).

[SET OFF]
DISTRIBUTION FEES. Each Selected Fund has adopted a plan under Rule 12b-1 that
allows the fund to pay distribution and other fees for the distribution of its
shares and for services provided to shareholders. Each Selected Fund pays 0.25%
of average annual net assets. Because these fees are paid out of a fund's
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

HOW SECURITIES IN THE PORTFOLIO ARE VALUED

We use current market valuations to value the securities in each Selected Fund:

o Securities that trade on an organized exchange are valued at the last
published sales price on the exchange. If no sales are recorded, the
securities are valued at the average of the closing bid and asked prices
on the exchange.
o Over-the-counter securities are valued at the average of closing bid and
asked prices.

31
<PAGE>

o Debt securities maturing in 60 days or less are usually valued at amortized
(gradually reduced) cost.
o Longer-term debt securities may be valued by an independent pricing service.
o Securities with unavailable market quotations and other assets are valued
at "fair value"--which is determined or directed by the Board of Directors.

If any of the Selected Funds' securities are traded in markets that close at
different times, events affecting portfolio values that occur between the time
that asset prices are determined and the time the Funds' shares are priced will
generally not be reflected in the share prices.

The value of securities denominated in foreign currencies and traded in foreign
markets will be converted into the U.S. dollar equivalents at the prevailing
market rate as computed by State Street Bank and Trust. Fluctuation in the
value of foreign currencies in relation to the U.S. dollar may affect the net
asset value of a fund's shares even if there has not been any change in the
foreign currency price of the fund's investments.

Normally, the share price of Selected Daily Government Fund does not fluctuate.
However, if there are unusually rapid changes in interest rates that the fund's
Board of Directors believes will cause a material deviation between the
amortized cost of the fund's debt securities and the market value of those
securities, the Board will consider taking temporary action to maintain a fixed
price or to prevent material dilution or other unfavorable consequences to fund
shareholders. This temporary action could include withholding dividends, paying
dividends out of surplus, realizing gains or losses, or using market valuation
to calculate net asset value rather than amortized cost.

HOW WE PAY EARNINGS

There are two ways you can receive payments from a Selected Fund:

o DIVIDENDS. Distributions to shareholders of net investment income and
short-term capital gains on investments.

o CAPITAL GAINS. Profits received by a fund from the sale of securities
held for the long term, which are then distributed to shareholders.

If you would like information about when a particular Selected Fund pays
dividends and distributes capital gains, if any, please call 1-800-243-1575.

Unless you choose otherwise, each Selected Fund automatically reinvests your
dividends in additional fund shares. You can request to have your dividends and
capital gains paid to you by check, deposited directly into your bank account,
paid to a third party or sent to an address other than your address of record.

32
<PAGE>

We also offer a Dividend Diversification Program, which allows you to have your
dividends and capital gains reinvested in shares of another Selected Fund.

You will receive a statement each year detailing the amount of all dividends
and capital gains paid to you during the previous year. To ensure that these
distributions are reported properly to the U.S. Treasury, you must certify on
your Selected Funds Application Form or on the IRS Form W-9 that your Tax
Identification Number is correct and you are not subject to backup withholding.
Backup withholding is required for the taxpayers that are subject to back taxes
for failure to report all interest and dividends.

If you fail to report a correct Taxpayer I.D. Number, under-reported dividend
or interest income, or are already subject to backup withholding, Selected
Funds is required by law to withhold a portion of any distributions you may
receive--and send it to the U.S. Treasury.

(SET OFF)
HOW TO PUT YOUR DIVIDENDS AND CAPITAL GAINS TO WORK

You can have all dividends and capital gains from any Selected Fund
automatically invested in any other Selected Fund. To be eligible for this
DIVIDEND DIVERSIFICATION PROGRAM, all accounts involved must be registered
under the same name and have a minimum initial value of $250. All future
investments must total $25 or more. Shares are purchased at the chosen fund's
net asset value on the dividend payment date. You can make changes to your
selection or withdraw from the program with 60 days notice. To participate in
this program, fill out the cross-reinvest information in the appropriate
section of the Application Form.

HOW YOUR DIVIDENDS AND CAPITAL GAINS ARE TAXED

o If you invest in a fund that pays dividends, the dividends are taxable to
shareholders as ordinary income. Dividends include both net investment
income and short-term capital gains.
o If you invest in a fund that pays net capital gains, they generally will
be taxed as a long-term capital gains distribution.

Investment earnings (dividends and capital gains) are taxable in the year in
which they were declared, not paid--whether they are received in cash or
reinvested in shares.

Also, keep in mind that when you sell or exchange shares of any mutual fund, it
may result in a taxable gain or loss.

We recommend that you consult with a tax adviser about any dividends and
capital gains you may receive from a Selected Fund.

33
<PAGE>

HOW TO OPEN AN ACCOUNT

You can open an account if you invest at least:

o $1,000 for a non-retirement plan account.
o $250 for a retirement plan account.
o
(chart)
THREE WAYS YOU CAN OPEN AN ACCOUNT

1. BY MAIL. Fill out the Application Form included in this prospectus and
mail it to our service provider, State Street Bank and Trust. Include a
check made payable to SELECTED FUNDS or, in the case of a retirement
account, the custodian or trustee. All purchases by check should be in
U.S. dollars. SELECTED FUNDS WILL NOT ACCEPT THIRD-PARTY CHECKS.

2. BY DEALER. You may have your dealer order and pay for the shares. In this
case, you must pay your dealer directly. Your dealer will then order the
shares from our distributor, Davis Distributors. Please note that your
dealer may charge a service fee or commission for buying these shares.

3. BY WIRE. You may wire federal funds directly to our service provider,
State Street Bank and Trust. Before you wire an initial investment, you
must call Davis Distributors and obtain an account number and application.
A customer service representative will be pleased to assist you with your
initial investment by wire. After the initial wire purchase is made, you
will need to fill out a Plan Adoption Agreement or Application Form and
return it to State Street Bank and Trust. To ensure that the purchase is
credited properly, follow these wire instructions:

State Street Bank and Trust Company
Boston, MA 02210
Attn.: Mutual Fund Services
[Name of Selected Fund that you are Buying]
Shareholder Name
Shareholder Account Number
Federal Routing Number 011000028
DDA Number 9904-606-2

Generally, Selected Funds does not issue share certificates for purchases. You
can receive certificates for any Selected Fund other than Selected Daily
Government Fund if you are not participating in the Automatic Withdrawals Plan.
If you are eligible and wish to receive certificates, you must make the request
at the time of purchase.

34
<PAGE>

RETIREMENT PLAN ACCOUNTS

You can invest in any Selected Fund using any of these types of retirement plan
accounts:

o Deductible IRAs
o Non-deductible IRAs
o Roth IRAs
o Educational IRAs
o Simple IRAs
o Profit-Sharing Plans
o Money-Purchase Plans
o Simplified Employee Pension Plans
o 403(b) Plans

State Street Bank and Trust acts as custodian (service provider) for the
retirement plans and charges the participant $10 to open each retirement plan
and a maintenance fee of $10 each year (per Social Security number). These fees
are automatically deducted from each account, unless you elect to pay the fee
directly. To open a retirement plan account, you must fill out a special
application form. You can request this form by calling Davis Distributors.

HOW TO BUY, SELL AND EXCHANGE SHARES

Once you have opened an account with Selected Funds, you can add to--or
subtract from--your initial purchase once 15 days have passed. This section
provides an overview of the types of transactions you can perform as a
shareholder of a Selected Fund, and tells you how to initiate these
transactions.

(CHART)
THREE WAYS TO BUY, SELL AND EXCHANGE SHARES

1. BY TELEPHONE. Call 1-800-243-1575. You can speak directly with a Selected
Funds representative during our business hours (7:00 a.m. to 4:00 p.m. Mountain
time) or use our automated telephone system any time, day or night.

2. BY MAIL. Send the request to our service provider, State Street Bank and
Trust.

Regular Mail
------------
STATE STREET BANK AND TRUST COMPANY
c/o Selected Funds
PO Box 8243
Boston, MA 02266-8243

35
<PAGE>

Overnight Mail
--------------
State Street Bank and Trust Company
c/o Selected Funds
66 Brooks Drive
Braintree, MA 02184

3. BY DEALER. Contact a dealer, who will then make the transaction through our
distributor, Davis Distributors. Please note that your dealer may charge a
service fee or commission for each transaction.

Generally, Selected Funds does not issue share certificates for purchases. Each
time you add to or withdraw from your account, you will receive a statement
showing the details of the transaction--along with any other transactions you
made during the current year.

WHEN YOUR TRANSACTIONS ARE PROCESSED

The per-share price for purchases or sales made through our distributor, Davis
Distributors, will be processed on the same day if the order is received in
good order (as described above) before 4 p.m. Eastern Time. If State Street
Bank and Trust requires additional documents to complete the purchase or sale,
the transaction price will be determined at the close of business after all
required documents are received.

For your transaction to be counted on the day you place your order with your
broker-dealer or other financial institution, they must:

o Receive your order before 4 p.m. Eastern Time.
o Promptly transmit the order to State Street Bank and Trust.

BUYING MORE SHARES

You can buy more shares at any time, by mail or through a dealer. The minimum
purchase amount is $25.

When you purchase shares by mail, send a check made payable to SELECTED FUNDS
for the amount of purchase to our service provider, State Street Bank and
Trust. If you have the purchase form from your most recent statement, include
it with the check. If you do not have a purchase form, include a letter with
your check stating the name of the fund that you wish to buy. If you know your
account number, include it on the check.

[SET OFF]
MAKING AUTOMATIC INVESTMENTS

An easy way to increase your investment in any Selected Fund is to sign up for
the AUTOMATIC INVESTMENT PLAN. Under this plan, you arrange for a set amount of
money to

36
<PAGE>

be taken from your bank account and invested in shares of a Selected Fund. The
minimum amount you can invest each month is $25. The account minimums of $1,000
for non-retirement accounts and $250 for retirement accounts will be waived if
you meet the minimum requirement within a year.

Purchases can be processed electronically on any day of the month between the
fifth and 28th days if the institution that services your bank account is a
member of the Automated Clearing House system. After each automatic investment,
you will receive a transaction confirmation, and the debit should show up on
your next bank statement.

To sign up for the Automatic Investment Plan, fill out the appropriate section
of the Application Form. You can stop automatic investments at any time by
calling Davis Distributors.

You can also use our Dividend Diversification Program to buy more shares in any
Selected Fund. See ONCE YOU INVEST IN ONE OF THE SELECTED FUNDS.

[SIDEBAR]
The Automated Clearing House system is used by most banks for electronic
transfers of money into and out of your bank account - and is regulated by the
Federal Reserve.

SELLING SHARES

You may sell back all or part of your shares in any Selected Fund in which you
invest (known as a redemption) at any time at net asset value. You can sell the
shares by telephone, by mail, or through a dealer.

When you sell shares by mail, indicate the number of shares or dollar amount
you wish to redeem and send the request to our service provider, State Street
Bank and Trust. If more than one person owns the shares you wish to sell, all
owners must sign a request. You may be required to have the owners' signatures
medallion guaranteed (see "Medallion Signature Guarantee" below).

When you sell shares through a dealer, you may be charged a service fee or
commission for performing the transaction.

Redemption proceeds are usually paid to you in cash within seven days after
State Street Bank and Trust receives your proper sale request. If any of the
shares redeemed were purchased within the last 15 days, payment to you will be
delayed until your purchase check has cleared.

[BOXED]
CHECK WRITING PRIVILEGE FOR SELECTED DAILY GOVERNMENT FUND. You can request the
ability to use your Selected Daily Government Fund account as a checking
account if you are not investing through a retirement plan or an IRA.

37
<PAGE>

Selected Daily Government Fund investors with check writing privileges can
write checks for $100 or more from their accounts, subject to some rules
prescribed by State Street Bank and Trust.

Writing a check is a way of selling shares and directing the proceeds to a
third party. When a Selected Daily Government Fund check is presented to State
Street Bank and Trust for payment, the bank will redeem a sufficient number of
shares in your account to cover the amount of the check. If you have recently
exchanged shares in any Selected Fund for shares in Selected Daily Government
Fund, the full amount of your Selected Daily Government Fund account may not be
available to cover your checks until the exchange is complete. For more
information, see "--Exchanging Shares" below.

To qualify for CHECK WRITING PRIVILEGES, fill out the appropriate section in
your Application Form.

You can find more information about check writing privileges in Selected Funds'
Statement of Additional Information. Selected Funds and State Street Bank and
Trust reserve the right to modify or terminate the check writing service at any
time.

WHAT YOU NEED TO KNOW BEFORE YOU SELL YOUR SHARES

o Ordinarily, you only need a medallion signature guarantee on a share
certificate, stock power, or redemption request for sales of more than
$50,000. However, if your address of record has changed in the last 30
days, or if you wish to send redemption proceeds to a third party, you
will need a medallion signature guarantee to sell shares.
o If a certificate was issued for the shares you wish to sell, the
certificate must be signed by the owner(s) and sent by certified mail to
State Street Bank and Trust along with the redemption request.
o A sale may produce a gain or loss. Gains may be subject to tax.

MEDALLION SIGNATURE GUARANTEE
A written confirmation from an eligible guarantor institution, such as a
securities broker-dealer or a commercial bank, that the signature(s) on the
account is (are) valid. Unfortunately, no other form of signature verification
can be accepted.

STOCK POWER
A letter of instruction signed by the owner of the shares that gives State
Street Bank and Trust permission to transfer ownership of the shares to another
person or group.

SPECIAL SALE SITUATIONS

38
<PAGE>

o The Securities and Exchange Commission can suspend payment of sales under
certain emergency circumstances if the New York Stock Exchange is closed
for reasons other than customary closings and holidays.
o Any Selected Fund may make sales payments in securities if the fund's
Board of Directors decides that making cash payments would harm the fund.

[SET OFF]
MAKING AUTOMATIC WITHDRAWALS

If you hold more than $10,000 in your account, you can sell a set dollar amount
each month or quarter. When you participate in this program, known as the
AUTOMATIC WITHDRAWALS PLAN, shares are sold so that you will receive payment by
one of two methods.

First, you may receive funds at the address of record provided that this
address has been unchanged for a period not less than 30 days. These funds are
sent by check on or after the 25th of the month.

Second, You may also choose to receive funds by Automated Clearing House (ACH),
to the banking institution of your choice. You may elect ACH draft date between
the fifth and the 28th. You must complete this section of the Selected Funds
Account Application or submit a letter of instruction with medallion guarantee
to execute an Automatic Withdrawals Plan by ACH.

Because withdrawals are sales, they may produce a gain or loss. If you purchase
additional shares at the same time that you make a withdrawal, you may have to
pay taxes. Gains may be subject to tax. To sign up for the Automatic
Withdrawals Plan, fill out the appropriate section of the Application Form.

You may stop automatic withdrawals at any time without charge or penalty by
calling Davis Distributors or notifying the service agent in writing.

[SET OFF]
WIRING SALE PROCEEDS TO YOUR BANK ACCOUNT

If you are an investor with a non-retirement account, you can have your sale
proceeds electronically transferred to a commercial bank account. This is known
as an ELECTRONIC WIRE PRIVILEGE. To sign up for this option, simply fill out
the appropriate section of the Application Form. There is a $5 charge by State
Street Bank and Trust for wire service, and receiving banks may also charge for
this service. Payment by Automated Clearing House will usually arrive at your
bank two banking days after your call. Payment by wire is usually credited to
your bank account on the next business day after you call. While State Street
Bank and Trust will also accept electronic wire sales by telephone, fax or
dealer, you still need to fill out and submit the information under the
Electronic Wire Privilege section of the Application Form. You may call our
customer service department

39
<PAGE>

to execute a wire sale by phone. You may also write the service agent to
execute a wire sale via written instructions. However, wiring instructions must
be established prior to the sale by completing the appropriate section of the
application or by submitting a letter of instruction with a medallion guarantee
signed by all registered owners at the time of the sale.

IF YOUR ACCOUNT FALLS BELOW $250

If your account balance in any Selected Fund falls below $250, we may sell your
remaining shares at net asset value. We will first notify you by mail, giving
you at least 60 days notice that an INVOLUNTARY REDEMPTION may take place. If
you can increase your account balance to above $250 during the notice period,
the involuntary redemption will be canceled.

EXCHANGING SHARES

AN EXCHANGE IS WHEN YOU SELL SHARES IN ONE SELECTED FUND TO BUY SHARES IN
ANOTHER SELECTED FUND IN RESPONSE TO CHANGES IN YOUR GOALS OR IN MARKET
CONDITIONS.

You can exchange shares of any Selected Fund for shares of any other Selected
Fund without having to pay a sales charge. You can exchange shares by
telephone, by mail or through a dealer. The initial exchange must be for at
least $1,000 (unless you are participating in the Automatic Exchange Program).
Exchanges are normally performed on the same day of the request if received in
good order by 4 p.m. Eastern Time. However, if your exchange involves a large
sale, the transfer may take one to seven days.

When you exchange shares by mail, you must send our service provider, State
Street Bank and Trust, a written request. If you hold share certificates, the
certificates must by signed by the owner(s) and sent to State Street Bank and
Trust along with the exchange request. No medallion signature guarantee is
required unless shares are also being sold for cash. This is known as
redemption. Please see the section "What You Need To Know Before You Sell Your
Shares" for restrictions that might apply to this type of transaction

When you exchange shares through a dealer, you may be charged a service fee or
commission for performing the transaction.

Before you decide to make an exchange, you must obtain the current prospectus
of the desired fund. For federal income tax purposes, exchanges between funds
are treated as a sale and a purchase, and usually generate a recognizable
capital gain or loss.

There are limits to the number of exchanges you can make each year. Currently,
four exchanges between funds are allowed during a 12-month period. You may make
an unlimited amount of exchanges out of the Selected Daily Government fund.
Systematic Exchanges are excluded from this provision. Davis Distributors must
approve any exchanges above the limit in writing.

40
<PAGE>

[SET OFF]
MAKING AUTOMATIC EXCHANGES

You can elect to make automatic monthly exchanges if all accounts involved are
registered under the same name and have a minimum initial value of $250. You
must exchange at least $25 to participate in this program, known as the
AUTOMATIC EXCHANGE PROGRAM. To sign up for this program, fill out the
appropriate section of the Application Form.

TRANSACTIONS BY TELEPHONE

A benefit of investing through Selected Funds is that you can use our automated
telephone system to sell or exchange shares. If you do not wish to have this
option activated for your account, mark in the box in the appropriate section
of the Application Form.

When you call Davis Distributors (1-800-243-5575) you can perform a transaction
with Selected Funds in two ways:

o Speak directly with a representative during business hours (7 a.m. to
4 p.m. Mountain Time).
o If you have a TouchTone(TM) telephone, you can use the automated telephone
system, known as SELECTED DIRECT ACCESS, 24 hours a day, seven days a week.

[SET OFF]
YOU CAN USE SELECTED DIRECT ACCESS TO:

o GET THE PRICE, TOTAL RETURN, AND FUND DESCRIPTION FOR ANY SELECTED FUND.
o CHECK YOUR ACCOUNT BALANCE AND OTHER ACCOUNT INFORMATION.
o BUY, SELL AND EXCHANGE SHARES.
o GET THE MAILING ADDRESS AND WIRE INSTRUCTIONS FOR ANY SELECTED FUND.
o REQUEST LITERATURE ABOUT ANY SELECTED FUND.

If you wish to sell shares by phone and receive a check in the mail:
o The maximum amount that can be issued is $25,000.
o The check can only be issued to the registered account owner.
o The check must be sent to the address on file with Davis Distributors.
o Your current address must be on file for 30 days.

When you buy, sell or exchange shares over the telephone, you agree that
Selected Funds is not liable for following telephone instructions believed to
be genuine (that is, directed by the account holder). We use certain procedures
to confirm that your instructions are genuine, including a request for personal
identification (your account or Social Security

41
<PAGE>

number) and a tape recording of the conversation. If these procedures are not
used, Selected Funds may be liable for unauthorized instructions.

Be aware that during unusual market conditions, Selected Funds may not be able
to accept all requests by phone.

Please take the time to read this prospectus carefully, and if you decide to
invest with us, keep it as a reference guide. If you need more information
about Selected Funds, please call us or visit our Web site.

ADDRESS AND PHONE GUIDE

OUR TELEPHONE NUMBER OUR SERVICE PROVIDER'S REGULAR
1-800-243-1575 MAILING ADDRESS
State Street Bank and Trust Company
c/o Selected Funds
PO Box 8243
Boston, MA 02266-8243

OUR MAILING ADDRESS
Selected Funds
124 East Marcy Street
Santa Fe, NM 87501

OUR INTERNET ADDRESS OUR SERVICE PROVIDER'S OVERNIGHT
http://www.selectedfunds.com MAILING ADDRESS
State Street Bank and Trust Company
c/o Selected Funds
66 Brooks Drive
Braintree, MA 02184

42
<PAGE>

[BACK COVER]

OTHER FUND DOCUMENTS

For more information about any Selected Fund, request a free copy of the
Statement of Additional Information or the Annual and Semi-Annual Reports.

The STATEMENT OF ADDITIONAL INFORMATION provides more detailed information
about Selected Funds and their management and operations. An ANNUAL REPORT
discusses the market conditions and investment strategies that significantly
affected performance of the Funds during the last year. A SEMI-ANNUAL REPORT
updates information provided in the Annual Report for the next six months.

The Statement of Additional Information and Annual Report for Selected Funds
have been filed with the Securities and Exchange Commission, are incorporated
by reference, and are legally a part of this prospectus.

WHERE YOU CAN GET THESE DOCUMENTS:

o BY TELEPHONE. Call Selected Funds toll-free at 1-800-243-1575, Monday-
Friday, 7 a.m. to 4 p.m. Mountain Time. You may also call this number for
account inquiries.

o VIA THE INTERNET. Visit the SEC web site (WWW.SEC.GOV).

o FROM THE SEC. The SEC's Public Reference Room in Washington, DC. For more
information call 1-800-SEC-0330. Additional copies of this information can
be obtained, for a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, DC, 20549-6009.

o BY MAIL. Specify the document you are requesting when writing to us.

SELECTED FUNDS
124 EAST MARCY STREET
SANTA FE, NM 87501
1-800-243-1575

Investment Company Act File No.:

Selected American Shares Fund--811-51
Selected Special Shares Fund--811-1550
Selected U.S. Government Income Fund--811-5240
Selected Daily Government Fund--811-5240

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999

SELECTED AMERICAN SHARES
SELECTED SPECIAL SHARES
SELECTED U.S. GOVERNMENT INCOME FUND*
SELECTED DAILY GOVERNMENT FUND*

124 EAST MARCY STREET
SANTA FE, NEW MEXICO 87501
1-800-243-1575

* SELECTED U.S. GOVERNMENT INCOME FUND AND SELECTED DAILY GOVERNMENT FUND ARE
BOTH SEPARATE SERIES OF SELECTED CAPITAL PRESERVATION TRUST.

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 1999. THE PROSPECTUSES MAY BE
OBTAINED FROM THE SELECTED FUNDS.

THE FUNDS' MOST RECENT ANNUAL REPORT AND SEMI-ANNUAL REPORT TO
SHAREHOLDERS ARE SEPARATE DOCUMENTS SUPPLIED WITH THIS STATEMENT OF ADDITIONAL
INFORMATION. THE ANNUAL REPORT, ACCOMPANYING NOTES, AND REPORT OF INDEPENDENT
AUDITORS APPEARING IN THE ANNUAL REPORT ARE INCORPORATED BY REFERENCE IN THIS
STATEMENT OF ADDITIONAL INFORMATION.

<PAGE>

TABLE OF CONTENTS

PAGE

<S> <C>
Section I: Investment Strategies and Restrictions ..........................................................4
- - --------------------------------------------------
Investment Objective and Policies...............................................................4
Portfolio Securities............................................................................4

Equity Securities
Small and Medium Capitalization Companies
Banking and Financial Services Industries
Real Estate Securities and REITs
Foreign Securities
Bonds & Other Debt Securities
Government Securities
High Yield, High-risk Debt Securities

Other Investment Policies......................................................................11
Portfolio Transactions ........................................................................14
Investment Restrictions........................................................................16

Section II: Key Persons....................................................................................20
- - ------------------------
Organization of the Companies..................................................................20
Directors and Officers.........................................................................21
Directors Compensation Schedule................................................................23
Certain Shareholders of the Fund...............................................................23
Investment Advisory Services...................................................................24
Distribution of Company Shares.................................................................26
Other Important Service Providers..............................................................28

Section III: Purchase, Exchange and Redemption of Shares....................................................28
- - --------------------------------------------------------
Purchase of Shares.............................................................................28
Special Services..................................................................29
Prototype Retirement Plans........................................................29
Automatic Investment Plan.........................................................29
Dividend Diversification Program..................................................29
Telephone Privilege...............................................................29

Exchange of Shares.............................................................................30
General...........................................................................30
By Telephone......................................................................30
Automatic Exchange Program........................................................30

2
<PAGE>

Redemption of Shares...........................................................................30
General...........................................................................30
Expedited Redemption Privilege....................................................32
By Telephone......................................................................32
Automatic Withdrawals Plan........................................................33
Involuntary Redemptions...........................................................33

Section IV: General Information............................................................................33
- - --------------------------------
Determining the Price of Shares................................................................33
Year 2000 and Euro Conversion Issues...........................................................34
Dividends and Distributions....................................................................34
Federal Income Taxes...........................................................................35
Performance Data...............................................................................36

Appendix: Quality Ratings of Debt Securities................................................................38

</TABLE>

3
<PAGE>

Section I: Investment Strategies and Restrictions
- - --------------------------------------------------

INVESTMENT OBJECTIVES AND POLICIES

Each of the Selected Funds is managed by Davis Selected Advisers, L.P.
("Adviser") and sub-advised by Davis Selected Advisers-NY, Inc. ("DSA-NY"). In
addition, Selected Special Shares is sub-advised by Bramwell Capital
Management, Inc. ("Sub-Adviser"). The Adviser pays all of the sub-advisory
fees.

SELECTED AMERICAN SHARES. The investment objective of Selected
American Shares is both capital growth and income. In the current market
environment current income is expected to be low. The Fund invests primarily in
common stock of U.S. companies with market capitalizations of at least $5
billion. The Fund's principal risks are the risk of price fluctuations
reflecting both market evaluations of the businesses involved and general
changes in the equity markets. The Fund may invest in foreign securities and
attempt to reduce currency fluctuation risks by engaging in related hedging
transactions. These investments involve special risk factors.

SELECTED SPECIAL SHARES. The investment objective of Selected Special
Shares is capital growth. The Fund invests in common stock of U.S. companies
with small and medium market capitalizations of less than $5 billion. The
Fund's principal risks are the risk of price fluctuations reflecting both
market evaluations of the businesses involved and general changes in the equity
markets. Investing in small and medium capitalization companies may be more
risky than investing in large capitalization companies and their share prices
may be more volatile. The Fund may invest in foreign securities and attempt to
reduce currency fluctuation risks by engaging in related hedging transactions.
These investments involve special risk factors.

SELECTED U.S. GOVERNMENT INCOME FUND. The investment objective of
Selected U.S. Government Income Fund is to obtain current income consistent
with preservation of capital by investing primarily in U.S. Government
Securities. The Fund invests in debt securities which are obligations of or
guaranteed by the U.S. Government, its agencies and instrumentalities ("U.S.
Government Securities"). It also may invest in repurchase agreements involving
such securities. Selected U.S. Government Income Fund's principal risk is
changes in interest rates. Investments held by Selected U.S. Government Income
Fund generally reflect market fluctuations. In particular, the value of the
Fund's investments usually declines which interest rate rise and the value
usually increases when interest rates rise. Mortgage related securities
(including collateralized mortgage obligations) usually constitute a large or
the largest portion of the Fund's investments. Changes in the level of interest
rates may effect extension risk and prepayment risk of mortgage related
securities.

SELECTED DAILY GOVERNMENT FUND. Selected Daily Government Fund is a
money market fund. The investment objective of Selected Daily Government Fund
is to seek to provide as high a level of current income as possible from the
type of short-term investments in which it invests, consistent with prudent
investment management, stability of principal and maintenance of liquidity.
Selected Daily Government Fund invests in U.S. Government Securities and
repurchase agreements involving such securities. The Fund's principal risk is
changes in interest rates. The Fund minimizes this risk by maintaining an
average maturity of 90 days or less. Selected Daily Government Fund normally
has a stable net asset value with yield fluctuating with short-term interest
rates. There is no assurance that the Fund will be able to maintain a stable
net asset value of $1.00 per share.

An investment in the Funds may not be appropriate for all investors
and short-term investing is discouraged.

PORTFOLIO SECURITIES

The principal securities which the Funds invest in are described
below.

EQUITY SECURITIES. Selected American Shares and Selected Special
Shares ("Selected Equity Funds") invest primarily in equity securities. Equity
securities represent an ownership position in a company. These securities may
include, without limitation, common stocks, preferred stocks, and securities
with equity conversion or

4
<PAGE>

purchase rights. Selected Equity Funds usually purchase common stock. The
prices of equity securities fluctuate based on changes in the financial
condition of their issuers and on market and economic conditions. The Funds'
results will be related to the overall market for these securities. There is no
limit on the percentage of its assets which the Funds may invest in equity
securities.

Primary Risks. Events which have a negative impact on a business will
probably be reflected in a decline in their equity securities. Furthermore,
when the stock market declines most equity securities, even those issued by
strong companies, are likely to decline in value.

SMALL AND MEDIUM CAPITALIZATION COMPANIES. Selected Special Shares
invests principally in equity securities issued by small and medium
capitalization companies (companies with a total market capitalization of under
$5 billion) The equity of smaller companies are subject to additional risks.
Smaller companies are usually less established and less diversified than larger
companies, and have fewer resources available to take advantage of
opportunities or overcome challenges.

BANKING AND FINANCIAL SERVICES INDUSTRIES. The Adviser has developed a
special expertise in the banking and financial services industries. Banking
and/or financial services companies may represent a larger proportion of
Selected American Shares' portfolio than they represent in the general U.S.
economy. Selected American Shares will maintain a diversified portfolio.

Primary Risks of the Banking Industry. Commercial banks (including
"money center," regional and community banks), savings and loan associations,
and holding companies of the foregoing are especially subject to adverse
effects of volatile interest rates, concentrations of loans in particular
industries (such as real estate or energy), and significant competition. The
profitability of these businesses is to a significant degree dependent upon the
availability and cost of capital funds. Economic conditions in the real estate
market may have a particularly strong effect on certain banks and savings
associations. Commercial banks and savings associations are subject to
extensive federal, and in many instances, state regulation. Neither such
extensive regulation nor the federal insurance of deposits ensures the solvency
or profitability of companies in this industry, and there is no assurance
against losses in securities issued by such companies.

Broadening bank powers, including the ability to engage in multi-state
operations while permitting diversification of operations, also could expose
banks to well-established competitors in new areas of operations. The
broadening of regional and national interstate powers and the aggressive
expansion of larger publicly held foreign banks may result in increased
competition and a decline in the number of publicly traded regional banks.

Primary Risks of the Financial Services Industry. Many of the
investment considerations discussed in connection with banks and savings
associations also apply to financial services companies. These companies are
all subject to extensive regulation, rapid business changes, volatile
performance dependent upon the availability and cost of capital and prevailing
interest rates, and significant competition. General economic conditions
significantly affect these companies. Credit and other losses resulting from
the financial difficulty of borrowers or other third parties have a potentially
adverse effect on companies in this industry. Investment banking, securities
brokerage and investment advisory companies are particularly subject to
government regulation and the risks inherent in securities trading and
underwriting activities. Insurance companies are particularly subject to
Government regulation and rate setting, potential anti-trust and tax law
changes, and industry-wide pricing and competition cycles. Property and
casualty insurance companies may also be affected by weather and other
catastrophes. Life and health insurance companies may be affected by mortality
and morbidity rates, including the effects of epidemics. Individual insurance
companies may be exposed to reserve inadequacies, problems in investment
portfolios (for example, due to real estate or "junk" bond holdings), and
failures of reinsurance carriers.

REAL ESTATE SECURITIES AND REITS. The Adviser has developed a special
expertise in real estate companies, including real estate investment trusts
("REITs") Selected American Shares may make substantial investments in real
estate securities and REITs if the Adviser believes that such investments will
contribute to the Fund's investment objectives.

5
<PAGE>

Real estate securities are issued by companies which have at least 50%
of the value of their assets, gross income, or net profits attributable to
ownership, financing, construction, management or sale of real estate, or to
products or services that are related to real estate or the real estate
industry. None of the Funds invest directly in real estate. Real estate
companies include real estate investment trusts ("REITs"), or other securitized
real estate investments, brokers, developers, lenders and companies with
substantial real estate holdings such as paper, lumber, hotel and entertainment
companies. REITs pool investors' funds for investment primarily in income
producing real estate or real estate related loans or interests. A REIT is not
taxed on income distributed to shareholders if it complies with various
requirements relating to its organization, ownership, assets and income, and
with the requirement that it distribute to its shareholders at least 95% of its
taxable income (other than net capital gains) for each taxable year. REITs can
generally be classified as Equity REITs, Mortgage REITs and Hybrid REITs.
Equity REITs invest the majority of their assets directly in real property and
derive their income primarily from rents. Equity REITs can also realize capital
gains by selling property that has appreciated in value. Mortgage REITs invest
the majority of their assets in real estate mortgages and derive their income
primarily from interest payments. Hybrid REITs combine the characteristics of
both Equity REITs and Mortgage REITs.

Primary Risks. Real estate securities and REITs are subject to risks
associated with the direct ownership of real estate. The Fund could also be
subject to such risks by reason of direct ownership as a result of a default on
a debt security it may own. These risks include declines in the value of real
estate, risks related to general and local economic conditions, over building
and increased competition, increases in property taxes and operating expenses,
changes in zoning laws, casualty or condemnation losses, fluctuations in rental
income, changes in neighborhood values, the appeal of properties to tenants and
increases in interest rates.

Equity REITs may be affected by changes in the value of the underlying
property owned by the trusts, while mortgage REITs may be affected by the
quality of credit extended. Equity and mortgage REITs are dependent upon
management skill, may not be diversified, and are subject to project financing
risks. Such trusts are also subject to heavy cash flow dependency, defaults by
borrowers, self-liquidation and the possibility of failing to qualify for
tax-free pass-through of income under the Internal Revenue Code, and failing to
maintain exemption from registration under the Investment Company Act of 1940.
Changes in interest rates may also affect the value of the debt securities in
the Fund's portfolio. By investing in REITs indirectly through either of the
Funds, a shareholder will bear not only his proportionate share of the expense
of the Fund, but also, indirectly, similar expenses of the REITs, including
compensation of management. Some real estate securities may be rated less than
investment grade by rating services. Such securities may be subject to the
risks of high yield, high-risk securities discussed below.

FOREIGN SECURITIES. Both of Selected Equity Funds may invest in
foreign securities. Foreign securities are: (1) issued by companies organized
under the laws of a foreign country; (2) principally traded in securities
markets outside of the U.S.; (3) issued by companies earning at least 50% of
their revenues or profits outside of the U.S.; or (4) issued by companies
having at least 50% of their assets outside of the U.S. ("foreign securities").
Foreign securities include equity securities, real estate securities,
convertible securities, and bonds. Investments in foreign securities may be
made through the purchase of individual securities on recognized exchanges and
developed over-the-counter markets, through American Depository Receipts
("ADRs") or Global Depository Receipts ("GDRs") covering such securities, and
through U.S. registered investment companies investing primarily in foreign
securities. When the Funds invest in foreign securities, their operating
expenses are likely to be higher than that of an investment company investing
exclusively in U.S. securities, since the custodial and certain other expenses
are expected to be higher.

Primary Risks. Investments in foreign securities may involve a higher
degree of risk than investments in domestic issuers. Foreign securities are
often denominated in foreign currencies, which means that their value will be
affected by changes in exchange rates, as well as other factors that affect
securities prices. There is generally less information publicly available about
foreign securities and securities markets, and there may be less Government
regulation and supervision of foreign issuers and securities markets. Foreign
securities and markets may also be affected by political and economic
instabilities, and may be more volatile and less liquid than domestic
securities and markets. Investment risks may include expropriation or
nationalization of assets, confiscatory taxation, exchange controls and
limitations on the use or transfer of assets, and significant withholding
taxes. Foreign economies may differ from the United States favorably or
unfavorably with respect to inflation rates, balance of payments, capital
reinvestment, gross national product expansion, and other relevant indicators.
The Fund may

6
<PAGE>

attempt to reduce exposure to market and currency fluctuations by trading in
currency futures contracts or options on futures contracts for hedging purposes
only.

BONDS AND OTHER DEBT SECURITIES. Selected U.S. Government Income Fund
invests primarily in Government Securities (a type of bond). Although Selected
Equity Funds usually do not purchase bonds, these Funds may at times purchase
bonds and other debt securities to increase current income or to diversify
their investment portfolios. The U.S. Government, corporations, and other
issuers sell bonds and other debt securities to borrow money. Issuers pay
investors interest and generally must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current interest,
but are purchased at a discount from their face values. The prices of debt
securities fluctuate depending on such factors as interest rates, credit
quality and maturity.

Primary Risks. Bonds and other debt securities are generally
considered to be interest rate sensitive. The market value of the Funds'
investments will change in response to changes in interest rates. During
periods of falling interest rates, the value of debt securities held by the
Funds generally rises. Conversely, during periods of rising interest rates, the
value of such securities generally declines. Changes by recognized rating
services in their ratings of debt securities and changes in the ability of an
issuer to make payments of interest and principal will also affect the value of
these investments.

GOVERNMENT SECURITIES. Selected U.S. Government Income Fund and
Selected Daily Government Fund both invest principally in debt securities which
are obligations of or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"). Each of the other Funds may
also invest a portion of their assets in U.S. Government bonds if the Adviser
believes that such investments will contribute to the Funds' investment
objectives.

Selected Daily Government Fund limits the average maturity of its
investment portfolio to 90 days or less. Selected U.S. Government Income Fund
is not limited as to the maturities of its portfolio investments and may take
full advantage of the entire range of maturities available in U.S. Government
Securities. The Adviser may adjust the average maturity of Selected Daily
Government Fund's portfolio and Selected U.S. Government Income Fund's
portfolio from time to time, depending on the Adviser's assessment of the
relative yields available on securities of different maturities, and its
assessment of future interest rate patterns and market risk. Thus, at various
times, the average maturity of the portfolio may be relatively short (as short
as one day for Selected Daily Government Fund and from one year to five years,
for example, for Selected U.S. Government Income Fund), and at other times may
be relatively long (up to 90 days for Selected Daily Government Fund and over
10 years, up to 30 years, for Selected U.S. Government Income Fund). Selected
Daily Government Fund strives to maintain a constant net asset value per share
of $1.00. There is no guarantee that the Fund will be successful. Selected U.S.
Government Income Fund does not attempt to maintain a fixed net asset value per
share. Fluctuations in portfolio values and therefore fluctuations in the net
asset value of its shares are more likely to be greater when Selected U.S.
Government Income Fund's average portfolio maturity is longer. The portfolio is
likely to be primarily invested in securities with short-term maturities in
periods when the Adviser deems a more defensive position is advisable. For
temporary periods, for defensive purposes, or to accommodate inflows of cash
awaiting more permanent investment, it may also invest in short-term money
market instruments, including repurchase agreements.

There are two basic types of U.S. Government Securities: (1) direct
obligations of the U.S. Treasury, and (2) obligations issued or guaranteed by
an agency or instrumentality of the U.S. Government. Agencies and
instrumentalities include Federal Farm Credit System ("FFCS"), Student Loan
Marketing Association ("SLMA"), Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Home Loan Banks ("FHLB"), Federal National Mortgage
Association ("FNMA") and Government National Mortgage Association ("GNMA").
Some obligations issued or guaranteed by agencies or instrumentalities, such as
those issued by GNMA, are fully guaranteed by the U.S. Government. Others, such
as FNMA bonds, rely on the assets and credit of the instrumentality with
limited rights to borrow from the U.S. Treasury. Still other securities, such
as obligations of the FHLB, are supported by more extensive rights to borrow
from the U.S. Treasury.

When the Adviser deems that higher yields are obtainable through
investments in mortgage related securities and that the yield advantage offsets
the uncertainties of the timing of principal payments, Selected U.S. Government
Income Fund may be significantly invested in mortgage related securities. GNMA
Certificates are

7
<PAGE>

mortgage-backed securities representing part ownership of a pool of mortgage
loans. These loans issued by lenders such as mortgage bankers, commercial
banks, and savings and loan associations are either insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. A "pool"
or group of such mortgages is assembled and, after being approved by GNMA, is
offered to investors through securities dealers. Once approved by GNMA, the
timely payment of interest and principal on each mortgage is guaranteed by GNMA
and backed by the full faith and credit of the U.S. Government. GNMA
Certificates differ from bonds in that principal is paid back monthly by the
borrower over the term of the loan rather than returned in a lump sum at
maturity. GNMA Certificates are called "pass-through" securities because both
interest and principal payments (including prepayments) are passed through to
the holder of the Certificate. Upon receipt, principal payments will be used by
Selected U.S. Government Income Fund to purchase additional GNMA Certificates
or other U.S. Government Securities.

Selected U.S. Government Income Fund may also invest in pools of
mortgages which are issued or guaranteed by other agencies of the U.S.
Government. The average life of pass-through pools varies with the maturities
of the underlying mortgage instruments. In addition, a pool's term may be
shortened or lengthened by unscheduled or early payment, or by slower than
expected prepayment of principal and interest on the underlying mortgages. The
occurrence of mortgage prepayments is affected by the level of interest rates,
general economic conditions, the location and age of the mortgage and other
social and demographic conditions. As prepayment rates of individual pools vary
widely, it is not possible to accurately predict the average life of a
particular pool.

It may also invest in a collateralized mortgage obligation ("CMO"). A
CMO is a debt security issued by a corporation, trust or custodian, or by a
U.S. Government agency or instrumentality that is collateralized by a portfolio
or pool of mortgages, mortgage-backed securities, U.S. Government securities,
or corporate debt obligations. The issuer's obligation to make interest and
principal payments is secured by the underlying pool or portfolio of
securities. Selected U.S. Government Income Fund invests only in CMOs which are
obligations of, or guaranteed by the U.S. Government, its agencies, or
instrumentalities such as the FNMA or the FHLMC.

CMOs are most often issued in two or more classes (each of which is a
separate security) with varying maturities and stated rates of interest.
Interest and principal payments from the underlying collateral (generally a
pool of mortgages) are not necessarily passed directly through to the holders
of the CMOs; these payments are typically used to pay interest on all CMO
classes and to retire successive class maturities in a sequence. Thus, the
issuance of CMO classes with varying maturities and interest rates may result
in greater predictability of maturity with one class and less predictability of
maturity with another class than a direct investment in a mortgage-backed
pass-through security (such as a GNMA Certificate). Classes with shorter
maturities typically have lower volatility and lower yield while those with
longer maturities typically have higher volatility and higher yield. Thus,
investments in CMOs provide greater or lesser control over the investment
characteristics than mortgage pass-through securities and offer more defensive
or aggressive investment alternatives.

Investment by the Funds in mortgage-related U.S. Government
Securities, such as GNMA Certificates, and CMOs also involves other risks. The
yield on a pass-through security is typically quoted based on the maturity of
the underlying instruments and the associated average life assumption. Actual
prepayment experience may cause the yield to differ from the assumed average
life yield. Accelerated prepayments adversely impact yields for pass-throughs
purchased at a premium; the opposite is true for pass-throughs purchased at a
discount. During periods of declining interest rates, prepayment of mortgages
underlying pass-through certificates can be expected to accelerate. When the
mortgage obligations are prepaid, the Funds reinvest the prepaid amounts in
securities, the yields of which reflect interest rates prevailing at that time.
Therefore, the Funds' ability to maintain a portfolio of high-yielding,
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgages. Moreover, prepayments of mortgages which
underlie securities purchased at a premium could result in capital losses.
Investment in such securities could also subject the Funds to "maturity
extension risk" which is the possibility that rising interest rates may cause
prepayments to occur at a slower than expected rate. This particular risk may
effectively change a security which was considered a short or intermediate-term
security at the time of purchase into a long-term security. Long-term
securities generally fluctuate more widely in response to changes in interest
rates than short or intermediate-term securities.

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In selecting CMOs, the Adviser seeks a favorable yield relative to
risk and considers purchase price, interest rates, total rates of return,
prepayment rates, average life, duration and volatility, and compares these
with other mortgage-backed investments and U.S. Government Securities.

The guarantees of the U.S. Government, its agencies and
instrumentalities, are guarantees of the timely payment of principal and
interest on the obligations purchased. The value of the shares issued by the
Funds are not guaranteed and will fluctuate with the value of the Funds'
portfolios. Generally when the level of interest rates rise, the value of a
Fund's portfolio is likely to decline and when the level of interest rates
decline, the value of a Fund's portfolio is likely to rise.

The Funds may engage in portfolio trading primarily to take advantage
of yield disparities. Such trading strategies may result in minor temporary
increases or decreases in a Fund's current income, and in its holding of debt
securities which sell at substantial premiums or discounts from face value. If
expectations of changes in interest rates or the price of two securities prove
to be incorrect, a Fund's potential income and capital gain will be reduced or
its potential loss will be increased.

HIGH YIELD, HIGH-RISK DEBT SECURITIES. The bonds and other debt
securities which Selected Equity Funds may invest in may include high yield,
high-risk debt securities rated BB or lower by Standard & Poor's Corporation
("S&P") or Ba or lower by Moody's Investor Services ("Moody's") or unrated
securities. Securities rated BB or lower by S&P and Ba or lower by Moody's are
referred to in the financial community as "junk bonds" and may include D rated
securities of issuers in default. See Appendix A for a more detailed
description of the rating system. Ratings assigned by credit agencies do not
evaluate market risks. The Adviser considers the ratings assigned by S&P or
Moody's as one of several factors in its independent credit analysis of
issuers. A brief description of the quality ratings of these two services is
contained in the section entitled "Quality Ratings of Debt Securities."
Selected American Shares will not purchase securities rated BB or Ba or lower
if the securities are in default at the time of purchase, or if such purchase
would then cause 30% or more of the Fund's net assets to be invested in such
lower rated securities. Selected Special Shares Fund will not purchase
securities rated BB or Ba or lower if the securities are in default at the time
of purchase or if such purchase would then cause more than 5% of the Fund's net
assets to be invested in such lower rated securities.

Primary Risks. While likely to have some quality and protective
characteristics, high yield, high-risk debt securities, whether or not
convertible into common stock, usually involve increased risk as to payment of
principal and interest. Issuers of such securities may be highly leveraged and
may not have available to them traditional methods of financing. Therefore, the
risks associated with acquiring the securities of such issuers generally are
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, issuers of
high yield securities may be more likely to experience financial stress,
especially if such issuers are highly leveraged. During such periods, such
issuers may not have sufficient revenues to meet their principal and interest
payment obligations. The issuer's ability to service its debt obligations also
may be adversely affected by specific issuer developments, or the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing. The risk of loss due to default by the issuer is
significantly greater for the holders of high yield securities because such
securities may be unsecured and may be subordinated to other creditors of the
issuer.

High yield, high-risk debt securities are subject to greater price
volatility than higher rated securities, tend to decline in price more steeply
than higher rated securities in periods of economic difficulty or accelerating
interest rates, and are subject to greater risk of non-payment in adverse
economic times. There may be a thin trading market for such securities. This
may have an adverse impact on market price and the ability of the Funds to
dispose of particular issues and may cause the Funds to incur special
securities registration responsibilities, liabilities and costs, and liquidity
and valuation difficulties. Unexpected net redemptions may force the Funds to
sell high yield, high-risk debt securities without regard to investment merit,
thereby possibly reducing return rates. Such securities may be subject to
redemptions or call provisions which, if exercised when investment rates are
declining, could result in the replacement of such securities with lower
yielding securities, resulting in a decreased return. To the extent that the
Funds invest in bonds that are original issue discount, zero coupon,
pay-in-kind or deferred interest bonds, the Funds may have taxable interest
income in excess of the cash actually received on these issues. In order to
avoid taxation to the Funds, the Funds may have to sell portfolio securities to
meet taxable distribution requirements.

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<PAGE>

The market values of such securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Such lower rated securities also tend to be more sensitive to economic and
industry conditions than are higher rated securities. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis regarding
individual lower rated bonds, and the high yield, high-risk market may depress
the prices for such securities. If the negative factors such as the
aforementioned adversely impact the market value of high yield, high-risk
securities, net asset value will be adversely affected.

The high yield, high-risk bond market comprised a small piece of the
general bond market until the middle 1980's when issuance increased
dramatically. Since that time, the high yield, high-risk bond market has
experienced only one recessionary environment, but has never been exposed to a
significant increase in interest rates. During the economic downturn that was
experienced, prices of high yield, high-risk bonds declined and defaults rose.
Future economic downturns and/or significant increases in interest rates are
likely to have a negative effect on the high yield, high-risk bond market, and
consequently on the value of these bonds, as well as increase the incidence of
defaults on such bonds.

High yield, high-risk bonds may be issued in a variety of
circumstances. Some of the more common circumstances are issuance by
corporations in the growth stage of their development, in connection with a
corporate reorganization or as part of a corporate takeover. Companies that
issue such high yielding, high-risk bonds often are highly leveraged and may
not have available to them more traditional methods of financing. Therefore,
the risk associated with acquiring the bonds of such issuers generally is
greater than is the case with higher rated bonds. For example, during an
economic downturn or recession, highly leveraged issuers of high yield,
high-risk bonds may experience financial stress. During such periods, such
issuers may not have sufficient revenues to meet their principal and interest
payment obligations. The issuer's ability to service its debt obligations may
also be adversely affected by specific corporate developments, or the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing. The risk of loss due to default by the issuer is
significantly greater for the holders of high yielding bonds because such bonds
are generally unsecured and are often subordinated to other creditors of the
issuer. The costs associated with recovering principal and interest once a
security has defaulted may impact the return to holders of the security. If the
Funds experience unexpectedly large net redemptions, it may be forced to sell
high yield, high-risk bonds out of the portfolio without regard to the
investment merits of such sales. This could decrease the Fund's net assets.
Since some of the Fund's expenses are fixed, this could also reduce the Fund's
rate of return.

The Funds may have difficulty disposing of certain high yield,
high-risk bonds because there may be a thin trading market for such bonds.
Because not all dealers maintain markets in all high yield, high-risk bonds,
the Funds anticipate that such bonds could be sold only to a limited number of
dealers or institutional investors. The lack of a liquid secondary market may
have an adverse impact on market price and the ability to dispose of particular
issues and may also make it more difficult to obtain accurate market quotations
or valuations for purposes of valuing the Funds' assets. Market quotations
generally are available on many high yield issues only from a limited number of
dealers and may not necessarily represent firm bid prices of such dealers or
prices for actual sales. In addition, adverse publicity and investor
perceptions may decrease the values and liquidity of high yield, high-risk
bonds regardless of a fundamental analysis of the investment merits of such
bonds. To the extent that the Funds purchase illiquid or restricted bonds, it
may incur special securities registration responsibilities, liabilities and
costs, and liquidity and valuation difficulties relating to such bonds.

Bonds may be subject to redemption or call provisions. If an issuer
exercises these provisions when investment rates are declining, the Funds will
be likely to replace such bonds with lower yielding bonds resulting in a
decreased return. Zero coupon, pay-in-kind and deferred interest bonds involve
additional special considerations. Zero coupon bonds are debt obligations that
do not entitle the holder to any periodic payments of interest prior to
maturity or a specified cash payment date when the securities begin paying
current interest (the "cash payment date") and therefore are issued and traded
at a discount from their face amount or par value. The market prices of zero
coupon securities are generally more volatile than the market prices of
securities that pay interest periodically, and are likely to respond to changes
in interest rates to a greater degree than do securities paying interest
currently, having similar maturities, and credit quality. Pay-in-kind bonds pay
interest in the form of other securities rather than cash. Deferred interest
bonds defer the payment of interest to a later date. Zero coupon, pay-in-kind
or deferred interest bonds carry additional risk in that, unlike bonds which
pay interest in cash throughout the period to

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<PAGE>

maturity, the Funds will realize no cash until the cash payment date unless a
portion of such securities are sold. There is no assurance of the value or the
liquidity of securities received from pay-in-kind bonds. If the issuer
defaults, the Funds may obtain no return at all on its investment. To the
extent that the Funds invest in bonds that are original issue discount, zero
coupon, pay-in-kind or deferred interest bonds, the Funds may have taxable
interest income in excess of the cash actually received on these issues. In
order to distribute such income to avoid taxation to the Funds, the Funds may
have to sell portfolio securities to meet its taxable distribution requirements
under circumstances that could be adverse.

Federal tax legislation limits the tax advantages of issuing certain
high yield, high-risk bonds. This could have a materially adverse effect on the
market for high yield, high-risk bonds.

Portfolio Composition. As of December 31, 1998 both Selected Equity
Funds had less than 5% of their total assets invested in high yield, high risk
securities and do not presently intend to have over 5% of their assets invested
in such securities in the near future. XxxSharra check percentage.

OTHER INVESTMENT POLICIES

The Funds have adopted the following investment policies.

TEMPORARY DEFENSIVE INVESTMENTS. For defensive purposes or to
accommodate inflows of cash awaiting more permanent investment, each Selected
Fund may temporarily and without limitation hold high-grade short-term money
market instruments, cash and cash equivalents, including repurchase agreements.
Selected Daily Government Fund continuously invests exclusively in short-term
U.S. Government securities and repurchase agreements.

REPURCHASE AGREEMENTS. The Funds may enter into repurchase agreements,
but normally will not enter into repurchase agreements maturing in more than
seven days. A repurchase agreement, as referred to herein, involves a sale of
securities to a Fund, with the concurrent agreement of the seller (a bank or
securities dealer which the Adviser or Sub-Adviser determines to be financially
sound at the time of the transaction) to repurchase the securities at the same
price plus an amount equal to accrued interest at an agreed-upon interest rate,
within a specified time, usually less than one week, but, on occasion, at a
later time. The repurchase obligation of the seller is, in effect, secured by
the underlying securities. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, the Funds could experience both delays in
liquidating the underlying securities and losses, including (a) possible
decline in the value of the collateral during the period while the Funds seek
to enforce their rights thereto; (b) possible loss of all or a part of the
income during this period; and (c) expenses of enforcing its rights.

The Funds will enter into repurchase agreements only when the seller
agrees that the value of the underlying securities, including accrued interest
(if any), will at all times be equal to or exceed the value of the repurchase
agreement. The Funds may enter into tri-party repurchase agreements in which a
third party custodian bank issues the cash upon purchase of the securities used
as collateral, and also holds the securities. The Funds will not enter into a
repurchase agreement maturing in more than seven days if it would cause more
than 15% of the value of their net assets (10% for Selected Daily Government
Fund) to be invested in such transactions. Repurchase agreements maturing in
less than seven days are not deemed illiquid securities for the purpose of the
Funds' limitation on illiquid securities.

HEDGING FOREIGN CURRENCY RISKS. Selected Equity Funds may invest a
portion of their assets in foreign securities. To attempt to reduce exposure to
currency fluctuations due to investments in foreign securities, Selected Equity
Funds may trade in forward foreign currency exchange contracts (forward
contracts), currency futures contracts and options thereon and securities
indexed to foreign securities. These techniques may be used to lock in an
exchange rate in connection with transactions in securities denominated or
traded in foreign currencies, to hedge the currency risk in foreign securities
held by Selected Equity Funds and to hedge a currency risk involved in an
anticipated purchase of foreign securities. Cross-hedging may also be utilized,
that is, entering into a hedge transaction in respect to a different foreign
currency than the one in which a trade is to be made or in which a

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portfolio security is principally traded. There is no limitation on the amount
of assets that may be committed to currency hedging. However, no Selected
Equity Fund will engage in a futures transaction if it would cause the
aggregate of initial margin deposits and premiums paid on outstanding options
on futures contracts to exceed 5% of the value of its total assets (excluding
in calculating such 5% any in-the-money amount of any option). Currency hedging
transactions may be utilized as a tool to reduce currency fluctuation risks due
to a current or anticipated position in foreign securities. The successful use
of currency hedging transactions usually depends on the Adviser's or the
Sub-Adviser's ability to forecast interest rate and currency exchange rate
movements. Should interest or exchange rates move in an unexpected manner, the
anticipated benefits of futures contracts, options or forward contracts may not
be achieved, or losses may be realized, and thus Selected Equity Funds could be
in a worse position than if such strategies had not been used. Unlike many
exchange-traded futures contracts, there are no daily price fluctuation limits
with respect to options on currencies and forward contracts, and adverse market
movements could therefore continue to an unlimited extent over a period of
time. In addition, the correlation between movements in the prices of such
instruments and movements in the price of the securities and currencies hedged
or used for cover will not be perfect and could produce unanticipated losses.
Unanticipated changes in currency prices may result in poorer overall
performance for Selected Equity Funds than if they had not entered into such
contracts. When taking a position in an anticipatory hedge (when Selected
Equity Funds purchase a futures contract or other similar instrument to gain
market exposure in anticipation of purchasing the underlying securities at a
later date), Selected Equity Funds are required to set aside cash or high-grade
liquid securities to fully secure the obligation.

A forward contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date which is individually negotiated
and privately traded by currency traders and their customers. Such a contract
gives Selected Equity Funds a position in a negotiated, currently non-regulated
market. A Selected Equity Fund may enter into a forward contract, for example,
when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. dollar price
of the security ("transaction hedge"). Additionally, when the Adviser or
Sub-Adviser believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, either Fund may enter into a forward sale contract to
sell an amount of that foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency. When
the Adviser or Sub-Adviser believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, either Fund may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar
amount in anticipation of purchasing foreign traded securities ("position
hedge"). In this situation the Selected Equity Funds may, in the alternative,
enter into a forward contract in respect to a different foreign currency for a
fixed U.S. dollar amount ("cross hedge"). This may be done, for example, where
the Adviser or Sub-Adviser believes that the U.S. dollar value of the currency
to be sold pursuant to the forward contract will fall whenever there is a
decline in the U.S. dollar value of the currency in which portfolio securities
of the Fund are denominated.

Selected Equity Funds may purchase and write put and call options on
foreign currencies for the purpose of protecting against declines in the U.S.
dollar value of foreign currency-denominated portfolio securities and against
increases in the U.S. dollar cost of such securities to be acquired. As in the
case of other kinds of options, however, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received, and Selected Equity Funds could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on a foreign currency may constitute an effective
hedge against fluctuations in exchange rates although, in the event of rate
movements adverse to a Fund's position, it may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies to be
written or purchased by Selected Equity Funds are traded on U.S. and foreign
exchanges or over-the-counter. Currently, a significant portion or all of the
value of an over-the-counter option may be treated as an illiquid investment
and subject to the restriction on such investments as long as the SEC requires
that over-the-counter options be treated as illiquid. Generally, Selected
Equity Funds would utilize options traded on exchanges where the options are
standardized.

Selected Equity Funds may enter into contracts for the purchase or
sale for future delivery of foreign currencies ("currency futures contracts")
and may purchase and write put and call options to buy or sell currency futures
contracts. A "sale" of a currency futures contract means the acquisition of a
contractual obligation to deliver the foreign currencies called for by the
contract at a specified price on a specified date. A "purchase" of a currency
futures contract means the incurring of a contractual obligation to acquire the
foreign currencies called for by the contract at a specified price on a
specified date. Options on currency futures contracts to be purchased by the
Selected Equity Funds will be traded on U.S. or foreign exchanges or
over-the-counter.

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<PAGE>

Selected Equity Funds may also purchase securities (debt securities or
deposits) which have their coupon rate or value at maturity determined by
reference to the value of one or more foreign currencies. These strategies will
be used for hedging purposes only. Selected Equity Funds will hold securities
or other options or futures positions whose values are expected to offset its
obligations under the hedge strategies. Neither Fund will enter into a currency
hedging position that exposes the Fund to an obligation to another party unless
it owns either (i) an offsetting position in securities, options or futures
positions, or (ii) cash, receivables, and short-term debt securities with a
value sufficient to cover its potential obligations. Selected Equity Funds will
comply with requirements established by the SEC with respect to coverage of
options and futures strategies by mutual funds, and, if so required, will set
aside liquid securities in a segregated account with its custodian bank in the
amount prescribed. Selected Equity Funds' custodian will maintain the value of
such segregated account equal to the prescribed amount by adding or removing
additional liquid securities to account for fluctuations in the value of
securities held in such account. Securities held in a segregated account cannot
be sold while the futures or option strategy is outstanding, unless they are
replaced with similar securities.

Selected Equity Funds' ability to dispose of its positions in futures
contracts, options and forward contracts will depend on the availability of
liquid markets in such instruments. Markets in options and futures with respect
to currencies are still developing. It is impossible to predict the amount of
trading interest that may exist in various types of futures contracts, options
and forward contracts. If a secondary market does not exist with respect to an
option purchased or written by the Selected Equity Funds over-the-counter, it
might not be possible to effect a closing transaction in the option (i.e.,
dispose of the option) with the result that (i) an option purchased by the
Selected Equity Funds would have to be exercised in order for the Selected
Equity Funds to realize any profit, and (ii) the Selected Equity Funds may not
be able to sell currencies covering an option written by the Selected Equity
Funds until the option expires, or it delivers the underlying futures currency
upon exercise. Therefore, no assurance can be given that the Selected Equity
Funds will be able to utilize these instruments effectively for the purposes
set forth above. The Selected Equity Funds' ability to engage in currency
hedging transactions may be limited by tax considerations.

Selected Equity Funds' transactions in forward contracts, options on
foreign currencies and currency futures contracts will be subject to special
tax rules under the Internal Revenue Code that, among other things, may affect
the character of any gains or losses of Selected Equity Funds as ordinary or
capital, and the timing and amount of any income or loss to Selected Equity
Funds. This, in turn, could affect the character, timing and amount of
distributions by Selected Equity Funds to shareholders. Selected Equity Funds
may be limited in its foreign currency transactions by tax considerations.

In 1998 Selected Equity Funds did not enter into any foreign security
hedging transactions.

RESTRICTED AND ILLIQUID SECURITIES. The Funds may invest in restricted
securities which are subject to contractual restrictions on resale. The Funds'
policy is to not purchase or hold illiquid securities (which may include
restricted securities) if more than 15% of the Funds' net assets (10% of
Selected Daily Government Fund) would then be illiquid.

The restricted securities which the Funds may purchase include
securities which have not been registered under the 1933 Act, but are eligible
for purchase and sale pursuant to Rule 144A ("Rule 144A Securities"). This Rule
permits certain qualified institutional buyers, such as the Funds, to trade in
privately placed securities even though such securities are not registered
under the 1933 Act. The Adviser or Sub-Adviser, under criteria established by
the Funds' Board of Directors, will consider whether Rule 144A Securities being
purchased or held by the Funds are illiquid, and, thus subject to the Funds'
policy limiting investments in illiquid securities. In making this
determination, the Adviser or Sub-Adviser will consider the frequency of trades
and quotes, the number of dealers and potential purchasers, dealer undertakings
to make a market, and the nature of the security and the market place trades
(for example, the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
Securities will also be monitored by the Adviser and Sub-Adviser and, if as a
result of changed conditions, it is determined that a Rule 144A Security is no
longer liquid, the Funds' holding of illiquid securities will be reviewed to
determine what, if any, action is required in light of the policy limiting

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<PAGE>

investments in such securities. Investing in Rule 144A Securities could have
the effect of increasing the amount of investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.

LENDING PORTFOLIO SECURITIES. Selected American Shares, Selected
Special Shares, and Selected U.S. Government Income Fund may lend securities to
broker-dealers or institutional investors for their use in connection with
short sales, arbitrages and other securities transactions. The Selected Funds
will not lend portfolio securities unless the loan is secured by collateral.
Selected American Shares and Selected Special Shares will not lend securities
if such a loan would cause more than 10% of the total value of their respective
assets to then be subject to such loans. Selected U.S. Government Income Fund
will not lend securities if such a loan would cause more than 30% of the total
value of its assets to then be subject to such loans.

CALL OPTIONS. For income or hedging purposes, Selected Equity Funds
may write covered call options on their portfolio securities and purchase call
options in closing transactions. The Funds may suffer an opportunity loss if
the value of the underlying security should rise above the strike price of the
call option before the option expires. Selected American Shares will not engage
in any such transaction if thereafter the market value of all securities
subject to options would exceed 20% of the value of the Fund' net assets.
Selected Special Shares will not engage in any such transaction if thereafter
the market value of all securities subject to options would exceed 10% of the
value of the Fund' net assets.

A covered call option gives the purchaser of the option the right to
buy the underlying security at the price specified in the option (the "exercise
price") at any time until the option expires, generally within three to nine
months, in return for the payment to the writer upon the issuance of the option
of an amount called the "premium." A commission may be charged in connection
with the writing of the option. The premium received for writing a call option
is determined by the option markets. The premium paid, plus the exercise price,
will always be greater than the market price of the underlying securities at
the time the option is written. By writing a covered call option, a Fund
foregoes, in exchange for the premium, the opportunity to profit from an
increase in the market value of the underlying security above the exercise
price, if the option is exercised. The call obligation is terminated upon
exercise of the call option, expiration of the call, or when the Fund effects a
closing purchase transaction. A closing purchase transaction is one in which
the writer purchases another call option in the same underlying security
(identical as to exercise price, expiration date and number of shares). The
writer thereby terminates its obligation and substitutes the second writer as
the obligor to the original option purchaser. A closing purchase transaction
would normally involve payment of a brokerage commission. During the remaining
term of the option, if a Fund cannot enter into a closing purchase transaction,
that Fund would lose the opportunity for realizing any gain over and above the
premium through sale of the underlying security, and if the security is
declining in price that Fund would continue to experience such decline.

In 1998 Selected Funds did not write any covered call options.

"WHEN ISSUED" SECURITIES. Fixed-income securities may at times be
purchased or sold on a delayed delivery basis or on a when-issued basis. These
transactions arise when securities are purchased or sold by a Fund with payment
and delivery taking place in the future. No payment is made until delivery is
made which may be up to 60 days after purchase. If delivery of the obligation
does not take place, no purchase will result and the transaction will be
terminated. Such transactions are considered to involve more risk than
immediate cash transactions. As a matter of non-fundamental policy, any
investment on a when issued or delayed delivery basis will not be made if such
investment would cause more than 5% of the value of a Fund's total assets to be
invested in this type of investment.

PORTFOLIO TRANSACTIONS.

The Adviser and Sub-Adviser are responsible for the placement of
portfolio transactions, subject to the supervision of the Board of Directors.
The Funds have adopted a policy to seek to place portfolio transactions with
brokers or dealers who will execute transactions as efficiently as possible and
at the most favorable price. Subject to this policy, research services and
placement of orders by securities firms for Fund shares may be taken into
account

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<PAGE>

as a factor in placement of portfolio transactions. In seeking the Funds'
investment objectives, the Funds may trade to some degree in securities for the
short term if the Adviser or Sub-Adviser believes that such trading is
advisable.

In placing executions and paying brokerage commissions, the Adviser or
Sub-Adviser considers the financial responsibility and reputation of the broker
or dealer, the range and quality of the services made available to the Funds
and the professional services rendered, including execution, clearance
procedures, wire service quotations and ability to provide supplemental
performance, statistical and other research information for consideration,
analysis and evaluation by the Adviser's or Sub-Adviser's staff. In accordance
with this policy, brokerage transactions may not be executed solely on the
basis of the lowest commission rate available for a particular transaction.
Research services provided to the Adviser or Sub-Adviser by or through brokers
who effect portfolio transactions for the Funds may be used in servicing other
accounts managed by the Adviser and likewise research services provided by
brokers used for transactions of other accounts may be utilized by the Adviser
or Sub-Adviser in performing services for the Funds. Subject to the
requirements of best execution, the placement of orders by securities firms for
shares of the Funds may be taken into account as a factor in the placement of
portfolio transactions.

On occasions when the Adviser or Sub-Adviser deems the purchase or
sale of a security to be in the best interests of a Fund as well as other
fiduciary accounts, the Adviser or Sub-Adviser may aggregate the securities to
be sold or purchased for a Fund with those to be sold or purchased for other
accounts in order to obtain the best net price and most favorable execution. In
such event, the allocation will be made by the Adviser or Sub-Adviser in the
manner considered to be most equitable and consistent with its fiduciary
obligations to all such fiduciary accounts, including the Fund involved. In
some instances, this procedure could adversely affect a Fund but the Adviser
and Sub-Adviser deem that any disadvantage in the procedure would be outweighed
by the increased selection available and the increased opportunity to engage in
volume transactions.

The Adviser and Sub-Adviser believe that research from brokers and
dealers is desirable, although not essential, in carrying out their functions,
in that such outside research supplements the efforts of the Adviser and
Sub-Adviser by corroborating data and enabling the Adviser and Sub-Adviser to
consider the views, information and analyses of other research staffs. Such
views, information and analyses include such matters as communicating with
persons having special expertise on certain companies, industries, areas of the
economy and/or securities prices, obtaining written materials on these or other
areas which might affect the economy and/or securities prices, obtaining
quotations on securities prices and obtaining information on the activities of
other institutional investors. The Adviser and Sub-Adviser research, at their
own expense, each security included in, or being considered for inclusion in,
the Funds' portfolios. As any particular research obtained by the Adviser or
Sub-Adviser may be useful to the Funds, the Board of Directors, in considering
the reasonableness of the commissions paid by the Funds, will not attempt to
allocate, or require the Adviser or Sub-Adviser to allocate, the relative costs
or benefits of research.

The Funds paid the following brokerage commissions:

Xx Fund accounting will update these numbers

Fiscal year ended December 31
1998 1997 1996
<S> <C> <C> <C>
Selected American Shares
brokerage commissions paid $5,092,961 $3,616,808 $1,315,346
amount paid to brokers providing research 86% 87% 97%
brokerage commissions paid
to Shelby Cullom Davis & Co.(1) $ 441,042 $ 238,363 $ 97,362

Selected Special Shares
brokerage commissions paid $ 56,658 NA NA
amount paid to brokers providing research 96% NA NA

</TABLE>

(1) Shelby Cullom Davis & Co. is a broker-dealer who may be considered an
affiliated person of the Adviser. During the fiscal year ended December 31,
1998, commissions received represented xx% of total commissions paid

15
<PAGE>

and xx% of the aggregate dollar amount of transactions involving the payment of
commissions by Selected American Shares.

Because of the Funds' investment policies, portfolio turnover rate
will vary. At times it could be high, which could require the payment of larger
amounts in brokerage commissions. The Adviser and Sub-Adviser are authorized to
place portfolio transactions with Shelby Cullom Davis & Co., a member of the
New York Stock Exchange, which may be deemed to be an affiliate of the Adviser,
if the commissions are fair and reasonable and comparable to commissions
charged by non-affiliated qualified brokerage firms for similar services. The
Funds anticipate that, during normal market conditions, their annual portfolio
turnover rate will be less than 100%.

INVESTMENT RESTRICTIONS

Each Fund's investment objective and the fundamental investment
restrictions set forth below may not be changed without the approval of the
holders of the lesser of (i) 67% of the eligible votes, if the holders of more
than 50% of the eligible votes are represented or (ii) more than 50% of the
eligible 964958160votes. All percentage limitations set forth in these
restrictions apply as of the time of an investment without regard to later
increases or decreases in the value of securities or total or net assets.

Each of the Selected Funds have different fundamental investment
restrictions which are listed below.

SELECTED AMERICAN SHARES FUND FUNDAMENTAL INVESTMENT RESTRICTIONS
- - -----------------------------------------------------------------

The Fund may not:

1. Diversification. Purchase securities of any one issuer (excluding U.S.
Government Securities) if, as a result of such purchase, the Fund would own
more than 10% of the total outstanding securities or voting stock of the issuer
or more than 5% of the value of the Fund's total assets would be invested in
the securities of the issuer.

2. Concentration. Concentrate more than 25% of its assets in
securities of any one industry.

3. Real Estate, Commodities, Minerals. Purchase or sell real estate or
interests in real estate, commodities or commodity contracts or interests in
oil, gas or other mineral exploration or development programs. It may, however,
purchase marketable securities of companies which may make such investments.

4. Borrowing. Borrow money, except for temporary or emergency purposes, and
then only from banks, in an amount not exceeding 10% of the value of the Fund's
total assets. The Fund will not borrow money for the purpose of investing in
securities, and the Fund will not purchase any portfolio securities for so long
as any borrowed amounts remain outstanding.

5. Underwriting. Underwrite securities of other issuers (although the Fund may
technically be considered an underwriter if it sells restricted securities).

6. Loans. Make loans, except it may acquire debt securities from the issuer or
others which are publicly distributed or are of a type normally acquired by
institutional investors and except that it may make loans of portfolio
securities if any such loans are secured continuously by collateral at least
equal to the market value of the securities loaned in the form of cash and/or
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and provided that no such loan will be made if upon the
making of that loan more than 10% of the value of the Fund's total assets would
be the subject of such loans.

16
<PAGE>

7. Senior Securities. The Fund may not issue senior securities nor sell short
more than 5% of its total assets, except as provided by the Investment
Company Act of 1940 and any rules, regulations or orders issued thereunder.
This limitation does not apply to selling short against the box.

8. Selling Short, Margin, Options. Sell short, buy on margin, or deal in
options, except that the Fund may write call options against its portfolio
securities which are traded on a national securities exchange and purchase call
options in closing transactions. (When permitted by applicable federal and
state authorities and when there exists an established market for call options
written on securities traded otherwise than on a national securities exchange,
the Fund may also issue call options on such portfolio securities and purchase
such call options on such securities in closing transactions). The Fund will
not write a covered option if following issuance of the option the market value
of the Fund's portfolio securities underlying such options would be in excess
of 20% of the value of the Fund's net assets.

9. Pledging or Hypothecation. Pledge or hypothecate its assets, except in an
amount not exceeding 15% of its total assets, and then only to secure
borrowings for temporary or emergency purposes.

10. Other Investment Companies. Invest in other investment companies (as
defined in the Investment Company Act of 1940), except as part of a merger,
consolidation, reorganization or acquisition of assets.

11. Illiquid Securities. Purchase illiquid securities (including restricted
securities that are illiquid) if such purchase would cause more than 15% of the
value of the Fund's net assets to be invested in such securities.

12. Associated Persons. Allow any person associated with the Fund or its
investment manager who is an officer or director of another issuer to
participate in any decision to purchase or sell any securities of such other
issuer.

13. Application of Restrictions. All percentage restrictions except those with
respect to illiquid securities, apply as of the time of investment without
regard to later increases or decreases in the values of securities or total or
net assets.

SELECTED SPECIAL SHARES FUND FUNDAMENTAL INVESTMENT RESTRICTIONS
- - ----------------------------------------------------------------

The Fund may not:

1. Diversification. Purchase securities of any one issuer (excluding U.S.
Government Securities) if, as a result of such purchase, the Fund would
own more than 10% of the total outstanding securities or voting stock of
the issuer or more than 5% of the value of the Fund's total assets would
be invested in the securities of the issuer.

2. Concentrations. Concentrate more than 25% of its assets in securities of
any one industry.

3. Real Estate, Commodities. Purchase or sell real estate, commodities or
commodity contracts, or oil, gas or other mineral exploration or
development programs, or any direct interests therein. It may, however,
purchase marketable securities of companies which may make such
investments.

4. Borrowing. Borrow money, except for temporary or emergency purposes, and
then only from banks, in an amount not exceeding 10% of the value of the
Fund's total assets. The Fund will not borrow money for the purpose of
investing in securities, and the Fund will not purchase any portfolio
securities for so long as any borrowed amounts remain outstanding.

17
<PAGE>

5. Underwriting. Underwrite securities of other issuers (although the Fund
may technically be considered an underwriter if it sells restricted
securities).

6. Loans. Make loans, except it may acquire debt securities from the issuer
or others which are publicly distributed or are of a type normally
acquired by institutional investors and except that it may make loans of
portfolio securities if any such loans are secured continuously by
collateral at least equal to the market value of the securities loaned
in the form of cash and/or securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and provided that no
such loan will be made if upon the making of that loan more than 10% of
the value of the Fund's total assets would be the subject of such loans.

7. Senior Securities. The Fund may not issue senior securities nor sell
short more than 5% of its total assets, except as provided by the
Investment Company Act of 1940 and any rules, regulations or orders
issued thereunder. This limitation does not apply to selling short
against the box.

8. Selling Short, Margin, Options. Sell short, buy on margin, or deal in
options, except that the Fund may write call options against its
portfolio securities which are traded on a national securities exchange
and purchase call options in closing transactions. (When permitted by
applicable federal and state authorities and when there exists an
established market for call options written on securities traded
otherwise than on a national securities exchange, the Fund may also issue
call options on such portfolio securities and purchase such call options
on such securities in closing transactions). The Fund will not write a
covered option if following issuance of the option the market value of
the Fund's portfolio securities underlying such options would be in
excess of 10% of the value of the Fund's net assets.

9. Pledging or Hypothecation. Pledge or hypothecate its assets, except in
an amount not exceeding 15% of its total assets, and then only to secure
borrowings for temporary or emergency purposes.

10. Other Investment Companies. Purchase securities of any other investment
company (as defined in the Investment Company Act of 1940) except: (i)
shares of investment companies investing primarily in foreign securities
provided that such purchase does not cause the Fund to (a) have more
than 5% of its total assets invested in any one such company, (b) have
more than 10% of its total assets invested in the aggregate of all such
companies, or (c) own more than 3% of the total outstanding voting stock
of any such company; and (ii) as a part of a merger, consolidation,
reorganization or acquisition of assets.

11. Illiquid Securities. Purchase illiquid securities (including restricted
securities that are illiquid) if such purchase would cause more than 15%
of the value of the Fund's net assets to be invested in such securities.

SELECTED U.S. GOVERNMENT INCOME FUND FUNDAMENTAL INVESTMENT RESTRICTIONS
- - ------------------------------------------------------------------------

The Fund may not:

1. Diversification. Buy the securities of any company if more than 5% of
the value of the Fund's total assets would be invested in that company.
Securities issued by the U.S. Government, or its agencies or
instrumentalities and repurchase agreements involving such securities
(U.S. Government Securities") are excluded from this restriction;

2. Concentration. invest 25% or more of its total assets in any one
industry, except that this restriction shall not apply to U.S.
Government Securities.

3. Real Estate, Commodities. purchase or sell real estate, real estate
mortgage loans, commodities or commodity futures contracts, or oil, gas,
or mineral exploration or development interests except that Selected
Government Income may invest in futures contracts and related options as
described in the Prospectus and Statement of Additional Information;

18
<PAGE>

4. Borrowing. borrow money except for temporary or emergency non-investment
purposes, such as to accommodate abnormally heavy redemption requests,
and then only in an amount not exceeding 10% of the value of Selected
Government Income's total assets at the time of borrowing;

5. Underwriting. underwrite any securities issued by others except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain Federal
securities laws;

6. Loans. make loans, other than (a) by entering into repurchase
agreements, (b) through the purchase of other permitted investments in
accordance with its investment objective and policies, and (c) through
the lending of portfolio securities with respect to not more than 30% of
its assets;

7. Senior Securities. issue senior securities as defined in the 1940 Act,
except insofar as Selected Government Income may be deemed to have
issued a senior security by reason of (a) entering into any repurchase
agreements; (b) permitted borrowings of money; (c) purchasing securities
on a "when-issued" or delayed delivery basis; or (d) purchasing options,
futures contracts and related options;

8. Short Sales. make short sales of securities;

9. Margin. purchase securities on margin except that Selected Government
Income may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities and further excepting
that the deposit or payment by Selected Government Income of initial or
variation margin in connection with futures contracts or related options
transactions is not to be considered the purchase of a security on
margin;

10. Futures Contracts, Options. purchase or sell futures contracts or
options on futures contracts if, as a result, the sum of the initial
margin deposits on Selected Government Income's existing futures
contracts and related options positions and the premiums paid for
options on futures contracts would exceed 5% of the fair market value of
Selected Government Income's assets after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into;
provided, however, that in the case of an option that is "in-the-money"
at the time of the purchase, the "in-the-money" amount may be excluded
in computing such 5%; or

11. Pledging, Mortgaging, Hypothecation. pledge, mortgage or hypothecate its
assets, except that to secure borrowings permitted by (3) above, it may
pledge securities having a market value at the time of pledge not
exceeding 15% of Selected Government Income's total assets; provided,
however, that the deposit of underlying securities and other assets in
escrow in connection with the writing of put or call options and
collateral arrangements with respect to margin for futures contracts and
options thereon are not to be considered pledges or other encumbrances;

12. Other Investment Companies. invest in securities of other investment
companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets;

13. Repurchase Agreements. Illiquid Securities. enter into a repurchase
agreement maturing in more than seven days, or knowingly purchase
securities that are subject to restrictions on resale or for which there
are no readily available market quotations if, as a result, more than
10% of the value of Selected Government Income's total assets (taken at
current value) at the time would be invested in such securities;

14. Illiquid Securities. invest more than 10% of its total assets
(determined at the time of investment) in illiquid securities,
securities which are not readily marketable and repurchase agreements
which have a maturity of longer than seven days. In addition, Selected
Government Income will not invest more than 5% of its total assets in
securities the disposition of which is restricted under federal
securities laws.

19
<PAGE>

SELECTED DAILY GOVERNMENT FUND FUNDAMENTAL INVESTMENT RESTRICTIONS
- - ------------------------------------------------------------------

The Fund may not:

1. Diversification. purchase securities, if immediately after such
purchase more than 5% of its total assets would be invested in the
securities of any one issuer excluding U.S. Government Securities, and
repurchase agreements with respect to such securities;

2. Concentration. invest 25% or more of its total assets in any one
industry, except that this restriction shall not apply to U.S.
Government Securities;

3. Real Estate, Commodities. purchase or sell real estate, real estate
mortgage loans, commodities, commodity contracts (including futures
contracts) or oil and gas interests;

4. Borrowing. borrow money, except for temporary or emergency
non-investment purposes such as to accommodate abnormally heavy
redemption requests, and then only in an amount not exceeding 10% of the
value of its total assets at the time of borrowing;

5. Underwriting. underwrite any securities issued by others (except that it
may technically be considered an underwriter if it sells restricted
securities);

6. Loans. make loans, other than by entering into repurchase agreements and
through the purchase of other permitted investments in accordance with
its investment objective and policies;

7. Senior Securities. issue any class of securities senior to any other
class of securities.

8. Selling Short, Margin sell securities short or purchase any securities
on margin, except for such short-term credits as are necessary for
clearance or portfolio transactions;

9. Options. write, purchase or sell put or call options;

10. Pledging, Mortgaging, Hypothecation. pledge, mortgage or hypothecate its
assets, except that to secure borrowings permitted by (3) above, it may
pledge securities having a market value at the time of pledge not
exceeding 15% of its total assets;

11. Other Investment Companies. invest in securities of other investment
companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets;

12. Repurchase Agreements, Illiquid Securities. enter into a repurchase
agreement maturing in more than seven days or knowingly purchase
securities that are subject to restrictions on resale or for which there
are no readily available market quotations if, as a result of such
purchase more than 10% of a Fund's assets would be invested in such
securities;

PLEASE NOTE: all percentage restrictions apply as of the time of an investment
without regard to any later fluctuations in the value of portfolio securities
or other assets.

Section II: Key Persons
- - ------------------------

ORGANIZATION OF THE COMPANIES

THE COMPANIES. Each of the Selected Funds (the "Companies") is an
open-end, diversified, management investment company registered under the
Investment Company Act of 1940.

20
<PAGE>

Selected American Shares, Inc., organized in 1933, and Selected
Special Shares, Inc., organized in 1939, are Maryland corporations. Selected
American Shares, Inc. and Selected Special Shares, Inc. each currently issue
one series of common stock.

Selected U.S. Government Income Fund and Selected Daily Government
Fund are each separate series of Selected Capital Preservation Trust. The Trust
was organized as a business trust under the laws of Ohio in 1987 and currently
issues two separate series of shares of beneficial interest

FUND SHARES. The Board of Directors may offer additional series in the
future and may at any time discontinue the offering of any series of shares.
Shares when issued are fully plied, non-assessable, and freely transferable.
Shares have no preemptive or subscription rights. Each of the Companies' shares
represent an interest in the assets of the Company issuing the share and have
identical voting, dividend, liquidation and other rights and the same terms and
conditions as any other shares except that (i) the expenses related to a
series, such as those related to the distribution of each series and the
transfer agency expenses of each series are borne solely by each such series
and (ii) each series of shares votes separately with respect to provisions of
the Rule 12b-1 Distribution Plan, which pertains to a particular series, and
other matters for which separate series voting is appropriate under applicable
law. Each fractional share has the same rights, in proportion, as a full share.
Shares do not have cumulative voting rights; therefore, the holders of more
than 50% of the voting power of a Company can elect all of the directors of
that Company.

Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the shareholders of the outstanding voting securities of an
investment company, such as a Company, will not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each series affected by such matter. Rule 18f-2 further
provides that a series shall be deemed to be affected by a matter unless it is
clear that the interests of each series in the matter are identical or that
that the matter does not affect any interest of such series. Rule 18f-2 exempts
the selection of independent accountants and the election of Board members from
the separate voting requirements of the Rule.

In accordance with applicable law (Maryland law for Selected American
Shares and Selected Special Shares, Ohio law for Selected Capital Preservation
Trust) and the Funds' By-laws, the Companies do not hold regular annual
shareholder meetings. Shareholder meetings are held when they are required
under the Investment Company Act of 1940 or when otherwise called for special
purposes. Special shareholder meetings may be called upon the written request
of shareholders of at least 10% of the voting power that could be cast at the
meeting.

DIRECTORS AND OFFICERS

The Selected Funds' Board of Directors is responsible for the
management and supervision of the Companies and the Funds. Each of the
Directors serves as a director of Selected American Shares, Inc., Selected
Special Shares, Inc. and as a trustee of Selected Capital Preservation Trust.
The Board approves all significant agreements between the Companies, on behalf
of the Funds, and those companies that furnish services to the Funds. The names
and addresses of the directors and officers of the Companies are set forth
below, together with their principal business affiliations and occupations for
the last five years. As indicated below, certain directors and officers of the
Selected Funds hold similar positions with the Davis Funds (a family of eleven
funds) that are also managed by the Adviser.

WILLIAM P. BARR (5/23/50) - Director. Senior Vice President and General
Counsel, GTE Corporation since July 1994. Attorney General of the United States
from August 1991 to January 1993. Deputy Attorney General from May 1990 to
August 1991. Assistant Attorney General from April 1989 to May 1990. Partner
with the law firm of Shaw, Pittman, Potts & Trowbridge from 1984 to April 1989
and January 1993 to August 1994. His address is One Stamford Forum, Stamford,
CT 06904.

FLOYD A. BROWN (11/5/30) - Director. Staff announcer and program host for WGN
Radio and Television, Chicago, Illinois. Sole proprietor of The Floyd Brown
Co., Elgin, Illinois (advertising, media production and mass media marketing).
His address is 51 Douglas Avenue, Elgin, Illinois 60120.

21
<PAGE>

ANDREW A. DAVIS (6/25/63),* ** Director. Director and Vice President of each of
the Davis Funds (except Davis International Series, Inc.), Director and
President, Venture Advisers, Inc.; Director and Vice President, Davis Selected
Advisers-NY, Inc.; Consultant to Capital Ideas, a private financial consultant.
Former Vice President and head of convertible security research, PaineWebber,
Incorporated. His address is 124 East Marcy Street, Santa Fe, NM 87501.

CHRISTOPHER C. DAVIS (7/13/65),* ** Director. Director and Vice President of
each of the Davis Funds; Director, Vice Chairman, Venture Advisers, Inc.;
Director, Chairman, Chief Executive Officer, Davis Selected Advisers-NY, Inc.;
Chairman and Director, Shelby Cullom Davis Financial Consultants, Inc.;
employee of Shelby Cullom Davis & Co., a registered broker/dealer; Director,
Rosenwald, Roditi and Company, Ltd., an offshore investment management company.
His address is 609 Fifth Ave, New York, NY 10017.

JEROME E. HASS (6/1/40) - Director. Professor of Finance and Business Strategy
Johnson Graduate School of Management, Cornell University. Consultant National
Economic Research Associates. Formerly Chief of Research of the Federal Power
Commission and Special Assistant to James R. Schlesinger at the Executive
Office of the President of the United States. His address is 522 Malott Hall,
Ithaca, NY 14853.

KATHERINE L. MACWILLIAMS (1/19/56) - Director. Vice President, Treasurer Coors
Brewing Company and Adolph Coors Company. Formerly Vice President of Capital
Markets for UBS Securities in New York. Former member of the Board of
International Swaps and Derivatives Association, Inc. Her address is 12th &
Ford St., Golden, CO 80401

JAMES J. MCMONAGLE (10/1/44) - Chairman and Director. Senior Vice President and
General Counsel of University Health System, Inc. and University Hospitals of
Cleveland. From 1976 to 1990, Judge of the Court of Common Pleas, Cuyahoga
County, Ohio. His address is 11100 Euclid Avenue, Cleveland, Ohio 44106.

RICHARD O'BRIEN (9/12/45) - Director. Corporate Economist for Hewlett-Packard
Company. Director, National Association of Business Economists, former
President of the Northern California High Technology Council and former
Chairman of the Economic Advisory Council of the California Chamber of
Commerce. His address is 3000 Hanover St., Palo Alto, CA 94304.

LARRY ROBINSON (10/28/28) - Director. General Partner, Robinson Investment
Company. Management Consultant. Corporate Liaison for Mayor Michael R. White of
Cleveland, Ohio. Adjunct Professor at Weatherhead School of Management, Case
Western Reserve University. His address is 950 Terminal Tower, 50 Public
Square, Cleveland, Ohio 44113.

MARSHA WILLIAMS (3/28/51) - Director. Director of each of the Davis Funds
(except Davis International Series, Inc.). Chief Administrative Officer of
Crate & Barrel; former Treasurer, Amoco Corporation. Director, Illinois
Benedictine College, The Conference Board Council of Corporate Treasurers,
Illinois Council on Economic Education, Chicagoland Chamber of Commerce;
Formerly, Director, Fertilizers of Trinidad and Tobago from 1989-1993, Ok Tedi
Mining Limited from 1992-1993, Just Jobs from 1988-1992. Her address is 200 E.
Randolph Dr., Chicago, IL 60601.

SHELBY M.C. DAVIS (3/20/37),** President. President of each of the Davis Funds.
Director, Chairman and Chief Executive Officer, Venture Advisers, Inc.;
Director, Davis Selected Advisers-NY, Inc.; Employee of Capital Ideas, Inc.
(financial consulting firm); Consultant to Fiduciary Trust Company
International; Director, Shelby Cullom Davis Financial Consultants, Inc. His
address is 4135 North Steers Head Road, Jackson Hole, WY 83001.

KENNETH C. EICH (8/14/53), Vice President. Vice President of each of the Davis
Funds; Chief Operating Officer, Venture Advisers, Inc.; Vice President, Davis
Selected Advisers-NY, Inc.; President, Davis Distributors, L.L.C. Former
President and Chief Executive Officer of First of Michigan Corporation. Former
Executive Vice President and Chief Financial Officer of Oppenheimer Management
Corporation. His address is 124 East Marcy Street, Santa Fe, NM 87501.

CAROLYN H. SPOLIDORO (11/19/52) Vice President. Vice President of each of the
Davis Funds; Vice President of Venture Advisers, Inc.

22
<PAGE>

SHARRA L. REED (9/25/66), Vice President Treasurer and Assistant Secretary.
Vice President, Treasurer and Assistant Secretary of each of the Davis Funds.
Vice President of Venture Advisers, Inc. Former Unit Manager with Investors
Fiduciary Trust Company. Her address is 124 East Marcy Street, Santa Fe NM
87501.

THOMAS D. TAYS (3/7/57), Vice President and Secretary. Vice President and
Secretary of each of the Davis Funds; Vice President and Secretary, Venture
Advisers, Inc., Davis Selected Advisers-NY, Inc., and Davis Distributors,
L.L.C. Former Vice President and Special Counsel of U.S. Global Investors, Inc.
His address is 124 East Marcy Street, Santa Fe NM 87501.

ARTHUR DON (9/24/53) - Assistant Secretary. Assistant Secretary of each of the
Davis Funds. Partner, D'Ancona & Pflaum, Fund Legal Counsel. His address is 111
E. Wacker Drive, Suite 2800, Chicago, IL. 60601.

SHELDON R. STEIN (11/29/28) - Assistant Secretary. Assistant Secretary of each
of the Davis Funds. Partner, D'Ancona & Pflaum, Fund Legal Counsel. His address
is 111 E. Wacker Drive, Suite 2800, Chicago, IL. 60601.

* Andrew A. Davis and Christopher C. Davis are considered to be "interested
persons" of the Companies, as defined in the Investment Company Act.

** Shelby M.C. Davis is the father of Andrew A. Davis and Christopher C. Davis.

The Companies do not pay salaries to any of its officers. The Adviser
performs certain services on behalf of the Companies and is reimbursed by the
Companies for the costs of providing these services.

DIRECTORS COMPENSATION SCHEDULE

During the fiscal year ended December 31, 1998, the compensation paid
to the directors who are not considered to be interested persons of the
Companies was as follows:

Xxfund accounting will update these numbers

AGGREGATE COMPENSATION TOTAL
NAME FROM SELECTED FUNDS COMPLEX COMPENSATION*
---- ------------------- ---------------------
<S> <C> <C>
William P. Barr $xx $xx
Floyd A Brown xx xx
Jerome E. Hass xx xx
Katerine L. MacWilliams xx xx
James J. McMonagle xx xx
Richard C. O'Brien xx xx
Larry Robinson xx xx
Marsha Williams xx xx
</TABLE>

* Complex compensation is the aggregate compensation paid, for services as a
Director, by all mutual funds with the same investment adviser. There are
eight registered investment companies in the complex.

CERTAIN SHAREHOLDERS OF THE FUND

As of February xx, 1999, officers and directors owned the following
percentages of each of the Companies:

Percentage of
Outstanding Shares Owned
------------------------

Selected American Shares xx%

23
<PAGE>

Selected Special Shares xx
Selected U.S. Government Income Fund xx
Selected Daily Government Fund xx

* indicates that officers and directors as a group owned less than 1% of the
outstanding shares of the indicated shares.

The following table sets forth, as of February xx, 1999 the name and
holdings of each person known by the Companies to be a record owner of more
than 5% of the outstanding shares any of the Selected Funds. Selected Funds are
not aware of any shareholder that beneficially owns in excess of 25% of any
Fund's total outstanding shares.

PERCENT OF
NAME AND ADDRESS OUTSTANDING SHARES
- - ---------------- ------------------

SELECTED AMERICAN SHARES

Xxxx
Xxxxx
Xxxx

SELECTED SPECIAL SHARES

xxxx
xxxx
xxxx

SELECTED U.S. GOVERNMENT INCOME FUND

Xxx
Xxx
Xxx

SELECTED DAILY GOVERNMENT FUND

Xxx
Xxx
Xxx

INVESTMENT ADVISORY SERVICES

Davis Selected Advisers, L.P. (the "Adviser") whose principal office
is at 124 East Marcy Street, Santa Fe, New Mexico 87501, serves as the
investment adviser of each of the Selected Funds. Venture Advisers, Inc. is the
Adviser's sole general partner. Shelby M.C. Davis is Chief Investment Officer
of the Adviser and the controlling shareholder of the general 965815574partner.
Subject to the direction and supervision of the Board of Directors, the Adviser
manages the investment and business operations of the Funds. Davis
Distributors, LLC ("the Distributor"), a subsidiary of the Adviser, serves as
the distributor or principal underwriter of the Funds' shares. Davis Selected
Advisers-NY, Inc., ("DSA-NY") a wholly owned subsidiary of the Adviser,
performs investment management, research and other services for the Funds on
behalf of the Adviser under a Sub-Advisory Agreement with the 965815664Adviser.
The Adviser also acts as investment adviser for Davis New York Venture Fund,
Inc., Davis Intermediate Investment Grade Bond Fund, Inc., Davis Tax-Free High
Income Fund, Inc., Davis Series, Inc., Davis International Series, Inc.,
(collectively, the "Davis Funds"), The Distributor also acts as the principal
underwriter for the Davis Funds and the Selected Funds.

24
<PAGE>

ADVISORY AGREEMENT. Pursuant to Advisory Agreements, each Selected
Fund pays the Adviser a fee according to a separate negotiated fee schedule.

Selected American Shares pays the Adviser a fee at the annual rate
based on average net assets, as follows: 0.65% on the first $500 million; 0.60%
on the next $500 million; 0.55% on the next $2 billion; 0.54% on the next $1
billion; 0.53% on the next $1 billion; 0.52% on the next $1 billion; 0.51% on
the next $1 billion; and 0.50% of average net assets in excess of $7 billion.

Selected Special Shares pays the Adviser a fee at the annual rate
based on average net assets, as follows: 0.70% on the first $50 million; 0.675%
on the next $100 million; 0.65% of the next $100 million, and 0.60% on amounts
over $250 million.

Selected U.S. Government Income Fund pays the Adviser a flat fee at
the annual rate of 0.50% of average net assets.

Selected Daily Government Fund pays the Adviser a flat fee at the
annual rate of 0.30% of average net assets.

The aggregate advisory fees paid by each of the Selected Funds to the
Adviser:

for fiscal years ended December 31:
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Selected American Shares $xxx $xxx xxx
Selected Special Shares xxx xxx xxx
Selected U.S. Government Income Fund xxx xxx xxx
Selected Daily Government Fund xxx xxx xxx

</TABLE>

These fees may be higher than that of most other mutual funds but is
not necessarily higher than that paid by funds with similar objectives.

Bramwell Capital Management, Inc., 745 Fifth Avenue, New York, New
York, 10151 serves as Sub-Adviser to Selected Special Shares under a
Sub-Advisory Agreement with the Adviser. The Sub-Adviser manages the day to day
investment operations of Selected Special Shares, subject to the Adviser's
overall supervision. All the fees paid to the Sub-Adviser are paid by the
Adviser and not the Fund.

The Adviser has also entered into Sub-Advisory Agreements with it
wholly owned subsidiary, Davis Selected Advisers-NY, Inc. ("DSA-NY") where
DSA-NY performs research and other services for each Selected Fund on behalf of
the Adviser. Under the Agreement, the Adviser pays all of DSA-NY' s direct and
indirect costs of operation. All the fees paid to DSA-NY are paid by the
Adviser and not the Fund.

The Advisory Agreements also make provisions for portfolio
transactions and brokerage policies of the Selected Funds which are discussed
above under "Portfolio Transactions."

In accordance with the provisions of the Investment Company Act of
1940, each Advisory Agreement and Sub-Advisory Agreement will terminate
automatically upon assignment and is subject to cancellation upon 60 days'
written notice by a Company's Board of Directors, the vote of the holders of a
majority of the Funds outstanding shares, or the Adviser. The continuance of
the Advisory Agreements and Sub-Advisory Agreements must be approved at least
annually by the Funds Board of Directors or by the vote of holders of a
majority of the outstanding shares of the Fund. In addition, any new agreement
or the continuation of the existing agreement must be approved by a majority of
directors who are not parties to the agreements or interested persons of any
such party.

25
<PAGE>

Pursuant to the Advisory Agreements, the Adviser, subject to the
general supervision of the Funds' Board of Directors, provides management and
investment advice, and furnishes statistical, executive and clerical personnel,
bookkeeping, office space, and equipment necessary to carry out its investment
advisory functions and such corporate managerial duties as requested by the
Board of Directors of the Funds. The Funds bear all expenses other than those
specifically assumed by the Adviser under the Advisory Agreement, including
preparation of its tax returns, financial reports to regulatory authorities,
dividend determinations, transaction and accounting matters related to its
custodian bank, transfer agency, custodial and shareholder services, and
qualification of its shares under federal and state securities 965816929laws.
Each fund reimburses the Adviser for providing certain shareholder services.
Such reimbursements are detailed below:

Fiscal year ended December 31
1998 1997 1996
<S> <C> <C> <C>
Selected American Shares $xxx $xxx $xxx
Selected Special Shares xxxx xxx xxx
Selected U.S. Government Income Fund xxx xxx xxx
Selected Daily Income Fund xxx xxx xxx

</TABLE>

CODE OF ETHICS. The Adviser has adopted a Code of Ethics which
regulates the personal securities transactions of the Adviser's investment
personnel, other employees, and affiliates, with access to information
regarding securities transactions of the Funds. The Code of Ethics requires
investment personnel to disclose personal securities holdings upon commencement
of employment and all subsequent trading activity to the Adviser's Compliance
Officer. Investment personnel are prohibited from engaging in any securities
transactions, including the purchase of securities in a private offering,
without the prior consent of the Compliance Officer. Additionally, such
personnel are prohibited from purchasing securities in an initial public
offering and are prohibited from trading in any securities (i) for which the
fund has a pending buy or sell order, (ii) which the fund is considering buying
or selling, or (iii) which the fund purchased or sold within seven calendar
days.

DISTRIBUTION OF COMPANY SHARES

DISTRIBUTION PLANS. Each of the Selected Funds have each adopted
Distribution Plans under which each Fund pays the Distributor a fee of 0.25% of
average daily net assets.966504436 The Distribution Plans were approved by the
Funds' Board of Directors in accordance with Rule 12b-1 under the Investment
Company Act of 1940. Rule 12b-1 regulates the manner in which a mutual fund may
assume costs of distributing and promoting the sale of its shares. Payments
pursuant to a Distribution Plan are included in the operating expenses of the
Funds.

To the extent that any investment advisory fees paid by a Company may
be deemed to be indirectly financing any activity which is primarily intended
to result in the sale of Company shares within the meaning of Rule 12b-1, the
Distribution Plans authorize the payment of such fees.

The Distribution Plans continue annually so long as they are approved
in the manner provided by Rule 12b-1 or unless earlier terminated by vote of
the majority of the Independent Directors or a majority of a Fund's outstanding
shares. The Distributor is required to furnish quarterly written reports to the
Board of Directors detailing the amounts expended under the Distribution Plans.
The Distribution Plans may be amended provided that all such amendments comply
with the applicable requirements then in effect under Rule 12b-1. Currently,
Rule 12b-1 provides that as long as the Distribution Plans are in effect, the
Companies must commit the selection and nomination of candidates for new
Independent Directors to the sole discretion of the existing Independent
Directors.

THE DISTRIBUTOR. Davis Distributors, LLC, ("the Distributor"), 124
East Marcy, Santa Fe, New Mexico, 87501 is a wholly owned subsidiary of the
Adviser and pursuant to a Distributing Agreement acts as principal underwriter
of the funds shares on a continuing basis pursuant to a Distributing
965818002Agreement. Pursuant to the Distributing Agreement, the Distributor
pays for all expenses in connection with the preparation, printing, and
distribution of advertising and sales literature for use in offering the funds
shares to the public, including reports to shareholders to the extent they are
used as sales literature. The Distributor also pays for the preparation and
printing

26
<PAGE>

of prospectuses other than those forwarded to existing shareholders. The
continuance and assignment provisions of the Distributing Agreement are the
same as those of the Advisory Agreement.

The Distributor has agreements with securities dealers and other
persons (such as financial planners) for distributing shares of the Funds
and/or providing services to shareholders. The Distributor may pay such firms
negotiated service fees based upon the average net asset value of the Selected
Funds for which representatives of the service providers are responsible and
provide services.

Shares of the Selected Funds may be sold through banks or
bank-affiliated dealers. If it is determined that the Glass-Steagall Act (which
limits the ability of a bank to be an underwriter of securities) prohibits
banks or bank affiliates from selling shares of the Funds, there would be no
material adverse effects on the Funds. State securities laws may require such
firms to be licensed as securities dealers in order to sell shares of the
Selected Funds.

As Selected Funds are sold without imposing front or back end sales
charges, the Distributor does not collect sales charges on the sale of Fund
shares:

The Distributor received the following amounts as compensation under
the Distribution plans.

Fiscal year ended December 31
1998 1997 1996
<S> <C> <C> <C>
Selected American Shares $xx $xx $xx
Selected Special Shares xxx xxx xxx
Selected U.S. Government Income Fund xxx xxx xxx
Selected Daily Government Fund xxx xxx xxx

</TABLE>

XxxSharra, can we break out the 1998 expenses for service fees, prospectuses
for non-shareholders, advertising, and other?

FUND SUPERMARKETS. The Funds participate in various "Fund Supermarkets"
in which a broker-dealer offers many mutual funds to the sponsor's clients
without charging the clients a sales charge. The Funds pay the supermarket
sponsor a negotiated fee for distributing the Funds' shares and for continuing
services provided to their shareholders.

A portion of the supermarket sponsor's fee (that portion related to
sales, marketing, or distribution of Fund shares) is paid with fees authorized
under the Distribution Plans.

A portion of the supermarket sponsor's fee (that portion related to
shareholder services such as new account set-up, shareholder accounting,
shareholder inquires, transaction processing, and shareholder confirmations and
reporting) is paid as a shareholder servicing fee of the Funds. The Funds would
typically be paying these shareholder servicing fees directly, were it not that
the supermarket sponsor holds all customer accounts in a single omnibus account
with the Funds. The amount of shareholder servicing fees which the Funds may
pay to supermarket sponsors may not exceed the lesser of (a) 1/10 of 1 percent
of net assets held by such supermarket sponsors per year or (b) the shareholder
servicing costs saved by the Funds with the omnibus account (determined in the
reasonable judgement of the Adviser).

If the supermarket sponsor's fees exceed the sum available from the
Distribution Plans and shareholder servicing fees, then the Adviser pays the
remainder out of its profits.

27
<PAGE>

OTHER IMPORTANT SERVICE PROVIDERS

CUSTODIAN. State Street Bank and Trust Company ("State Street" or
"Custodian"), One Heritage Drive, North Quincy, Massachusetts 02171, serves as
custodian of the Companies' assets. The Custodian maintains all of the
instruments representing the Companies' investments and all cash. The Custodian
delivers securities against payment upon sale and pays for securities against
delivery upon purchase. The Custodian also remits the Companies' assets in
payment of the Fund's expenses, pursuant to instructions of officers or
resolutions of the Board of Directors. The Custodian also provides certain fund
accounting and transfer agent services.

AUDITORS. KPMG LLP ("KPMG"), 707 17th St. Suite 2300, Denver, Colorado
80202, serves as independent auditors for each of the funds. The auditors
consult on financial accounting and reporting matters, and meet with the Audit
Committee of the Board of Directors. In addition, KPMG reviews federal and
state income tax returns and related forms.

COUNSEL. D'Ancona & Pflaum, 111 E. Wacker Drive, Suite 2800, Chicago,
IL. 60601, serves as counsel to the Companies and also serves as counsel for
those members of the Board of Directors who are not affiliated with the
Adviser.

Section III: Purchase, Redeem and Exchanging Shares
- - ---------------------------------------------------

PURCHASE OF SHARES

Shares of the Funds may be purchased though a securities dealer having
a sales agreement with the Distributor (a "Qualified Dealer") or directly form
the Funds. No matter how you purchase your shares, you pay no sales load. You
can open an account if you invest at least: $1,000 for a non-retirement plan
account. or $250 for a retirement plan account.

There are three ways that you may open an account:

1. BY MAIL. Fill out the Application Form included in this prospectus and mail
it to our service provider, State Street Bank and Trust. Include a check made
payable to SELECTED FUNDS or, in the case of a retirement account, the
custodian or trustee. All purchases by check should be in U.S. dollars.
SELECTED FUNDS WILL NOT ACCEPT THIRD-PARTY CHECKS. When purchases are made by
check, redemptions will not be allowed until the investment being redeemed has
been in the account for 15 calendar days.

3. BY WIRE. You may wire federal funds directly to our service provider,
State Street Bank and Trust. Before you wire an initial investment, you
must call Davis Distributors to let them know the fund you will be buying.
After the initial wire purchase is made, you will need to fill out a Plan
Adoption Agreement or Application Form and return it to State Street Bank
and Trust. To ensure that the purchase is credited properly, follow these
wire instructions:

28
<PAGE>

SUBSEQUENT INVESTMENTS. After your initial investment, you can make
additional investments of at least $25. Simply mail a check payable to "The
Selected Funds" to State Street Bank and Trust Company, c/o The Selected Funds,
P.O. Box 8243, Boston, MA 02266-8243. For overnight delivery, please send your
check to State Street Bank and Trust Company, c/o the Selected Funds, 2
Heritage Drive 5th Floor North Quincy, MA. 02171. Third party checks will not
be accepted. The check should be accompanied by a form which State Street will
provide after each purchase. If you do not have a form, you should tell State
Street that you want to invest the check in shares of the applicable fund. If
you know your account number, you should also provide it to State Street.

CERTIFICATES. The Companies do not issue certificates for shares
unless you request a certificate each time you make a purchase. Certificates
are not issued for accounts using the Automatic Withdrawal Plan. In no event,
however, will Selected Daily Government Fund issue a certificate since all
shares must be uncertificated to use the check writing or pre-designated
account payment privileges. Instead, shares purchased are automatically
credited to an account maintained for you on the books of the Companies by
State Street. You will receive a statement showing the details of the
transaction and any other transactions you had during the current year each
time you add to or withdraw from your account.

SPECIAL SERVICES

PROTOTYPE RETIREMENT PLANS. The Distributor and certain qualified
dealers have available prototype retirement plans (e.g. 401(k), profit sharing,
money purchase, Simplified Employee Pension ("SEP") plans, model 403(b) and 457
plans for charitable, educational and governmental entities) sponsored by the
Companies for corporations and self-employed individuals. The Distributor and
certain qualified dealers also have prototype Individual Retirement Account
("IRA") plans (deductible IRAs, non-deductible IRAs, including "Roth IRAs", and
educational IRAs) and SIMPLE IRA plans for both individuals and employers.
These plans utilize the shares of the Selected Funds as their investment
vehicle. State Street acts as custodian or trustee for such plans, and charges
the participant $10 to establish each account and an annual maintenance fee of
$10 per social security number. Such fees will be redeemed automatically at
year-end from your account, unless you elect to pay the fee directly prior to
such time.

AUTOMATIC INVESTMENT PLAN. You may arrange for automatic monthly
investing whereby State Street will be authorized to initiate a debit to your
bank account of a specific amount (minimum $25) each month which will be used
to purchase the Funds shares. The account minimums of $1,000 for non-retirement
accounts and $250 for retirement accounts will be waived, if pursuant to the
automatic investment plan, the account balance will meet the minimum investment
requirements within twelve months of the initial investment. For institutions
that are members of the Automated Clearing House system (ACH), such purchases
can be processed electronically on any day of the month between the 4th and
28th day of each month. After each automatic investment, you will receive a
transaction confirmation, and the debit should be reflected on your next bank
statement. You may terminate the Automatic Investment Plan at any time. If you
desire to utilize this plan, you may use the appropriate designation on the
Application Form.

DIVIDEND DIVERSIFICATION PROGRAM. You may also establish a dividend
diversification program which allows you to have all dividends and any other
distributions automatically invested in shares of one or more of the Selected
Funds, subject to state securities law requirements and the minimum investment
requirements. You must receive a current prospectus for the other fund or funds
prior to investment. Shares will be purchased at the chosen fund's net asset
value on the dividend payment date. A dividend diversification account must be
in the same registration as the distributing fund account. All accounts
established or utilized under this program must have a minimum initial value,
and all subsequent investments must be at least $25. This program can be
amended or terminated at any time, upon at least 60 days' notice. If you would
like to participate in this program, you may use the appropriate designation on
the Application Form.

TELEPHONE PRIVILEGE. Unless you have provided in your application that
the telephone privilege is not to be available, the telephone privilege is
automatically available under certain circumstances for exchanging shares and
for redeeming shares. BY EXERCISING THE TELEPHONE PRIVILEGE TO SELL OR EXCHANGE
SHARES, YOU AGREE THAT THE DISTRIBUTOR SHALL NOT BE LIABLE FOR FOLLOWING
TELEPHONE INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE. Reasonable procedures
will be employed to confirm that such instructions are genuine and if not
employed, the

29
<PAGE>

Companies may be liable for unauthorized instructions. Such procedures will
include a request for personal identification (account or social security
number) and tape recording of the instructions. You should be aware that during
unusual market conditions we might have difficulty in accepting telephone
requests, in which case you should contact us by mail.

EXCHANGE OF SHARES

GENERAL. The exchange privilege is a convenient way to buy shares in
other Selected Funds in order to respond to changes in your goals or in market
conditions. If such goals or market conditions change, the Selected Funds offer
a variety of investment objectives that includes common stock funds, a
government bond fund, and a government money market fund. However, the Funds
are intended as long-term investments and (other than Selected Daily Government
Fund) are not intended for short-term trades. The shares to be received upon
exchange must be legally available for sale in your state. The net asset value
of the initial shares being acquired must meet the required minimum of $1,000
unless such exchange is under the Automatic Exchange Program described below.

Shares may be exchanged at relative net asset value without any
additional charge.

Before you decide to make an exchange, you must obtain a current
Selected Funds prospectus. Read the prospectus carefully. If you decide to
exchange your shares, contact your broker/dealer, the Distributor, or send
State Street a written unconditional request for the exchange and follow the
instructions regarding delivery of share certificates contained in the section
on "Redemption of Shares." A medallion signature guarantee is not required for
such an exchange. However, if shares are also redeemed for cash in connection
with the exchange transaction, a medallion signature guarantee may be required.
A medallion signature guarantee is a written confirmation from an eligible
guarantor institution, such as a securities broker-dealer or a commercial bank,
that the signature(s) on the account is (are) valid. Unfortunately, no other
form of signature verification can be accepted. Your dealer may charge an
additional fee for handling an exercise of the exchange privilege.

An exchange involves both a redemption and a purchase, and normally
both are done on the same day. However, in certain instances such as where a
large redemption is involved, the investment of redemption proceeds into shares
of other Selected Funds may take up to seven days. For federal income tax
purposes, exchanges between funds are treated as a sale and purchase.
Therefore, there will usually be a recognizable capital gain or loss due to an
exchange.

The number of times you may exchange shares among the Selected Funds
within a specified period of time may be limited at the discretion of the
Distributor. Currently, more than four exchanges out of a fund during a
twelve-month period are not permitted without the prior written approval of the
Distributor. The Selected Funds reserve the right to terminate or amend the
exchange privilege at any time upon 60 days' notice.

BY TELEPHONE. You may exchange shares by telephone into accounts with
identical registrations. Please see the discussion of procedures in respect to
telephone instructions in the section entitled "Telephone Privilege," as such
procedures are also applicable to exchanges.

AUTOMATIC EXCHANGE PROGRAM. The Selected Funds also offer an automatic
monthly exchange program. All accounts established or utilized under this
program must have the same registration and a minimum initial value of at least
$250. All subsequent exchanges must have a value of at least $25. Each month,
shares will be simultaneously redeemed and purchased at the chosen fund's
applicable price. If you would like to participate in this program, you may use
the appropriate designation on the Application Form.

REDEMPTION OF SHARES

GENERAL. You can redeem, or sell back to the Companies, all or part of
your shares at any time at net asset value. You can do this by sending a
written request to State Street Bank and Trust Company, c/o The Selected Funds,
P.O. Box 8243, Boston, MA 02266-8243, indicating how many of your shares or
what dollar amount you

30
<PAGE>

want to redeem. If more than one person owns the shares to be redeemed, all
owners must sign the request. The signatures on the request must correspond to
the account from which the shares are being redeemed.

Sometimes State Street needs more documents to verify authority to
make a redemption. This usually happens when the owner is a corporation,
partnership or fiduciary (such as a trustee or the executor of an estate) or if
the person making the request is not the registered owner of the shares.

If shares to be redeemed are represented by a certificate, the
certificate must be signed by the owner or owners and must be sent to State
Street with the request.

For the protection of all shareholders, the Companies also requires
that signatures appearing on a share certificate, stock power or redemption
request where the proceeds would be more than $50,000, must be medallion
signature guaranteed by an eligible guarantor institution, such as a securities
broker-dealer, or a commercial bank. A medallion signature guarantee is also
required in the event that any modification to the Companies' application is
made after the account is established, including the selection of the Expedited
Redemption Privilege. In some situations such as where corporations, trusts, or
estates are involved, additional documents may be necessary to effect the
redemption. The transfer agent may reject a request from any of the foregoing
eligible guarantors, if such guarantor does not satisfy the transfer agent's
written standards or procedures, or if such guarantor is not a member or
participant of a medallion signature guarantee program. This provision also
applies to exchanges when there is also a redemption for cash. A medallion
signature guarantee on redemption requests where the proceeds would be $50,000
or less is not required, provided that such proceeds are being sent to the
address of record and, in order to ensure authenticity of an address change,
such address of record has not been changed within the last 30 days. All
notifications of address changes must be in writing.

Redemption proceeds are normally paid to you within seven days after
State Street receives your proper redemption request. Payment for redemptions
can be suspended under certain emergency conditions determined by the
Securities and Exchange Commission or if the New York Stock Exchange is closed
for other than customary or holiday closings. If any of the shares redeemed
were just bought by you, payment to you may be delayed until your purchase
check has cleared (which usually takes up to 15 days from the purchase date).
You can avoid any redemption delay by paying for your shares with a bank wire
or federal funds.

Redemptions are ordinarily paid to you in cash. However, If the Boards
of Directors should decide to make payments other than in cash, redemptions
could be paid in securities, valued at the value used in computing a fund's net
asset value. There would be brokerage costs incurred by the shareholder in
selling such redemption proceeds.

Your shares may also be redeemed through participating dealers. Under
this method, the Distributor repurchases the shares from your dealer, if your
dealer is a member of the Distributor's selling group. Your dealer may, but is
not required to, use this method in selling back your shares and may place
repurchase request by telephone or wire. Your dealer may charge you a service
fee or commission. No such charge is incurred if you redeem your own shares
through State Street rather than having a dealer arrange for a repurchase.

SELECTED DAILY GOVERNMENT FUND. You may request redemption of part or
all of your in Selected Daily Government Fund by mail by sending your request
to State Street Bank and Trust Company, c/o Selected Funds, P.O. Box 8243,
Boston, MA 02266-8243. You may also redeem shares through the Check Writing
Privilege or by Expedited Redemption Privilege to a pre-designated bank
account. Normally, except for payment to a pre-designated bank account, State
Street will send payment for Selected Daily Government Fund shares redeemed
within three business days, but in no event, later than seven days, after
receipt of a redemption request in proper form.

SELECTED DAILY GOVERNMENT FUND CHECK WRITING PRIVILEGE. For Selected
Daily Government Fund accounts other than retirement plans and IRAs, State
Street will provide, upon request, forms of drafts to be drawn on your regular
account that will clear through State Street. These drafts may be made payable
to the order of any person in any amount not less than $100. When a draft is
presented to State Street for payment, State Street will redeem a sufficient
number of full and fractional shares in your account to cover the amount of the
draft. This enables you to continue earning daily income dividends until the
draft has cleared.

31
<PAGE>

If you elect to use this method of redemption, please so signify on
the Check Writing Privilege Form. You will be subject to State Street's rules
and regulations governing such drafts, including the right of State Street not
to honor drafts in amounts exceeding the value of the regular account at the
time they are presented for payment. Drafts in excess of the value of Selected
Daily Government Fund regular account cannot be honored by redemption of any
other Fund account. The Companies and State Street reserve the right to modify
or terminate this service at any time.

A shareholder may issue a "Stop Payment" on any draft by calling State
Street at (800) 243-1575. The "Stop Payment" order will become effective if it
is given on a timely basis pursuant to the "Stop Payment" rules in effect at
State Street with respect to their regular checking accounts.

EXPEDITED REDEMPTION PRIVILEGE. Expedited Redemption Privilege:
Investors with accounts other than prototype retirement plans and IRAs may
instruct State Street to establish banking instructions for the purpose of a
future expedited redemption. For Selected Daily Government Fund the proceeds
may be sent by wire only if the amount is $5,000 or more. Expedited redemption
privilege allows the shareholder to instruct State Street to forward redemption
proceeds to their checking or savings account at the their commercial banking
institution.

Shareholders may establish expedited redemption privilege by (a)
completion of the expedited redemption privilege section at the time the
account is established, (b) written instruction signed by all shareholders with
their signature medallion guaranteed, or (c) completion of the Selected Funds
Account Service Form by all shareholders with their signature(s) medallion
guaranteed. In each case, the shareholders must submit a copy of a voided check
or encoded deposit slip. With the voided check or encoded deposit slip, State
Street can verify the correct banking instructions.

Once the expedited redemption privilege is established, proceeds may
be sent via expedited redemption privilege by notifying Davis Distributors by
(a) telephone request from the registered shareholder(s) (b) telephone request
from the registered representative of a Qualified Dealer, or (c) written
request signed by the registered shareholder.

Redemption proceeds may be delivered by federal funds wire or by
Automated Clearing House (ACH). Proceeds delivered by federal funds wire should
be received the business day following the redemption transaction. There is a
$5.00 charge by State Street for federal funds wire service and the receiving
bank may charge for this service. Proceeds delivered by ACH should be received
within two business days following the redemption transaction. State Street
does not charge for this service. Certain financial institutions may not accept
proceeds by either of these methods except by arrangement with its
correspondent bank or unless such institution is a member of the Federal
Reserve System.

If a shareholder seeks to use the check writing privilege or expedited
redemption privilege to a pre-designated bank account to redeem Selected Daily
Government Fund shares recently purchased by check (whether by regular or
expedited method), the fund will refuse to accept telephone redemption requests
when made and to honor redemption drafts when presented unless it is then
reasonably assured of the collection of the check representing the purchase
(normally up to 15 days after receipt of such check). This result can be
avoided by investing by wire.

MAINTENANCE FEES. To help relieve Selected Daily Government Fund's
high cost of maintaining small accounts, there is a $10 charge imposed on all
accounts whose net asset value has been reduced to less than $1,000. This
charge is collected by redemption in December of each year and is paid to
Selected Daily Government Fund.

BY TELEPHONE. You can redeem shares by telephone and receive a check
by mail, but please keep in mind:

The check can only be issued for up to $25,000;
The check can only be issued to the registered owner (who
must be an individual);
The check can only be sent to the address of record; and
Your current address of record must have been on file for
30 days.

32
<PAGE>

AUTOMATIC WITHDRAWALS PLAN. Under the Automatic Withdrawals Plan, you
can indicate to State Street how many dollars you would like to receive each
month or each quarter. Your account must have a value of at least $10,000 to
start a plan. On shares that are redeemed you will receive the payment you have
requested approximately on the 25th day of the month. Withdrawals involve
redemption of shares and may produce gain or loss for income tax purposes.
Purchase of additional shares concurrent with withdrawals may be
disadvantageous to you because of tax consequences. If the amount you withdraw
exceeds the dividends on your shares, your account will suffer depletion. You
may terminate your Automatic Withdrawals Plan at any time without charge or
penalty. The Companies reserve the right to terminate or modify the Automatic
Withdrawals Plan at any time.

INVOLUNTARY REDEMPTIONS. To relieve the Companies of the cost of
maintaining uneconomical accounts, the Companies may effect the redemption of
shares at net asset value in any account if the account, due to shareholder
redemptions, has a value of less than $250. At least 60 days prior to such
involuntary redemption, the Companies will mail a notice to the shareholder so
that an additional purchase may be effected to avoid such redemption.

Section IV: General Information
- - --------------------------------

DETERMINING THE PRICE OF SHARES

NET ASSET VALUE. The Funds' net asset value per share is determined
daily by dividing the total value of investments and other assets, less any
liabilities, by the total outstanding shares. The net asset value of each Fund
is determined daily as of the earlier of the close of the New York Stock
Exchange (the "Exchange") or 4:00 p.m., Eastern Time, on each day that the
Exchange is open for trading.

The price per share for purchases or redemptions made directly through
State Street is generally the value next computed after State Street receives
the purchase order or redemption request. In order for your purchase order or
redemption request to be effective on the day you place your order with your
broker-dealer or other financial institution, such broker-dealer or financial
institution must (i) receive your order before 4:00 p.m. Eastern time and (ii)
promptly transmit the order to State Street. The broker-dealer or financial
institution is responsible for promptly transmitting purchase orders or
redemption requests to State Street so that you may receive the same day's net
asset value. Note that in the case of redemptions and repurchases of shares
owned by corporations, trusts, or estates, or of shares represented by
outstanding certificates, State Street may require additional documents to
effect the redemption and the applicable price will be determined as of the
close of the next computation following the receipt of the required
documentation or outstanding certificates. See "Redemption of Shares."

The Companies do not price their shares or accept orders for purchases
or redemptions on days when the New York Stock Exchange is closed. Such days
currently include New Year's Day, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

Certain brokers and certain designated intermediaries on their behalf
may accept purchase and redemption orders. The Distributor will be deemed to
have received such an order when the broker or the designee has accepted the
order. Customer orders are priced at the net asset value next computed after
such acceptance. Such order may be transmitted to the Fund or its agents
several hours after the time of the acceptance and pricing.

VALUATION OF PORTFOLIO SECURITIES. Portfolio securities are normally
valued using current market valuations. Securities traded on a national
securities exchange are valued at the last published sales price on the
exchange, or in the absence of recorded sales, at the average of closing bid
and asked prices on such exchange. Over-the-counter securities are valued at
the average of closing bid and asked prices. Fixed-income securities may be
valued on the basis of prices provided by a pricing service. Investments in
short-term securities (maturing in sixty days or less) are valued at amortized
cost unless the Board of Directors determines that such cost is not a fair
value. Assets for which there are no quotations available will be valued at a
fair value as determined by or at the direction of the Board of Directors.

33
<PAGE>

To the extend that the Funds' securities are traded in markets that
close at different times, events affecting portfolio values that occur between
the time that their prices are determined and the time the Funds' shares are
priced will generally not be reflected in the Funds' share price. The value of
securities denominated in foreign currencies and traded in foreign markets will
have their value converted into the U.S. dollar equivalents at the prevailing
market rate as computed by State Street Bank & Trust Company. Fluctuation in
the value of foreign currencies in relation to the U.S. dollar may affect the
net asset value of the Fund's shares even if there has not been any change in
the foreign currency price of the Fund's investments.

Normally, the share price of Selected Daily Government Fund does not
fluctuate. However, if there are unusually rapid changes in interest rates
which in the Board's view cause a material deviation between amortized cost and
market value, the Board will consider whether such conditions require taking
any temporary action to maintain the normal fixed price or to prevent material
dilution or other unfavorable results to shareholders. Such action could
include withholding dividends, paying dividends out of surplus, realizing gains
or losses or using market valuation.

YEAR 2000 AND EURO CONVERSION ISSUES

Like all financial service providers, the Adviser, Sub-Adviser,
Distributor, and third parties providing investment advisory, administrative,
transfer agent, custodial and other services (jointly the "Service Providers")
utilize systems that may be affected by Year 2000 transition issues and/or by
Euro Conversion issues.

YEAR 2000 ISSUES. The services provided to the Funds and the
shareholders by the Service Providers depend on the smooth functioning of their
computer systems and those of other parties they deal with. Many computer
software systems in use today cannot distinguish the year 2000 from the year
1900 because of the way dates are encoded and calculated.

EURO CONVERSION ISSUES. Accurate pricing of the Companies' assets
depends upon accurate valuation of securities denominated in foreign
currencies. On January 1, 1999, eleven of the fifteen member states of the
European Union converted to a common currency, the "euro." Conversion to the
euro may present Service Providers with technical challenges to adapt
information technology and other systems to accommodate euro-denominated
transactions. The euro conversion also may affect market risk with respect to
the foreign securities which the Companies invest in.

Difficulties with Year 2000 or Euro Conversion issues could have a
negative impact on handling securities trades, payments of interest and
dividends, pricing and account services. Although, at this time, there can be
no assurance that there will be no adverse impact on the Funds, the Service
Providers have advised the Funds that they have been actively working on
necessary changes to their computer systems to prepare for the Year 2000 and
the Euro Conversion and expect that their systems, and those of other parties
they deal with, will be adapted in time for these events. In addition, there
can be no assurance that the companies which the Funds invest in will not
experience difficulties with Year 2000 or Euro Conversion issues which may
negatively effect the market value of those companies.

DIVIDENDS AND DISTRIBUTIONS

There are two sources of income, net income and realized capital gains
made to you by the Funds. You will receive confirmation statements for
dividends declared and shares purchased through reinvestment of dividends. You
will also receive confirmations after each purchase and after each redemption.
For tax purposes, information concerning distributions will be mailed annually
to shareholders.

SELECTED AMERICAN SHARES. Income dividends are normally paid
quarterly. Distributions from any net realized capital gains are made annually.

34
<PAGE>

SELECTED SPECIAL SHARES. Income dividends and distributions from net
realized capital gains, if any, are distributed annually.

SELECTED U.S. GOVERNMENT INCOME FUND. Income dividends are paid
monthly. You will receive confirmation statements for dividends declared and
shares purchased through reinvestment of dividends. Distributions from any net
realized capital gain not offset by capital loss carryovers are distributed
annually. Selected U.S. Government Income Fund declares distributions based on
the Adviser's projections of estimated net investment income and net realized
short-term gains. The amount of each distribution may differ from actual net
investment income and gains determined in accordance with generally accepted
accounting principles. Selected U.S. Government Income Fund at times may
continue to pay distributions based on expectations of future investment
results to provide stable distributions for its shareholders even though, as a
result of temporary market conditions or other factors (including losses
realized later in a fiscal year which have the effect of affecting previously
realized gains), Selected U.S. Government Income Fund may have failed to
achieve projected investment results for a given period. In such cases,
Selected U.S. Government Income Fund's distributions may include a return of
capital to shareholders. Shareholders who reinvest their distributions are
largely unaffected by such returns of capital. In the case of shareholders who
do not reinvest, a return of capital is equivalent to a partial redemption of
the shareholder's investment.

SELECTED DAILY GOVERNMENT FUND. Dividends from net income are declared
daily on shares outstanding as of the close of business the preceding day and
are paid monthly. You will receive monthly confirmation statements for
dividends declared and shares purchased through reinvestment of dividends.
Income for Saturdays, Sundays and holidays are accrued on Fridays. Dividends
declared during each calendar month are paid on the last business day of the
month. Shares earn dividends as of the first business day after the effective
purchase date up through the date of redemption.

ALL FUNDS. Information concerning distributions will be mailed to
shareholders annually. Shareholders have the option to receive all dividends
and distributions in cash, to have all dividends and distributions reinvested,
or to have income dividends paid in cash and capital gain distributions
reinvested. The reinvestment of dividends and distributions is made at net
asset value (without any sales charge) on the dividend payment date. Upon
receipt of the second dividend check which has been returned to State Street as
undeliverable, undelivered dividends will be invested in additional shares at
the current net asset value and the account designated as a dividend
reinvestment account.

FEDERAL INCOME TAXES

This section is not intended to be a full discussion of all the
aspects of the federal income tax law and its effects on the Funds and their
shareholders. Shareholders may be subject to state and local taxes on
distributions. Each investor should consult his or her own tax adviser
regarding the effect of federal, state, and local taxes on any investment in
the Funds.

The Funds intend to continue to qualify as a regulated investment
company under the Internal Revenue Code (the "965886950Code"), and if so
qualified, will not be liable for federal income tax to the extent its earnings
are distributed, except in respect to realization of the "built-in gains" as
described below. If, for any calendar year, the distribution of earnings
required under the Code exceeds the amount distributed, an excise tax, equal to
4% of the excess, will be imposed on the applicable fund. The Funds intend to
make distributions during each calendar year sufficient to prevent imposition
of the excise tax.

Distributions of net investment income and net realized short-term
capital gains will be taxable to shareholders as ordinary income. Distributions
of net long-term capital gains will be taxable to shareholders as long-term
capital gain regardless of how long the shares have been held. Distributions
will be treated the same for tax purposes whether received in cash or in
additional shares. Dividends declared in the last calendar month to
shareholders of record in such month and paid by the end of the following
January are treated as received by the shareholder in the year in which they
are declared. A gain or loss for tax purposes may be realized on the redemption
of shares. If the shareholder realizes a loss on the sale or exchange of any
shares held for six months or

35
<PAGE>

less and if the shareholder received a capital gain distribution during
that period, then the loss is treated as a long-term capital loss to the
extent of such distribution.

PERFORMANCE DATA

From time to time, the Funds may advertise information regarding their
performance. These performance figures are based upon historical results and
are not intended to indicate future performance.

CUMULATIVE TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN

The cumulative total return and the average annual total return (each
is defined below) with respect to each Fund for the periods indicated below is
as follows:

Cumulative Average Annual
For the Period ended December 31, 1998 Total Return 1 Total Return 2
- - -------------------------------------- ------------- -------------
<S> <C> <C>
Selected American Shares
One year .............................................x.xx% x.xx%
Five years ...........................................xxx.xx% xx.xx%
Ten years ...........................................xxx.xx% xx.xx%
Period from 05/01/93 (when the Adviser assumed management) ......xxx.xx% xx.xx%

Selected Special Shares
One year .............................................x.xx% x.xx%
Five years ...........................................xxx.xx% xx.xx%
Ten years ...........................................xxx.xx% xx.xx%
Period from 05/01/93 (when the Adviser assumed management) ......xxx.xx% xx.xx%

Selected U.S. Government Income Fund
One year .............................................x.xx% x.xx%
Five years ...........................................xxx.xx% xx.xx%
Ten years ...........................................xxx.xx% xx.xx%
Period from 05/01/93 (when the Adviser assumed management) ......xxx.xx% xx.xx%

Selected Daily Government Fund
One year .............................................x.xx% x.xx%
Five years ...........................................xxx.xx% xx.xx%
Ten years ...........................................xxx.xx% xx.xx%
Period from 05/01/93 (when the Adviser assumed management) ......xxx.xx% xx.xx%

</TABLE>

1 "Cumulative Total return" is a measure of a fund's performance
encompassing all elements of return. Total return reflects the change
in share price over a given period and assumes all distributions are
taken in additional fund shares. Total return is determined by
assuming a hypothetical investment at the beginning of the period,
adding in the reinvestment of all income dividends and capital gains,
calculating the ending value of the investment at the net asset value
as of the end of the specified time period and subtracting the amount
of the original investment, and by dividing the original investment.
This calculated amount is then expressed as a percentage by
multiplying by 100. Periods of less than one year are not annualized.

2 "Average annual total return" represents the average annual compounded
rate of return for the periods presented. Periods of less than one
year are not annualized. Average annual total return measures both the
net investment income generated by, and the effect of any realized or
unrealized appreciation or depreciation of, the underlying investments
in the fund's portfolio. Average annual total return is calculated
separately for each Fund in accordance with the standardized method
prescribed by the Securities and Exchange Commission by determining
the average annual compounded rates of return over

36
<PAGE>

the periods indicated, that would equate the initial amount invested to
the ending redeemable value, according to the following formula:

P(1+T)n = ERV

Where: P = hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value at the
end of the period of a hypothetical
$1,000 payment made at the
beginning of such period

This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates and (ii) deducts all
recurring fees, such as advisory fees, charged as expenses to all shareholder
accounts.

30 DAY SEC YIELD

The 30 Day SEC Yield (defined below) for shares of shares of Selected
U.S. Government Income Fund for the period ended December 31, 1998 was xx.xx%

"30 Day SEC Yield" is computed in accordance with a standardized
method prescribed by the rules of the Securities and Exchange Commission. 30
Day SEC Yield is a measure of the net investment income per share (as defined)
earned over a specified 30-day period expressed as a percentage of the maximum
offering price of the Funds shares at the end of the period. Such yield figure
was determined by dividing the net investment income per share on the last day
of the period, according to the following formula:

30 Day SEC Yield = 2 [(a - b + 1) 6 - 1]
-----
cd

Where: a = dividends and interest earned during the period.

b = expenses accrued for the period.

c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.

d = the maximum offering price per share on the last day
of the period.

Selected U.S. Government Income Fund's 30-Day SEC Yield will fluctuate
depending upon prevailing interest rates, quality, maturities, types of
instruments held, and operating expenses. Thus, any yield quotation should not
be considered representative of future results. If a broker-dealer charges
investors for services related to the purchase or redemption of Fund shares,
the yield will effectively be reduced.

37
<PAGE>

CURRENT AND EFFECTIVE YIELDS. The current and effective yields for
Selected Daily Government Fund for the seven day period ended December, 1998
was x.xx% and x.xx% respectively.

Yield quotations are calculated in accordance with the following
formulas:

Current Yield = [(C-D) - BV] x (365/7)

Effective Yield = [ [ [ (C-D) - BV] + 1]365/7] - 1

C = Net change (excluding capital change in value
of hypothetical account with balance of one
share at beginning of seven-day period).

D = Deductions charged to hypothetical account.

BV = Value of hypothetical account at beginning
of seven-day period for which yield is quoted.

Selected Daily Government Fund's Current and Effective Yields will
fluctuate depending upon prevailing interest rates, quality, maturities, types
of instruments held, and operating expenses. Thus, any yield quotation should
not be considered representative of future results. If a broker-dealer charges
investors for services related to the purchase or redemption of Fund shares,
the yield will effectively be reduced.

OTHER FUND STATISTICS

In reports or other communications to shareholders and in advertising
material, the performance of the Funds may be compared to recognized unmanaged
indices or averages of the performance of similar securities. Also, the
performance of the Funds may be compared to that of other funds of comparable
size and objectives as listed in the rankings prepared by Lipper Analytical
Services, Inc., Morningstar, Inc. or similar independent mutual fund rating
services, and the Funds may use evaluations published by nationally recognized
independent ranking services and publications. Any given performance comparison
should not be considered representative of the Fund's performance for any
future period.

In advertising and sales literature the Funds may publish various
statistics describing its investment portfolio such as the Funds' average Price
to Book and Price to Earnings ratios, beta, alpha, R-squared, standard
deviation, etc.

The Funds' Annual Report and Semi-Annual report contain additional
performance information and will be made available upon request and without
charge by calling Selected Funds toll-free at 1-800-243-1575, Monday-Friday,
7 a.m. to 4 p.m. Mountain Time.

APPENDIX

QUALITY RATINGS OF DEBT SECURITIES

MOODY'S CORPORATE BOND RATINGS

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are unlikely to impair
the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than Aaa
securities.

38
<PAGE>

A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade-obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e. they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative elements as their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments, or of maintenance of
other terms of the contract over any longer period of time, may be small.

Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

STANDARD & POOR'S CORPORATE BOND RATINGS

AAA - Debt rated 'AAA' has the highest rating assigned by Standard and Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA - Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A - Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB - Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB - Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.

B - Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.

CCC - Debt rated 'CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The 'CCC' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'B' or 'B-' rating.

CC - The rating 'CC' is typically applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.

39
<PAGE>

C - The rating 'C' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.

CI - The rating 'CI' is reserved for income bonds on which no interest is being
paid.

D - Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

MOODY'S COMMERCIAL PAPER RATINGS

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers: Prime-1 (superior capacity), Prime-2 (strong capacity) and
Prime-3 (acceptable capacity). In assigning ratings to an issuer which
represents that its commercial paper obligations are supported by the credit of
another entity or entities, Moody's evaluates the financial strength of the
indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment.

<PAGE>

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

The S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from 'A' for the highest
quality to 'D' for the lowest. Issues assigned an 'A' rating are regarded as
having the greatest capacity for timely payment. Within the 'A' category, the
numbers 1, 2 and 3 indicate relative degrees of safety. The addition of a plus
sign to the category A-1 denotes that the issue is determined to possess
overwhelming safety characteristics.

<PAGE>

FORM N-1A

JOINT
PART C OF FORM N-1A
FOR
SELECTED AMERICAN SHARES, INC.
SELECTED SPECIAL SHARES, INC.
SELECTED CAPITAL PRESERVATION TRUST

1
<PAGE>

PART C

OTHER INFORMATION
-----------------

SELECTED AMERICAN SHARES ("SAS")
SELECTED SPECIAL SHARES ("SSS")
SELECTED CAPITAL PRESERVATION TRUST ("SCPT")

Item 23. Exhibits:
---------
<S> <C>
(a)(1) Articles of Incorporation (SAS). Articles of
Incorporation, incorporated by reference to Exhibit (1)
to Post-Effective Amendment No. 68 to Registrant's
Registration Statement on Form N-1A, File No. 2-10699.

(a)(2) Articles of Incorporation (SSS). Articles of
Incorporation, incorporated by reference to Exhibit (1)
(a) to Post-Effective Amendment No. 40 to Registrant's
Registration Statement on Form N-1A, File No. 2-27514.

(a)(3) Amended Declaration of Trust (SCPT). Amended Declaration
of Trust, incorporated by reference to Exhibit (1) to
Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, File No. 33-15807.

(b)(1)* By-laws (SAS, SSS). Joint Amended and Restated Bylaws as
of October 30, 1998, filed herein.

(b)(2)* By-laws (SCPT). Amended and Restated Bylaws as of
October 30, 1998, filed herein.

(d)(1) Investment Advisory Contracts (SAS). Management
Agreement dated May 1, 1993, incorporated by reference
to Exhibit (5) to Post-Effective Amendment No. 71 to
Registrant's Registration Statement on Form N-1A, File
No. 2-10699.

(d)(2) Sub-Advisory Agreement (SAS) Sub-Advisory Agreement
dated December 1, 1996, incorporated by reference to
Exhibit (5)(b) to Post-Effective Amendment No. 78 to
Registrant's Registration Statement on Form N-1A, File
No. 2-10699.

2
<PAGE>

(d)(3) Investment Advisory Contracts (SSS). Management
Agreement dated May 1, 1993, incorporated by reference
to Exhibit (5) to Post-Effective Amendment No. 43 to
Registrant's Registration Statement on Form N-1A, File
No. 2-27514.

(d)(4) Sub-Advisory Agreement (SSS). Davis Selected Advisers
-NY, Inc. Sub-Advisory Agreement dated December 1, 1996,
incorporated by reference to Exhibit 5(b) to
Post-Effective Amendment No. 50 to Registrant's
Registration Statement on Form N-1A, File No. 2-27514.

(d)(5) Sub-Advisory Agreement (SSS) Bramwell Capital
Management, Inc. Sub-Advisory Agreement dated November
1, 1994, incorporated by reference to Exhibit 5(b) to
Post-Effective Amendment No. 47 to Registrant's
Registration Statement on Form N-1A, File No. 2-27514.

(d)(6) Investment Advisory Contracts (SCPT) Management
Agreement dated May 1, 1993, incorporated by reference
to Exhibit (5) to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A, File
No. 33-15807.

(d)(7) Sub-Advisory Agreement (SCPT) Sub-Advisory Agreement
Dated December 1, 1996, incorporated by reference to
Exhibit (5)(b) to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A, File
No. 33-15807.

(e)(1) Underwriting Contracts (SAS). Distribution Services
Agreement and Plan of Distribution dated May 1, 1993,
incorporated by reference to Exhibit (6)/(15) to
Post-Effective Amendment No. 71 to Registrant's
Registration Statement on Form N-1A, File No. 2-10699.

(e)(2) Underwriting Contracts (SSS). Distribution Services
Agreement and Plan of Distribution dated May 1, 1993,
incorporated by reference to Exhibit (6)/(15) to
Post-Effective Amendment No. 43 to Registrant's
Registration Statement on Form N-1A, File No. 2-27514.

(e)(3) Underwriting Contracts (SCPT). Distribution Services
Agreement and Plan of Distribution dated May 1, 1993,
incorporated by reference to Exhibit (6)/(15) to
Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A, File No. 33-15807.

(f) Bonus or Profit Sharing Contracts. Not applicable.

3
<PAGE>

(g)(1) Custodian Agreements (SAS). Custody Agreement dated
November 25, 1991, incorporated by reference to Exhibit
(8) (a) to Post-Effective Amendment No. 69 to
Registrant's Registration Statement on Form N-1A, File
No. 2-10699.

(g)(2) Custodian Agreements (SSS). Custody Agreement dated
November 25, 1991, incorporated by reference to Exhibit
(8) (a) to Post-Effective Amendment No. 41 to
Registrant's Registration Statement on Form N-1A, File
No. 2-27514.

(g)(3) Custodian Agreements (SCPT). Custody Agreement dated
November 25, 1991, incorporated by reference to Exhibit
(8) (a) to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A, File
No. 33-15807.

(h)(1) Other Material Contracts (SAS). Transfer Agency and
Service Agreement dated November 25, 1991, incorporated
by reference to Exhibit (8) (b) to Post-Effective
Amendment No. 69 to Registrant's Registration Statement
on Form N-1A, File No. 2-10699.

(h)(2) Other Material Contracts (SSS). Transfer Agency and
Service Agreement dated November 25, 1991, incorporated
by reference to Exhibit (8) (b) to Post-Effective
Amendment No. 41 to Registrant's Registration Statement
on Form N-1A, File No. 2-27514.

(h)(3) Other Material Contracts (SCPT). Transfer Agency and
Service Agreement dated November 25, 1991, incorporated
by reference to Exhibit (8) (b) to Post-Effective
Amendment No. 11 to Registrant's Registration Statement
on Form N-1A, File No. 33-15807.

(i)** Legal Opinion. Opinion and Consent of Counsel, (D'Ancona
& Pflaum).

(j)(1)** Other Opinions. Consent of Current Auditors. KPMG Peat
Marwick LLP

(j)(2)** Consent of Former Auditors. Tait, Weller & Baker

(k) Omitted Financial Statements, incorporated from the
Annual Report.

(l) Initial Capital Agreements. Not Applicable

4
<PAGE>

(m)(1) Rule 12b-1 Plan (SAS). Distribution Services Agreement
and Plan of Distribution dated May 1, 1993, incorporated
by reference to Exhibit (6)/(15) to Post-Effective
Amendment No. 71 to Registrant's Registration Statement
on Form N-1A, File No. 2-10699.

(m)(2) Rule 12b-1 Plan (SSS). Distribution Services Agreement
and Plan of Distribution dated May 1, 1993, incorporated
by reference to Exhibit (6)/(15) to Post-Effective
Amendment No. 43 to Registrant's Registration Statement
on Form N-1A, File No. 2-27514.

(m)(3) Rule 12b-1 Plan (SCPT). Distribution Services Agreement
and Plan of Distribution dated May 1, 1993, incorporated
by reference to Exhibit (6)/(15) to Post-Effective
Amendment No. 13 to Registrant's Registration Statement
on Form N-1A, File No. 33-15807.

(n) Financial Data Schedule. Not applicable

(o) Rule 18f-3 Plan. Not applicable

(p)(1)* Other Exhibits (SAS). Powers of Attorney of the
Registrant, Officers and Board of Directors of Selected
American Shares, Inc., appointing Sheldon Stein and
Arthur Don as attorneys-in-fact.

(p)(2)* Other Exhibits (SSS). Powers of Attorney of the
Registrant, Officers and Board of Directors of Selected
Special Shares, Inc., appointing Sheldon Stein and
Arthur Don as attorneys-in-fact.

(p)(3)* Other Exhibits (SCPT). Powers of Attorney of the
Registrant, Officers and Board of Directors of Selected
Capital Preservation Trust appointing Sheldon Stein and
Arthur Don as attorneys-in-fact.

* Filed Herein

** To be filed by amendment prior to being declared
effective.

</TABLE>

Item 24. Persons Controlled by or Under Common Control With Registrant
-------------------------------------------------------------

Not applicable

Item 25. Indemnification
---------------

5
<PAGE>

SAS and SSS. Articles of Incorporation for SAS and SSS indemnify
directors, officers and employees to the full extent permitted by Section 2-418
of the Maryland General Corporation Law, subject only to the provisions of the
Investment Company Act of 1940. The indemnification provisions of the Maryland
General Corporation Law (the "Law") permit, among other things, corporations to
indemnify directors and officers unless it is proved that the individual (1)
acted in bad faith or with active and deliberate dishonesty, (2) actually
received an improper personal benefit in money, property or services, or (3) in
the case of a criminal proceeding, had reasonable cause to believe that his act
or omission was unlawful. The Law was also amended to permit corporations to
indemnify directors and officers for amounts paid in settlement of
stockholders' derivative suits.

In addition to the foregoing indemnification, SAS and SSS Articles of
Incorporation exculpate directors and officers with respect to monetary damages
except to the extent that an individual actually received an improper benefit
in money property or services or to the extent that a final adjudication finds
that the individual acted with active and deliberate dishonesty.

SCPT. Article V of the Amended Declaration of Trust of SCPT
indemnifies trustees, officers and employees to the full extent permitted under
Ohio law.

SAS, SSS, and SCPT. In addition, directors, trustees and officers are
covered under a policy to indemnify them for loss (subject to certain
deductibles) including costs of defense incurred by reason of alleged errors or
omissions, neglect or breach of duty. The policy has a number of exclusions
including alleged acts, errors, or omissions which are finally adjudicated or
established to be deliberate, dishonest, malicious or fraudulent or to
constitute willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties in respect to any registered investment company. This
coverage is incidental to a general policy carried by the Registrant's adviser.

Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------

Davis Selected Advisers, L.P. ("DSA ") and subsidiary companies
comprise a financial services organization whose business consists primarily of
providing investment management services as the investment adviser and manager
for investment companies registered under the Investment Company Act of 1940,
unregistered off-shore investment companies, and as an investment adviser to
institutional and individual accounts. DSA also serves as sub-investment
adviser to other investment companies. Davis Distributors, L.L.C., a wholly
owned subsidiary of DSA, is a registered broker-dealer. Davis Selected Advisers
- - - NY, Inc., another wholly owned subsidiary, provides investment management
services to various registered and unregistered investment companies, pension
plans, institutions and individuals.

Other business of a substantial nature that directors or officers of
DSA are or have been engaged in the last two years:

SHELBY M.C. DAVIS, 4135 North Steers Head Road, Jackson Hole, WY 83001.
Director, Chairman and Chief Executive Officer, Venture Advisers, Inc.;
Director, Davis Selected Advisers-NY, Inc.; Employee of Capital Ideas, Inc.
(financial consulting firm); Consultant to

6
<PAGE>

Fiduciary Trust Company International; Director, Shelby Cullom Davis Financial
Consultants, Inc.

ANDREW A. DAVIS, 124 East Marcy Street, Santa Fe, NM 87501. Director and
President, Venture Advisers, Inc.; Director and Vice President, Davis Selected
Advisers-NY, Inc.; Consultant to Capital Ideas, a private financial consultant.

CHRISTOPHER C. DAVIS, 609 Fifth Ave, New York, NY 10017. Vice Chairman, Venture
Advisers, Inc.; Director, Chairman, Chief Executive Officer, Davis Selected
Advisers-NY, Inc.; Chairman and Director, Shelby Cullom Davis Financial
Consultants, Inc.; employee of Shelby Cullom Davis & Co., a registered
broker/dealer; Director, Rosenwald, Roditi and Company, Ltd., an offshore
investment management company.

KENNETH C. EICH , 124 East Marcy Street, Santa Fe, NM 87501. Chief Operating
Officer, Venture Advisers, Inc.; Vice President, Davis Selected Advisers-NY,
Inc.; President, Davis Distributors, L.L.965742481C. Former President and Chief
Executive Officer of First of Michigan Corporation. Former Executive Vice
President and Chief Financial Officer of Oppenheimer Management Corporation.

GARY TYC, 124 East Marcy Street, Santa Fe NM 87501. Vice President, Chief
Financial Officer Treasurer, and Assistant Secretary of Venture Advisers, Inc.;
Vice President, Treasurer, & Assistant Secretary of Davis Selected Advisers -
NY, Inc.; Vice President, Treasurer, & Assistant Secretary of Davis
Distributors, L.L.C. Former Vice President of Oppenheimer Management
Corporation.

THOMAS D. TAYS, 124 East Marcy Street, Santa Fe NM 87501. Vice President and
Secretary, Venture Advisers, Inc., Davis Selected Advisers-NY, Inc., and Davis
Distributors, L.L.C. Former Vice President and Special Counsel of U.S. Global
Investors, Inc.

Item 27. Principal Underwriter
---------------------

(a) Davis Distributors, LLC, a wholly owned subsidiary of the Adviser,
located at 124 East Marcy Street, Santa Fe, NM 87501, is the principal
underwriter for SAS, SSS, and SCPT. Davis Distributors, LLC also acts as
principal underwriter for Davis New York Venture Fund, Inc., Davis Tax-Free
High Income Fund, Inc., Davis Intermediate Investment Grade Bond Fund, Inc.,
Davis Series, Inc., and Davis International Series, Inc.

(b) Management of the Principal Underwriters:

NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS UNDERWRITER WITH REGISTRANT
- - ---------------- ----------- ---------------
<S> <C> <C>
Kenneth C. Eich President Vice President
124 East Marcy Street
Santa Fe, NM 87501

Gary P. Tyc Vice President, Treasurer and None
124 East Marcy Street Assistant Secretary

7
<PAGE>

Santa Fe, NM 87501

Thomas D. Tays Vice President and Secretary Vice President and Secretary
124 East Marcy Street
Santa Fe, NM 87501

Russell O. Wiese Senior Vice President None
124 East Marcy Street
Santa Fe, NM 87501

Sharra Reed Assistant Treasurer Vice President, Treasurer and
124 East Marcy Street Assistant Secretary.
Santa Fe, NM 87501

</TABLE>

Item 28. Location of Accounts and Records
--------------------------------

Accounts and records are maintained at the offices of Davis Selected
Advisers, L.P., 124 East Marcy Street, Santa Fe, New Mexico 87501, and at the
offices of SAS, SSS, and SCPT's custodian, State Street Bank and Trust Company,
One Heritage Drive, North Quincy, Massachusetts 02107, and the Registrant's
transfer agent State Street Bank and Trust, c/o Service Agent, BFDS, Two
Heritage Drive, 7th Floor, North Quincy, Massachusetts 02107.

Item 29. Management Services
--------------------

Not applicable

Item 30. Undertakings
------------

Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders upon
request and without charge.

8
<PAGE>

SELECTED AMERICAN SHARES, INC.
SELECTED SPECIAL SHARES, INC.
SELECTED CAPITAL PRESERVATION TRUST

SIGNATURES
----------

Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrants have caused these Registration
Statements to be signed on their behalf by the undersigned, thereunto duly
authorized, in the City of Chicago and State of Illinois on the 26th day of
February, 1999.

SELECTED AMERICAN SHARES, INC.
SELECTED SPECIAL SHARES, INC.
SELECTED CAPITAL PRESERVATON TRUST

*By: /s/ Sheldon Stein
-----------------------------
Sheldon Stein
Attorney-in-Fact

Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement for each of the Registrants has been signed below by the
following persons in the capacities indicated.

Signature Title Date
--------- ----- ----
<S> <C> <C>
Shelby M.C. Davis* President, Chief Executive Officer February 26, 1999
------------------
Shelby M.C. Davis

Sharra L. Reed* Principal Financial Officer
------------------ and Treasurer February 26, 1999
Sharra L. Reed

</TABLE>

*By: /s/ Sheldon Stein
-------------------------
Sheldon Stein
Attorney-in-Fact

*Sheldon Stein signs this document on behalf of each of the Registrants and
each of the foregoing officers pursuant to the powers of attorney filed as
Exhibit (p) to Registrants' current Post-Effective Amendment number (SAS: 80;
SSS: 53; SCPT: 22) to Registrants' Registration Statements.

/s/ Sheldon Stein
---------------------------------
Sheldon Stein
Attorney-in-Fact

9
<PAGE>

SELECTED AMERICAN SHARES, INC.
SELECTED SPECIAL SHARES, INC.
SELECTED CAPITAL PRESERVATION TRUST

Pursuant to the requirements of the Securities Act of 1933, these
Registration Statements have been signed on February 26, 1999 by the following
persons in the capacities indicated.

Signature Title
--------- -----

William P. Barr* Director
-----------------------
William P. Barr

Floyd A. Brown* Director
-----------------------
Floyd A. Brown

Andrew A. Davis* Director
-----------------------
Andrew A. Davis

Christopher .C. Davis* Director
-----------------------
Christopher C. Davis

Jerome E. Hass* Director
-----------------------
Jerome E. Hass

Katherine L. MacWilliams* Director
-----------------------
Katherine L. MacWilliams

James J. McMonagle* Director
-----------------------
James J. McMonagle

Richard C. O'Brien* Director
-----------------------
Richard C. O'Brien

Larry J.B. Robinson* Director
-----------------------
Larry J.B. Robinson

Marsha Williams* Director
-----------------------
Marsha Williams

*Sheldon Stein signs this document on behalf of each of the foregoing persons
pursuant to the powers of attorney filed as Exhibit (p) to Registrants' current
Post-Effective Amendment number (SAS: 80; SSS: 53; SCPT: 22) to Registrants'
Registration Statements.

10
<PAGE>

/s/ Sheldon Stein
-----------------
Sheldon Stein
Attorney-in-Fact

<PAGE>

SELECTED AMERICAN SHARES, INC.

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
constitutes and appoints Sheldon R. Stein and Arthur Don, and each of them, as
the undersigned's attorneys-in-fact, each with the power of substitution, for
him or her in any and all capacities, to sign any post-effective amendments to
the registration statement under the Securities Act of 1933 (Registration No.
2-10699) and/or the Investment Company Act of 1940 (Registration No. 811-51),
whether on Form N-1A or any successor forms thereof, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and all other applicable state or federal
regulatory authorities. Each of the undersigned hereby ratifies and confirms
all that each of the aforenamed attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney as of the date listed below.

REGISTRANT:

Selected American Shares, Inc. (Registrant)

By: James J. McMonagle Date: July 31, 1998
---------------------------------------- -----------------
James J. McMonagle
Chairman of the Board of Directors

OFFICERS:

Shelby M.C. Davis Date: July 31, 1998
- - ------------------------------------------- -----------------
Shelby M.C. Davis
President

Sharra L. Reed Date: July 31, 1998
- - ------------------------------------------- -----------------
Sharra L. Reed
Treasurer, Chief Financial Officer and
Chief Accounting Officer

<PAGE>

DIRECTORS:

William P. Barr Date: July 31, 1998
- - ------------------------------------ -----------------
William P. Barr.

Floyd A. Brown Date: July 31, 1998
- - ------------------------------------ -----------------
Floyd A. Brown

Andrew A. Davis Date: July 31, 1998
- - ------------------------------------ -----------------
Andrew A. Davis

Christopher C. Davis Date: July 31, 1998
- - ------------------------------------ -----------------
Christopher C. Davis

Jerome E. Hass Date: July 31, 1998
- - ------------------------------------ -----------------
Jerome E. Hass

Katherine L. MacWilliams Date: July 31, 1998
- - ------------------------------------ -----------------
Katherine L. MacWilliams

James J. McMonagle Date: July 31, 1998
- - ------------------------------------ -----------------
James J. McMonagle

Richard O'Brien Date: July 31, 1998
- - ------------------------------------ -----------------
Richard O'Brien

Larry Robinson Date: July 31, 1998
- - ------------------------------------ -----------------
Larry Robinson

Marsha Williams Date: July 31, 1998
- - ------------------------------------ -----------------
Marsha Williams

<PAGE>

SELECTED SPECIAL SHARES, INC.

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
constitutes and appoints Sheldon R. Stein and Arthur Don, and each of them, as
the undersigned's attorneys-in-fact, each with the power of substitution, for
him or her in any and all capacities, to sign any post-effective amendments to
the registration statement under the Securities Act of 1933 (Registration No.
2-27514) and/or the Investment Company Act of 1940 (Registration No. 811-1550),
whether on Form N-1A or any successor forms thereof, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and all other applicable state or federal
regulatory authorities. Each of the undersigned hereby ratifies and confirms
all that each of the aforenamed attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney as of the date listed below.

REGISTRANT:

Selected Special Shares, Inc. (Registrant)

By: James J. McMonagle Date: July 31, 1998
-------------------------------- -----------------
James J. McMonagle
Chairman of the Board
of Directors

OFFICERS:

Shelby M.C. Davis Date: July 31, 1998
- - ----------------------------------- -----------------
Shelby M.C. Davis
President

Sharra L. Reed Date: July 31, 1998
- - ----------------------------------- -----------------
Sharra L. Reed
Treasurer, Chief Financial Officer and
Chief Accounting Officer